<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarter Ended March 24, 2000 Commission File No. 1-13881
MARRIOTT INTERNATIONAL, INC.
Delaware 52-2055918
(State of Incorporation) (I.R.S. Employer Identification Number)
10400 Fernwood Road
Bethesda, Maryland 20817
(301) 380-3000
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days.
Yes [X] No [_]
<TABLE>
<CAPTION>
Shares outstanding
Class at April 27, 2000
- -------------------------------- ------------------------------
<S> <C>
Class A Common Stock, 239,619,008
$0.01 par value
</TABLE>
1
<PAGE>
MARRIOTT INTERNATIONAL, INC.
INDEX
<TABLE>
<CAPTION>
Page No.
-------------
<S> <C> <C>
Forward-Looking Statements.................................................... 3
Part I. Financial Information (Unaudited):
Condensed Consolidated Statement of Income -
Twelve Weeks Ended March 24, 2000 and March 26, 1999.................... 4
Condensed Consolidated Balance Sheet -
as of March 24, 2000 and December 31, 1999.............................. 5
Condensed Consolidated Statement of Cash Flows -
Twelve Weeks Ended March 24, 2000 and March 26, 1999.................... 6
Notes to Condensed Consolidated Financial Statements....................... 7
Management's Discussion and Analysis of Financial Condition
and Results of Operations............................................... 13
Quantitative and Qualitative Disclosures About Market Risk................. 17
Part II. Other Information and Signatures:
Legal Proceedings.......................................................... 18
Changes in Securities...................................................... 18
Defaults Upon Senior Securities............................................ 18
Submission of Matters to a Vote of Security Holders........................ 18
Other Information.......................................................... 18
Exhibits and Reports on Form 8-K........................................... 19
Signatures................................................................. 20
</TABLE>
2
<PAGE>
Forward-Looking Statements
When used throughout this report, the words "believes," "anticipates,"
"expects," "intends," "estimates," "projects," and other similar expressions,
which are predictions of or indicate future events and trends, identify forward-
looking statements. Such statements are subject to a number of risks and
uncertainties which could cause actual results to differ materially from those
projected, including: competition within each of our business segments; business
strategies and their intended results; the balance between supply of and demand
for hotel rooms, timeshare units, senior living accommodations and corporate
apartments; our ability to obtain new operating contracts and franchise
agreements; our ability to develop and maintain positive relations with current
and potential hotel and senior living community owners; the effect of
international, national and regional economic conditions; the availability of
capital to allow us and potential hotel and senior living community owners to
fund investments; approval of the Boston Chicken, Inc. reorganization plan
referred to below; satisfaction of the conditions to consummation of the
litigation settlement transactions referred to below; and other risks described
from time to time in our filings with the Securities and Exchange Commission,
including those set forth on Exhibit 99 filed herewith. Given these
uncertainties, we caution you not to place undue reliance on such statements. We
also undertake no obligation to publicly update or revise any forward-looking
statement to reflect current or future events or circumstances.
3
<PAGE>
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
- ------------------------------
MARRIOTT INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENT OF INCOME
($ in millions, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Twelve weeks ended
--------------------------------
March 24, March 26,
2000 1999
------------ ------------
<S> <C> <C>
SALES.............................................................. $ 2,167 $ 1,895
OPERATING COSTS AND EXPENSES....................................... 1,974 1,702
---------- ---------
OPERATING PROFIT BEFORE CORPORATE EXPENSES
AND INTEREST..................................................... 193 193
Corporate expenses................................................. (26) (29)
Interest expense................................................... (23) (11)
Interest income.................................................... 5 7
---------- ---------
INCOME BEFORE INCOME TAXES......................................... 149 160
Provision for income taxes......................................... 55 60
---------- ----------
NET INCOME......................................................... $ 94 $ 100
========== =========
DIVIDENDS DECLARED PER SHARE....................................... $ .055 $ .05
========== =========
EARNINGS PER SHARE
Basic Earnings Per Share.......................................... $ .39 $ .41
========== =========
Diluted Earnings Per Share........................................ $ .37 $ .38
========== =========
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE>
MARRIOTT INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
($ in millions)
<TABLE>
<CAPTION>
March 24, December 31,
2000 1999
---------- -----------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets
Cash and equivalents.............................................. $ 372 $ 489
Accounts and notes receivable..................................... 805 740
Inventory......................................................... 117 93
Other............................................................. 270 278
---------- ----------
1,564 1,600
---------- ----------
Property and equipment............................................. 3,098 2,845
Intangibles........................................................ 1,799 1,820
Investments in affiliates.......................................... 284 294
Notes and other receivables........................................ 508 473
Other.............................................................. 297 292
---------- ----------
$ 7,550 $ 7,324
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable.................................................. $ 650 $ 628
Other............................................................. 1,019 1,115
---------- ----------
1,669 1,743
---------- ----------
Long-term debt..................................................... 2,068 1,676
Other long-term liabilities........................................ 1,023 997
Shareholders' equity
Class A common stock, 255.6 million shares issued................. 3 3
Additional paid-in capital........................................ 2,755 2,738
Retained earnings................................................. 544 508
Treasury stock, at cost........................................... (472) (305)
Accumulated other comprehensive income............................ (40) (36)
---------- ----------
2,790 2,908
---------- ----------
$ 7,550 $ 7,324
========== ==========
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE>
MARRIOTT INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
($ in millions)
(Unaudited)
<TABLE>
<CAPTION>
Twelve weeks ended
-------------------------------
March 24, March 26,
2000 1999
---------- ----------
<S> <C> <C>
OPERATING ACTIVITIES
Net income........................................................ $ 94 $ 100
Adjustments to reconcile to cash provided by operations:
Depreciation and amortization................................. 41 33
Income taxes and other........................................ 53 50
Timeshare activity, net....................................... (68) (12)
Working capital changes....................................... (99) (36)
--------- ---------
Cash provided by operations....................................... 21 135
--------- ---------
INVESTING ACTIVITIES
Acquisitions...................................................... - (51)
Dispositions...................................................... 3 186
Capital expenditures.............................................. (247) (205)
Note advances..................................................... (25) (58)
Note collections and sales........................................ 4 5
Other............................................................. (19) (38)
--------- ---------
Cash used in investing activities................................. (284) (161)
--------- ---------
FINANCING ACTIVITIES
Commercial paper activity, net.................................... 394 (13)
Issuance of other long-term debt.................................. 3 2
Repayment of other long-term debt................................. (4) (27)
Issuance of Class A common stock.................................. 3 26
Dividends paid.................................................... (14) (12)
Purchase of treasury stock........................................ (236) (5)
--------- ---------
Cash provided by (used in) financing activities................... 146 (29)
--------- ---------
DECREASE IN CASH AND EQUIVALENTS..................................... (117) (55)
CASH AND EQUIVALENTS, beginning of period............................ 489 390
--------- ---------
CASH AND EQUIVALENTS, end of period.................................. $ 372 $ 335
========= =========
</TABLE>
See notes to condensed consolidated financial statements.
6
<PAGE>
MARRIOTT INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
---------------------
The accompanying condensed consolidated financial statements present the
results of operations, financial position and cash flows of Marriott
International, Inc. (together with its subsidiaries, we, us or the Company).
The accompanying condensed consolidated financial statements have not been
audited. We have condensed or omitted certain information and footnote
disclosures normally included in financial statements presented in accordance
with generally accepted accounting principles. We believe the disclosures
made are adequate to make the information presented not misleading. However,
you should read the condensed consolidated financial statements in
conjunction with the consolidated financial statements and notes to those
financial statements included in our Annual Report on Form 10-K (our Annual
Report) for the fiscal year ended December 31, 1999. Capitalized terms not
otherwise defined in this quarterly report have the meanings specified in our
Annual Report.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities as of the date of
the financial statements, and the reported amounts of sales and expenses
during the reporting period. Accordingly, ultimate results could differ from
those estimates.
In our opinion, the accompanying condensed consolidated financial statements
reflect all adjustments necessary to present fairly our financial position as
of March 24, 2000 and December 31, 1999 and the results of operations and
cash flows for the twelve weeks ended March 24, 2000 and March 26, 1999.
Interim results may not be indicative of fiscal year performance because of
seasonal and short-term variations. We have eliminated all material
intercompany transactions and balances between entities included in these
financial statements.
7
<PAGE>
2. Earnings Per Share
------------------
The following table reconciles the earnings and number of shares used in the
basic and diluted earnings per share calculations (in millions, except per
share amounts).
<TABLE>
<CAPTION>
Twelve weeks ended
---------------------------------
March 24, March 26,
2000 1999
------------- -------------
<S> <C> <C>
Computation of Basic Earnings Per Share
Net income.............................................. $ 94 $ 100
Weighted average shares outstanding..................... 244.1 245.6
---------- -----------
Basic Earnings Per Share................................ $ .39 $ .41
========== ===========
Computation of Diluted Earnings Per Share
Net income.............................................. $ 94 $ 100
After-tax interest expense on convertible
subordinated debt..................................... - 2
---------- -----------
Net income for diluted earnings per share............... $ 94 $ 102
========== ===========
Weighted average shares outstanding..................... 244.1 245.6
Effect of Dilutive Securities
Employee stock option plan............................. 6.1 9.0
Deferred stock incentive plan.......................... 5.1 5.2
Convertible subordinated debt........................... - 9.5
---------- -----------
Shares for diluted earnings per share................... 255.3 269.3
========== ===========
Diluted Earnings Per Share.............................. $ .37 $ .38
========== ===========
</TABLE>
We compute the effect of dilutive securities using the treasury stock
method and average market prices during the period. We use the if-converted
method for convertible subordinated debt.
8
<PAGE>
3. Acquisitions
------------
ExecuStay Corporation. On February 17, 1999, we completed a cash tender
offer for approximately 44 percent of the outstanding common stock of
ExecuStay Corporation (ExecuStay), a leading provider of leased corporate
apartments in the United States. On February 24, 1999, substantially all of
the remaining common stock of ExecuStay was converted into nonvoting
preferred stock of ExecuStay which we acquired, on March 26, 1999, for
approximately 2.1 million shares of our Class A Common Stock. Our aggregate
purchase price totaled $116 million. We consolidated the operating results
of ExecuStay from February 24, 1999, and have accounted for the acquisition
using the purchase method of accounting. We are amortizing the resulting
goodwill on a straight-line basis over 30 years.
4. Comprehensive Income
--------------------
Total comprehensive income was $89 million and $90 million, respectively,
for the twelve weeks ended March 24, 2000 and March 26, 1999. The principal
difference between net income and total comprehensive income relates to
foreign currency translation adjustments.
5. Intangible Assets
-----------------
In 1996, MDS became the exclusive provider of distribution services to
Boston Chicken, Inc. (BCI). On October 5, 1998, BCI and its Boston Market-
controlled subsidiaries filed voluntary bankruptcy petitions for protection
under Chapter 11 of the Federal Bankruptcy Code in the U.S. Bankruptcy
Court in Phoenix (the Court). In December 1999, McDonald's Corporation
(McDonald's) announced that it had reached a definitive agreement to
purchase the majority of the assets of BCI, subject to confirmation of the
pending BCI plan of reorganization, including Court approval. In March
2000, MDS reached an agreement with McDonald's on a new contract providing
for continuation of distribution services to Boston Market restaurants. The
new contract, which would replace MDS's existing distribution contract with
BCI, will be subject to confirmation of BCI's pending plan of
reorganization by the Court. Because the existing distribution contract
will be terminated upon confirmation of the pending reorganization, MDS
wrote off the unamortized balance of the existing investment, resulting in
a $15 million pretax charge in the first quarter of 2000. MDS continues to
provide distribution services to BCI and has been receiving payment of
post-petition receivables in accordance with the terms of its contract with
BCI.
6. New Accounting Standards
------------------------
We will adopt Financial Accounting Standard (FAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities," which we do not expect to
have a material effect on our consolidated financial statements, in or
before the first quarter of 2001.
We will adopt the SEC's Staff Accounting Bulletin (SAB) No. 101, "Revenue
Recognition in Financial Statements," in the second quarter of 2000.
Implementation of SAB No. 101 is expected to have no impact on annual
earnings but may shift the timing of revenue and profit recognition to
later quarters during the year.
7. Business Segments
-----------------
We are a diversified hospitality company operating in three business
segments: Lodging, which includes the development, ownership, operation and
franchising of lodging properties including vacation timesharing resorts;
Senior Living Services, which consists of the development, ownership and
operation of senior living communities; and Distribution Services, which
9
<PAGE>
operates a wholesale food distribution business. We evaluate the
performance of our segments based primarily on operating profit before
corporate expenses and interest. We do not allocate income taxes at the
segment level.
The following table shows our sales and operating profit by business
segment for the twelve weeks ended March 24, 2000 and March 26, 1999.
<TABLE>
<CAPTION>
Twelve weeks ended
------------------------------------
March 24, March 26,
2000 1999
------------- -------------
<S> <C> <C>
Sales
Lodging.............................................................. $ 1,711 $ 1,523
Senior Living Services............................................... 149 120
Distribution Services................................................ 307 252
---------- ----------
$ 2,167 $ 1,895
========== ==========
Operating profit before corporate
expenses and interest
Lodging.............................................................. $ 203 $ 187
Senior Living Services............................................... 2 2
Distribution Services................................................ (12) 4
---------- ----------
$ 193 $ 193
========== ==========
</TABLE>
Sales of Distribution Services do not include sales (made at market terms
and conditions) to our other business segments of $39 million and $37
million for the twelve weeks ended March 24, 2000 and March 26, 1999,
respectively.
8. Contingencies
-------------
We issue guarantees to lenders and other third parties in connection with
financing transactions and other obligations. These guarantees were limited,
in the aggregate, to $179 million at March 24, 2000, including guarantees
involving major customers, with expected funding of zero. As of March 24,
2000, we had extended approximately $336 million of loan commitments to
owners of lodging and senior living properties. Letters of credit
outstanding on our behalf at March 24, 2000, totaled $76 million, the
majority of which related to our self-insurance programs. At March 24, 2000,
we had repurchase obligations of $94 million related to notes receivable
from timeshare interval purchasers, which have been sold with limited
recourse.
New World Development and another affiliate of Dr. Cheng, a director of the
Company, have severally indemnified us for guarantees by us of leases with
minimum annual payments of approximately $59 million.
On February 23, 2000, we entered into an agreement, which was subsequently
embodied in a definitive agreement executed on March 9, 2000, to resolve
pending litigation described below involving certain limited partnerships
formed in the mid- to late 1980's. Consummation of the settlement is subject
to numerous conditions, including the receipt of third-party consents and
10
<PAGE>
court approval. The agreement was reached with lead counsel to the
plaintiffs in the lawsuits described below, and with the special litigation
committee appointed by the general partner of two of the partnerships,
Courtyard by Marriott Limited Partnership (CBM I) and Courtyard by Marriott
II Limited Partnership (CBM II). Because of the numerous conditions to be
satisfied, including approval by the court and consent of the requisite
holders of limited partnership units, there can be no assurances that the
settlement transactions will be consummated and, if consummated, terms could
differ materially from those described below.
Under the agreement, we will acquire, through an unconsolidated joint
venture with Host Marriott, all of the limited partners' interests in CBM I
and CBM II for approximately $372 million. These partnerships own 120
Courtyard by Marriott hotels. The purchase price will be financed with $185
million in mezzanine debt loaned to the joint venture by us and with equity
contributed in equal shares by us and an affiliate of Host Marriott. We will
continue to manage these 120 hotels under long-term agreements. Also, we and
Host Marriott each have agreed to pay approximately $31 million to the
plaintiffs in the Texas Multi-Partnership lawsuit described below in
exchange for dismissal of the complaints and full releases.
We recorded a pretax charge of $39 million which was included in corporate
expenses in the fourth quarter of 1999, to reflect anticipated settlement
transactions. However, if the foregoing settlement transactions are not
consummated, and either a less favorable settlement is entered into, or the
lawsuits are tried and decided adversely to the Company, we could incur
losses significantly different than the pretax charge associated with the
settlement agreement described above.
Courtyard by Marriott II Limited Partnership Litigation
On June 7, 1996, a group of partners in CBM II filed a lawsuit against Host
Marriott, the Company and others, Whitey Ford, et al. v. Host Marriott
Corporation, et al., in the 285th Judicial District Court of Bexar County,-
Texas, alleging breach of fiduciary duty, breach of contract, fraud,
negligent misrepresentation, tortious interference, violation of the Texas
Free Enterprise and Antitrust Act of 1983 and conspiracy in connection with
the formation, operation and management of CBM II and its hotels. The
plaintiffs sought unspecified damages. On January 29, 1998, two other
limited partners, A.R. Milkes and D.R. Burklew, filed a petition in
intervention seeking to convert the lawsuit into a class action, and a class
was certified. In March 1999, Palm Investors, L.L.C., the assignee of a
number of limited partnership units acquired through various tender offers,
and Equity Resource, an assignee, through various of its funds, of a number
of limited partnership units, filed pleas in intervention, which among other
things added additional claims relating to the 1993 split of Marriott
Corporation and to the 1995 refinancing of CBM II's indebtedness. On August
17, 1999, the general partner of CBM II appointed an independent special
litigation committee to investigate the derivative claims described above
and to recommend to the general partner whether it is in the best interests
of CBM II for the derivative litigation to proceed. The general partner
agreed to adopt the recommendation of the committee. Under Delaware law, the
recommendation of a duly appointed independent litigation committee is
binding on the general partner and the limited partners. Following certain
adjustments to the underlying complaints, including the assertion as
derivative claims some of the claims previously filed as individual claims,
a final amended class action complaint was filed on January 6, 2000. Trial,
which was scheduled to begin in late February, 2000, was postponed pending
approval and consummation of the settlement described above.
11
<PAGE>
Texas Multi-Partnership Lawsuit
On March 16, 1998, limited partners in several limited partnerships
sponsored by Host Marriott or its subsidiaries filed a lawsuit, Robert M.
Haas, Sr. and Irwin Randolph Joint Tenants, et al. v. Marriott
International, Inc., et al., in the 57th Judicial District Court of Bexar
County, Texas, alleging that the defendants conspired to sell hotels to the
partnerships for inflated prices and that they charged the partnerships
excessive management fees to operate the partnerships' hotels. The
plaintiffs further allege that the defendants committed fraud, breached
fiduciary duties and violated the provisions of various contracts. A
Marriott International subsidiary manages each of the hotels involved and,
as to some properties, the Company is the ground lessor and collects rent.
The Company, several Marriott subsidiaries and J.W. Marriott, Jr. are among
the several named defendants. The plaintiffs are seeking unspecified
damages.
9. Subsequent Event
----------------
On April 28, 2000, we sold 14 senior living communities for cash proceeds of
$194 million. We simultaneously entered into long-term management agreements
for the communities with a third party tenant which leases the communities
from the buyer. In connection with the sale we provided a credit facility to
the buyer to be used, if necessary, to meet its debt service requirements.
Fundings under the facility are guaranteed by an unaffiliated third party.
We also extended a limited credit facility to the tenant to cover operating
shortfalls, if any.
12
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
- --------------------------------------------------------------------------------
of Operations
- -------------
RESULTS OF OPERATIONS
The following discussion presents an analysis of results of our operations for
the twelve weeks ended March 24, 2000 and March 26, 1999. Comparable REVPAR,
room rate and occupancy statistics used throughout this report are based upon
U.S. properties operated by us, except that data for Fairfield Inn also include
comparable franchised units.
Twelve Weeks Ended March 24, 2000 Compared to Twelve Weeks Ended March 26, 1999
- -------------------------------------------------------------------------------
We reported net income of $94 million for the 2000 first quarter on sales of
$2,167 million. This represents a six percent decrease in net income and a 14
percent increase in sales over the first quarter of 1999. Diluted earnings per
share of $.37 for the quarter decreased three percent as compared to the 1999
amount. Overall profit growth in 2000 was curtailed by a $15 million pretax
charge relating to our distribution services business (see "Intangible Assets"
in the footnotes to the condensed consolidated financial statements included in
Item 1. above). Systemwide sales increased to $4.3 billion.
Marriott Lodging reported a nine percent increase in operating profit on 12
percent higher sales. Systemwide lodging sales increased to $3.8 billion.
We added a total of 46 lodging properties (7,300 units) during the first quarter
of 2000, and deflagged 6 properties (1,400 rooms), increasing our total
properties to 1,920 (361,753 units). Properties by brand (excluding 6,200
rental units relating to ExecuStay) are as indicated in the following table.
<TABLE>
<CAPTION>
Properties as of March 24, 2000
----------------------------------------------------------
Company-operated Franchised
---------------------------- ---------------------------
Properties Rooms Properties Rooms
------------ ------------ ------------- ------------
<S> <C> <C> <C> <C>
Marriott Hotels, Resorts and Suites................. 234 102,447 137 39,493
Ritz-Carlton........................................ 35 11,554 - -
Renaissance Hotels, Resorts and Suites.............. 76 30,284 23 8,456
Ramada International................................ 7 1,325 19 4,246
Residence Inn....................................... 136 18,222 197 21,408
Courtyard........................................... 268 41,394 210 26,429
TownePlace Suites................................... 28 2,898 40 3,897
Fairfield Inn....................................... 51 7,138 366 32,086
SpringHill Suites................................... 7 804 34 3,349
Marriott Vacation Club International................ 45 4,796 - -
Marriott Executive Apartments and other............. 7 1,527 - -
--------- --------- ---------- ---------
Total........................................... 894 222,389 1,026 139,364
========= ========= ========== =========
</TABLE>
Across our Lodging brands, REVPAR for comparable company-operated U.S.
properties grew by an average of 3.1 percent in 2000. Average room rates for
these hotels rose 4.8 percent, while occupancy decreased to 75.6 percent.
These results reflected a slow start to the year, as many travelers
stayed home in early January due to Y2K concerns, followed by a steady pick up
in demand as the first quarter progressed. Occupancy, average daily rate and
REVPAR for each of our principal established brands is shown in the following
table.
13
<PAGE>
<TABLE>
<CAPTION>
Twelve weeks ended Change vs.
March 24, 2000 1999
------------------ --------------
Marriott Hotels, Resorts and Suites
<S> <C> <C>
Occupancy................................................ 75.9% -1.2% pts.
Average daily rate....................................... $ 147.97 +4.6%
REVPAR................................................... $ 112.33 +3.0%
Ritz-Carlton
Occupancy................................................ 77.5% -0.7% pts.
Average daily rate....................................... $ 251.79 +6.1%
REVPAR................................................... $ 195.14 +5.2%
Renaissance Hotels, Resorts and Suites
Occupancy................................................ 71.6% +0.5% pts.
Average daily rate....................................... $ 140.64 +4.2%
REVPAR................................................... $ 100.67 +4.9%
Residence Inn
Occupancy................................................ 81.0% -0.6% pts.
Average daily rate....................................... $ 102.43 +3.4%
REVPAR................................................... $ 82.95 +2.6%
Courtyard
Occupancy................................................ 76.2% -1.8% pts.
Average daily rate....................................... $ 96.09 +4.4%
REVPAR................................................... $ 73.26 +2.1%
Fairfield Inn
Occupancy................................................ 65.6% -2.6% pts.
Average daily rate....................................... $ 59.44 +4.4%
REVPAR................................................... $ 39.00 +0.5%
</TABLE>
Across Marriott's full-service lodging brands (Marriott Hotels, Resorts and
Suites, Ritz-Carlton and Renaissance Hotels, Resorts and Suites), REVPAR for
comparable company-operated U.S. properties grew by an average of 3.5 percent in
the 2000 first quarter. Average room rates for these hotels rose nearly five
percent, while occupancy declined one percentage point to 75 percent.
Our domestic select-service and extended-stay brands (Fairfield Inn, Courtyard,
Residence Inn, SpringHill Suites and TownePlace Suites) have added a net of 162
properties, primarily franchises, since the first quarter of 1999.
REVPAR for comparable Residence Inn, Courtyard and Fairfield Inn brands
increased 1.8 percent during the quarter. While REVPAR comparisons were stronger
in the northeast and west, softer results in the midwest reflected industry
supply growth in certain markets.
Results for international lodging operations rebounded in the 2000 first
quarter, reflecting solid profit growth for properties in Asia and Egypt, as
well as in Europe, despite a decline in the value of the Euro against the U.S.
dollar.
Marriott Vacation Club International posted substantial profit growth in the
2000 first quarter on a 14 percent increase in contract sales. Results
reflected strong sales in our quality-tier timeshare
14
<PAGE>
resorts in Hawaii, California, Utah and Aruba. We also began selling fractional
ownership interests at our first two Ritz-Carlton Club resorts in Aspen,
Colorado and St. Thomas, U.S. Virgin Islands.
Marriott Senior Living Services (SLS) posted 24 percent sales growth in the 2000
first quarter, reflecting an increase in occupancy for comparable communities of
five percentage points to 87 percent, and the net addition of 25 units since the
first quarter 1999. Operating profit for the division was flat, as improved
performance for established communities was offset by start-up costs for the new
properties.
Marriott Distribution Services (MDS) posted 22 percent sales growth in the 2000
first quarter, reflecting the commencement of service to three large restaurant
chains beginning this year. MDS reported a $12 million operating loss in the
2000 first quarter due to the $15 million pretax write-off of its investment in
a contract with Boston Chicken, Inc. (BCI), a major customer currently
undergoing reorganization in bankruptcy. McDonald's Corporation has entered into
a definitive agreement to acquire substantially all of the assets of BCI,
subject to confirmation of the related plan of reorganization by the Bankruptcy
Court. MDS has reached an agreement with McDonald's to continue providing
distribution services to Boston Chicken restaurants (see "Intangible Assets" in
the footnotes to the condensed consolidated financial statements included in
Item 1. above).
Corporate activity. Interest expense in first quarter 2000 increased by $12
million as a result of borrowings to finance growth outlays and share
repurchases. Corporate expenses decreased $3 million due to systems-related
modification costs of $5 million associated with year 2000 incurred in the first
quarter 1999, offset by incremental costs of $2 million in 2000 associated with
new corporate systems. The effective income tax rate decreased from 37.5
percent to 37.0 percent primarily due to the increased proportion of operations
in countries with lower effective tax rates.
15
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
We believe that we have access to sufficient financial resources to finance our
growth, as well as to support our ongoing operations and meet debt service and
other cash requirements. However, our ability to sell properties that we
develop, and the ability of hotel or senior living community developers to build
or acquire new Marriott-branded properties, which are important parts of our
growth plans, are partially dependent on the availability and cost of capital.
We monitor the status of the capital markets, and regularly evaluate the effect
that changes in capital market conditions may have on our ability to execute our
announced growth plans.
Cash and equivalents totaled $372 million at March 24, 2000, a decrease of $117
million from year end 1999. Net income is stated after recording depreciation
expense of $26 million and $19 million for the twelve weeks ended March 24, 2000
and March 26, 1999, respectively, and after amortization expense of $15 million
and $14 million, respectively, for the same time periods. EBITDA for the twelve
weeks ended March 24, 2000 increased by $9 million, or four percent, to $213
million. EBITDA is an indicator of operating performance which can be used to
measure the Company's ability to service debt, fund capital expenditures and
expand its business. However, EBITDA is not an alternative to net income,
operating profit, cash from operations, or any other operating or liquidity
measure prescribed by generally accepted accounting principles.
Net cash used in investing activities totaled $284 million for the twelve weeks
ended March 24, 2000, and principally consisted of capital expenditures for
lodging properties and notes receivable advances.
We purchased 8.2 million shares of our Class A Common Stock in the twelve weeks
ended March 24, 2000, at a cost of $243 million. As of March 24, 2000, we had
been authorized by our Board of Directors to repurchase an additional 22.3
million shares.
In January 2000, we filed a "universal shelf" registration statement with the
Securities and Exchange Commission which, together with the authority remaining
under a universal shelf registration statement filed in April 1999, permitted us
to offer to the public up to $500 million of securities. On March 27, 2000, we
sold $300 million principal amount of 8-1/8 percent Series D Notes, which mature
in 2005, in a public offering made under our shelf registration statements. We
received net proceeds of approximately $298 million from this offering, after
paying underwriting discounts, commissions and offering expenses. After giving
effect to the issuance of the Series D Notes, we have remaining capacity under
our January 2000 shelf registration statement to offer to the public up to $200
million of debt securities, common stock or preferred stock.
In 1996, MDS became the exclusive provider of distribution services to
Einstein/Noah Bagel Corp. (ENBC), which operates over 460 bagel shops in 29
states. In March 2000, ENBC disclosed that its independent auditors had
expressed substantial doubt about ENBC's ability to continue as a going concern,
due to its inability to meet certain financial obligations. On April 27, 2000,
ENBC and its majority-owned operating subsidiary filed voluntary bankruptcy
petitions for protection under Chapter 11 of the Federal Bankruptcy code in the
U.S. Bankruptcy Court for the District of Arizona in Phoenix. On April 28, 2000,
the Court approved a $36 million debtor-in-possession credit facility to allow
for operation of the companies during reorganization, and also approved the
payment in the ordinary course of business of prepetition trade creditor claims,
including those of MDS, subject to recovery by the debtors under certain
circumstances. The debtors also filed a joint plan of reorganization which, if
confirmed by creditors and the Court, would pay all prepetition trade creditor
claims in full. MDS continues to distribute to ENBC and has been receiving full
payment in
16
<PAGE>
accordance with the terms of its contractual agreement. If the contract were to
terminate, or if ENBC were to cease or substantially reduce its operations, MDS
may be unable to recover some or all of an aggregate of approximately $18
million in contract investment, receivables and inventory.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
- ------------------------------------------------------------------
There have been no material changes to our exposures to market risk since
December 31, 1999.
17
<PAGE>
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings
- --------------------------
Incorporated by reference to the description of legal proceedings in the
"Contingencies" footnote in the financial statements set forth in Part I,
"Financial Information."
Item 2. Changes in Securities
- ------------------------------
None.
Item 3. Defaults Upon Senior Securities
- ----------------------------------------
None.
Item 4. Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
None.
Item 5. Other Information
- --------------------------
None.
18
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
(a) Exhibits
Exhibit No. Description
----------- -----------
10.1 Settlement Agreement dated as of March 9, 2000 among A.R.
Milkes, Robert M. Haas, Sr., and other plaintiffs and
intervenors identified therein and the Company, Host
Marriott Corporation, and other identified defendants, each
by and through their respective counsel of record.
10.2 Amended and restated Marriott International, Inc. 1998
Comprehensive Stock and Cash Incentive Plan (incorporated by
reference to Attachment A to the Company's definitive proxy
statement filed on March 23, 2000).
12 Statement of Computation of Ratio of Earnings to Fixed
Charges.
27 Financial Data Schedule for the Company.
99 Forward-Looking Statements.
(b) Reports on Form 8-K
On February 24, 2000, we filed a report describing a tentative agreement to
resolve pending litigation involving certain limited partnerships which we
expected to result in a pretax charge of $30 million to $40 million. The
agreement became definitive on March 9, 2000, and as a result we recorded a $39
million pretax charge in the fourth quarter of 1999. We also described our
plans to form an unconsolidated joint venture with Host Marriott Corporation to
acquire all of the limited partners' interests in Courtyard by Marriott Limited
Partnership and Courtyard by Marriott II Limited Partnership, for approximately
$372 million.
19
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MARRIOTT INTERNATIONAL, INC.
XXXth day of XXX, 2000
------------------------------
Arne M. Sorenson
Executive Vice President and
Chief Financial Officer
------------------------------
Linda A. Bartlett
Vice President and Controller
(Principal Accounting Officer)
20
<PAGE>
Exhibit 10.1
NO. 96-CI-08327
A. R. MILKES AND D. R. BURKLEW, (S) IN THE DISTRICT COURT
on behalf of themselves and all other (S)
limited partners of Courtyard by (S)
Marriott II Limited Partnership (S)
(S)
v. (S)
(S)
HOST MARRIOTT CORPORATION, (S)
MARRIOTT INTERNATIONAL, INC. (S) OF BEXAR COUNTY, TEXAS
CBM TWO CORPORATION, (S)
COURTYARD MANAGEMENT (S)
CORPORATION, HOST (S)
INTERNATIONAL INC., (S)
STEPHEN RUSHMORE and (S)
HOSPITALITY VALUATION (S)
SERVICES, INC. (S) 285th JUDICIAL DISTRICT
-----------------
NO. 98-CI-04092
ROBERT M. HAAS, SR. and (S) IN THE DISTRICT COURT OF
IRWIN RANDOLPH, (S)
JOINT TENANTS, ET AL. (S)
(S)
VS. (S)
(S)
MARRIOTT INTERNATIONAL, (S)
INC., HOST MARRIOTT (S)
CORPORATION, CBM ONE (S)
CORPORATION, CBM TWO (S)
CORPORATION, COURTYARD (S)
MANAGEMENT CORPORATION, (S)
RIBM ONE CORPORATION, (S)
MARRIOTT RIBM TWO (S)
CORPORATION, RESIDENCE (S)
INN BY MARRIOTT, INC., (S)
MARRIOTT FIBM ONE (S)
CORPORATION, FAIRFIELD (S) BEXAR COUNTY, TEXAS
FMC CORPORATION, INC., (S)
MARRIOTT DESERT SPRINGS (S)
CORPORATION, MARRIOTT (S)
DESERT SPRINGS DEVELOPMENT (S)
<PAGE>
CORPORATION, MARRIOTT (S)
HOTEL SERVICES, INC., (S)
MARRIOTT MARQUIS (S)
CORPORATION, MARRIOTT (S)
HOTELS, INC., HOST (S)
INTERNATIONAL, INC., (S)
J.W. MARRIOTT, JR., (S)
STEPHEN RUSHMORE and (S)
HOSPITALITY VALUATION (S) 57TH JUDICIAL DISTRICT
SETTLEMENT AGREEMENT
--------------------
This Settlement Agreement, dated as of March 9, 2000, is made and
entered into by and among the following parties: (i) the representative
Plaintiffs, A.R. Milkes, Donald Burklew, Charles Carey, Linda McGuire-Raskin,
Mortimer Goodkin, Wesley Tinker, Robert M. Haas, Sr., and Marsha Hendler,
individually and on behalf of each of the members of the Courtyard by Marriott
II Limited Partnership ("CBM II LP") Class certified by the Order of the
Honorable Michael Peden, dated June 23, 1998, as modified on July 21, 1998 (the
"Milkes Plaintiffs"), by and through their counsel of record in the lawsuit
styled Cause No. 96-CI-08327; A.R. Milkes and D.R. Burklew v. Host Marriott
Corporation, et al.; in the 285th Judicial District Court, Bexar County, Texas
(the "Milkes Litigation"); (ii) each of the individual named Plaintiffs in the
lawsuit styled Cause No. 98-CI-04092; Robert M. Haas, Sr., et al. v. Host
Marriott Corporation, et al.; in the 57th Judicial District Court of Bexar
County, Texas (the "Haas Litigation"), together with all putative class members
(the "Haas Plaintiffs"), by and through their counsel of record in the Haas
Litigation; (iii) the Palm and Equity Intervenors as defined herein, by and
through their counsel of record in the Milkes and Haas Litigation; and (iv) the
Defendants, Host Marriott Corporation, Marriott International, Inc., CBM One LLC
(successor by merger to CBM One Corporation), CBM Two LLC (successor by merger
to CBM Two Corporation), Host
Settlement Agreement - Page 2
<PAGE>
International, Inc., Courtyard by Marriott II Limited Partnership, RIBM One LLC
(successor by merger to RIBM One Corporation), RIBM Two LLC (successor by merger
to Marriott RIBM Two Corporation), Residence Inn by Marriott, Inc., FIBM One LLC
(successor by merger to Marriott FIBM One Corporation), Fairfield FMC
Corporation, Inc., HMC Desert LLC (successor by merger to Marriott Desert
Springs Corporation), Marriott Desert Springs Development Corporation, Marriott
Hotel Services, Inc., Marriott Marquis Corporation, Marriott Hotels, Inc.,
Courtyard Management Corporation and J.W. Marriott, Jr., by and through their
counsel of record in the Milkes and Haas Litigations. The Milkes Plaintiffs, the
Haas Plaintiffs, the Palm Intervenors, the Equity Intervenors and the Defendants
are collectively referred to as the "Settling Parties." This Settlement
Agreement is intended by the Settling Parties to fully, finally and forever
resolve, discharge and settle the Released Claims, as defined herein, upon and
subject to the terms and conditions hereof.
WHEREAS:
I. RECITALS
--------
A. THE MILKES LITIGATION
---------------------
On June 7, 1996, Whitey Ford and 136 other limited partners in CBM II
LP instituted suit. On September 20, 1996, the suit was amended to include 443
CBM II LP limited partners. By March 17, 1997, approximately 454 CBM II LP
limited partners had joined the Milkes Litigation.
On January 29, 1998, representative Plaintiffs, A.R. Milkes and D.R.
Burklew, filed a class action lawsuit, on behalf of themselves and a proposed
class of current and former CBM II LP limited partners, against certain
defendants. On June 23, 1998, the Court certified the Milkes Litigation as a
Class action pursuant to the Texas Rules of Civil Procedure 42(a) and (b) with
Settlement Agreement - Page 3
<PAGE>
the Class defined as "all limited partners in the CBM II LP as of January 31,
1998; excluding, however, the defendants, their parent corporations,
subsidiaries and affiliates, and their predecessors and successors in interest,
and the present officers, directors, or employees of any defendant or of any
predecessor or successor in interest of any Defendant" (the "CBM II LP Class").
The Court appointed as representative Plaintiffs, A.R. Milkes, D.R.
Burklew, Charles Carey, Mortimer Goodkin, Linda McGuire-Raskin, Wesley Tinker,
Robert M. Haas, Sr. and Marsha Hendler, and by Order dated July 21, 1998, named
as Lead Class Counsel, David Berg and the law firm of Berg, Androphy & Wilson.
The Court further designated, as co-counsel for the CBM II LP Class, Stephen
Hackerman and the law firm of Hackerman, Peterson, Frankel & Manela; David E.
Warden, and the law firm of Yetter & Warden; James L. Branton, and the law firm
of Branton & Hall; James Moriarty and the law firm of Moriarty & Associates, PC;
J. Boyd Page and the law firm of Page & Bacek, LLP; Linda Broocks and the law
firm of Ogden, Gibson, White & Broocks, LLP; Charles E. Dorr and the law firm of
Charles E. Dorr, P.C.; Roy Barrera, Sr. and the law firm of Nicholas & Barrera,
P.C.; and J.A. Canales and the law firm of Canales & Simonson. Lead Class
Counsel and co-counsel are hereinafter collectively referred to as "Plaintiffs'
Counsel."
A Notice of Pendency of Class Action was sent, in a form and manner
approved by the Court (the "CBM II LP Notice of Pendency"), to members of the
CBM II LP Class, advising them of the pendency of the Milkes Litigation and
giving them the right to request exclusion therefrom, and notifying them that
any CBM II LP Class member who failed to request exclusion as provided in the
CBM II LP Notice of Pendency would be bound by any judgment subsequently
rendered therein. Certain limited partners of CBM II LP, namely the Equity and
Settlement Agreement - Page 4
<PAGE>
Palm Intervenors, requested exclusion from the CBM II LP Class. The CBM II LP
Notice of Pendency satisfied the requirements of Texas Rule of Civil Procedure
42 regarding, among other things, the rights of CBM II LP Class members to
request exclusion from the Milkes Litigation, and no additional opportunity to
request exclusion is required.
After opting-out of the CBM II LP Class, on March 11, 1999, Palm
Investors, LLC, as a limited partner in CBM II LP and as an alleged assignee of
all right, title and interest formerly held by certain CBM II LP limited
partners, by and through its counsel of record, R. James George and the law firm
of George & Donaldson, LLP ("Palm's Counsel"), intervened in the Milkes
Litigation (the "Palm Intervenors"). Similarly, on March 25, 1999, Equity
Resource Fund X, Equity Resource Fund XV, Equity Resource Fund XVI, Equity
Resource Fund XVII, Equity Resource Fund XX, Equity Resource Fund XXI, Equity
Resource Bay Fund, Equity Resource Bridge Fund and Equity Resource Pilgrim Fund,
by and through their counsel of record, J. Patrick Deely and the law firm of
Cheslock, Deely & Rapp ("Equity's Counsel"), filed their Plea in Intervention,
on behalf of themselves and as alleged assignees of all right, title and
interest formerly held by certain CBM II LP limited partners (the "Equity
Intervenors").
On August 27, 1999, CBM Two LLC, the General Partner of CBM II LP,
appointed a Special Litigation Committee (the "SLC"), consisting of the
Honorable William H. Webster and the Honorable Charles B. Renfrew, to
investigate, review and analyze the facts and circumstances surrounding the
alleged derivative claims asserted on behalf of CBM II LP in the Milkes
Litigation. The SLC retained, as its counsel, Richard C. Tufaro and the law firm
of Milbank, Tweed, Hadley & McCloy, LLP (the "SLC's Counsel").
On January 19, 2000, the Court signed an Order granting J.W. Marriott,
Jr.'s Special Appearance and dismissing him from the Milkes Litigation.
Settlement Agreement - Page 5
<PAGE>
The Milkes Litigation alleges, among other things, that the Defendants,
or some of them: (1) breached and knowingly participated in breaches of
fiduciary duties to the limited partners in CBM II LP and to CBM II LP; (2)
defrauded and conspired to defraud the CBM II LP limited partners and CBM II LP;
(3) conspired against the CBM II LP limited partners and CBM II LP; (4) violated
the TEXAS FREE ENTERPRISE & ANTITRUST ACT OF 1983; (5) breached certain
contracts; and (6) tortiously interfered with certain contracts. Defendants
denied all allegations contained in the Milkes Lawsuit and have raised numerous
affirmative defenses thereto, including, without limitation, the statutes of
limitations.
B. THE HAAS LITIGATION
-------------------
On March 16, 1998, Robert M. Haas, Sr. and Irwin Randolph, joint
tenants, et al., filed suit against Defendants, Marriott International, Inc.,
Host Marriott Corporation, CBM One LLC (successor by merger to CBM One
Corporation), CBM Two LLC (successor by merger to CBM Two Corporation), Host
International, Inc., Courtyard by Marriott II Limited Partnership, RIBM One LLC
(successor by merger to RIBM One Corporation), RIBM Two LLC (successor by merger
to Marriott RIBM Two Corporation), Residence Inn by Marriott, Inc., FIBM One LLC
(successor by merger to Marriott FIBM One Corporation), Fairfield FMC
Corporation, Inc., HMC Desert LLC (successor by merger to Marriott Desert
Springs Corporation), Marriott Desert Springs Development Corporation, Marriott
Hotel Services, Inc., Marriott Marquis Corporation, Marriott Hotels, Inc.,
Courtyard Management Corporation, J.W. Marriott, Jr., Stephen Rushmore and
Hospitality Valuation Services, Inc. Thereafter, on March 18, 1999, Jack L.
Walker and Maury F. Weiss, individually and on behalf of certain limited
partners in Courtyard by Marriott Limited Partnership ("CBM I LP"), filed a
Class Action Petition in Intervention against Defendants. On March 26, 1999,
Palm Investors, LLC, on behalf of itself and as an alleged assignee of all
rights, title and interests formerly held by certain limited partners in CBM I
LP, by and through Palm's Counsel, filed its Plea in Intervention. On April 5,
1999, Equity Resource Fund XI, Equity Resource Fund XIV, Equity Resource Fund
XV, Equity Resource Fund XVII, Equity Resource Fund XX, Equity Resource Fund
XXI, Equity Resource Bay Fund, Equity Resource Bridge Fund and Equity Resource
Pilgrim Fund, on behalf of themselves and as alleged
Settlement Agreement - Page 6
<PAGE>
assignees of all rights, titles and interests formally held by limited partners
in CBM I LP, Palm's Counsel, filed its Plea in Intervention. On April 5, 1999,
Equity Resourse Fund XI, Equity Resource Fund XIV, Equity Resource Fund XV,
Equity Resource Fund XVII, Equity Resource Fund XX, Equity Resource Fund XXI,
Equity Resource Bay Fund, Equity Resource Bridge Fund and Equity Resource
Pilgrim Fund, on behalf of themselves and as alleged assignees of all rights,
titles and interests formally held by limited partners in CMB I LP, by and
through Equity's Counsel, filed its Plea in Intervention. Thereafter,
Intervenors Walker and Weiss moved for certification of a class of certain
limited partners of CBM I LP, which was denied by the Court.
On August 17, 1999, CBM One LLC, the General Partner of CBM I LP,
appointed the SLC to investigate, review and analyze the facts and circumstances
surrounding the alleged derivative claims asserted on behalf of CBM I LP in the
Haas Litigation.
The Haas Litigation involves the following limited partnerships: CBM I
LP, Marriott Residence Inn Limited Partnership ("Residence Inn I LP"), Marriott
Residence Inn II Limited Partnership ("Residence Inn II LP"), Fairfield Inn by
Marriott Limited Partnership ("Fairfield Inn LP"), Desert Springs Marriott
Limited Partnership ("Desert Springs LP") and Atlanta Marriott Marquis Limited
Partnership and Atlanta Marriott Marquis II Limited Partnership (collectively
"Atlanta Marquis LP"), which are collectively referred to as the Haas Litigation
limited partnerships. The Complaint and Pleas in Intervention in the Haas
Litigation allege, among other things, that the Defendants, or some of them: (1)
breached and knowingly participated in breaches of fiduciary duties to various
limited partners and partnerships in the Haas Litigation limited partnerships;
(2) defrauded and conspired to defraud various limited partners and partnerships
in the Haas Litigation limited partnerships; (3) conspired against
Settlement Agreement - Page 7
<PAGE>
various limited partners and partnerships in the Haas Litigation limited
partnerships; (4) violated the TEXAS FREE ENTERPRISE & ANTITRUST ACT OF 1983;
(5) breached certain contracts; and (6) tortiously interfered with certain
contracts. Defendants denied all allegations contained in the Haas Litigation,
and have raised numerous defenses thereto, including, without limitation, the
statutes of limitations.
II. PRETRIAL PROCEEDINGS AND DISCOVERY IN THE MILKES AND HAAS LITIGATIONS
---------------------------------------------------------------------
Extensive discovery and investigation have been conducted in the Milkes
Litigation and, to a lesser degree, the Haas Litigation, including, inter alia:
(i) inspecting hundreds of thousands of pages of documents produced by the
Defendants and non-parties; (ii) deposing numerous present and former employees
of the Defendants; (iii) deposing Plaintiffs; (iv) deposing non-party witnesses;
(v) employing and consulting with experts, including reviewing and producing
expert reports and attending and taking expert depositions; (vi) reviewing
public and on-line filings; and (vii) researching applicable law with respect to
the claims asserted in the Milkes and Haas Litigations. Discovery in the Milkes
Litigation included documents and deposition testimony relevant to claims in the
Haas Litigation. Settlement discussions, individually, with a mediator and with
the SLC, have been intense and protracted.
III. THE BENEFITS OF SETTLEMENT
--------------------------
Plaintiffs' Counsel believe that the claims asserted in the Milkes and
Haas Litigations have merit. They all recognize and acknowledge, however, the
risks and uncertainties associated with the continued prosecution of this
time-consuming litigation, and therefore, believe, that in consideration of all
the circumstances, the proposed Settlement set forth in this Settlement
Agreement confers substantial benefits upon the Plaintiffs and that the
Settlement is fair,
Settlement Agreement - Page 8
<PAGE>
adequate, reasonable and in the best interest of the Plaintiffs, the Palm
Intervenors and the Equity Intervenors. The SLC and the SLC's Counsel also
believe that, with respect to CBM I LP subject to Paragraph 9.3 below, and CBM
II LP, the Settlement is fair, adequate and reasonable and it is in the best
interests of the Settling Parties for the SLC to resolve the derivative claims
relating to CBM I LP and CBM II LP.
IV. DEFENDANTS' DENIALS OF WRONGDOING AND LIABILITY
-----------------------------------------------
The Defendants have denied and continue to deny each and all of the
claims and contentions of wrongdoing or liability against them arising out of
the conduct, statements, acts or omissions alleged, or that could have been
alleged, in the Milkes and Haas Litigations. The Defendants also have denied and
continue to deny, inter alia, that: (1) any Defendant has breached any contracts
or fiduciary duties; (2) any fraud, deceit or misrepresentations occurred in
connection with the formation, operation or management of any hotel or hotel
limited partnership connected with any of these Defendants; and (3) anyone was
harmed by any conduct alleged in the Milkes and Haas Litigations.
Nonetheless, although each deny wrongdoing of any kind whatsoever and
without admitting liability, the Defendants have concluded that the further
conduct of the Milkes and Haas Litigations would be protracted and expensive,
and that it is desirable that the Milkes and Haas Litigations be fully and
finally settled in the manner and upon the terms and conditions set forth in
this Settlement Agreement in order to limit the burden, expense, inconvenience
and distraction caused by the Milkes and Haas Litigations and to repurchase the
CBM I LP Units and CBM II LP Units. The Defendants also have taken into account
the uncertainties and risks inherent in complex litigation.
Settlement Agreement - Page 9
<PAGE>
V. THE TERMS OF THE SETTLEMENT AGREEMENT AND THE AGREEMENT OF SETTLEMENT
---------------------------------------------------------------------
NOW, THEREFORE, IT IS HEREBY STIPULATED AND AGREED by and among the
Plaintiffs, the Palm Intervenors, the Equity Intervenors, the SLC and the
Defendants, by and through their counsel of record in the Milkes and Haas
Litigations, that, subject to the approval of the Court, the Milkes and Haas
Litigations and the Released Claims shall be finally and fully compromised and
settled, and the Milkes and Haas Litigations shall be dismissed on the merits
and with prejudice as to the Defendants, upon and subject to the terms and
conditions of this Settlement Agreement, as follows:
1. Definitions
-----------
As used in this Settlement Agreement the following terms have the
meanings specified below:
1.1 "Atlanta Marquis LP" means the Atlanta Marriott Marquis Limited
Partnership and Atlanta Marriott Marquis II Limited Partnership.
1.2 "Atlanta Marquis LP's Counsel" means Lawrence P. Kolker and the law
firm of Wolf, Haldenstein, Adler, Freeman & Herz, LLP, and Martin D. Chitwood
and the law firm of Chitwood and Harley.
1.3 "Atlanta Marquis LP Notice" means the Notice of Proposed Settlement
of Class Action and Settlement Hearing to be given to the Atlanta Marquis LP
Class which will be certified as part of the Atlanta Marquis LP Settlement, and
to the Palm Intervenors and the Equity Intervenors, if any, who formerly owned
units in Atlanta Marquis LP.
1.4 "Atlanta Marquis LP Plaintiffs" means all persons named as parties
in the Haas Litigation and who formerly owned units in the Atlanta Marquis LP.
Settlement Agreement - Page 10
<PAGE>
1.5 "Atlanta Marquis LP Proof of Claim" means the Atlanta Marquis LP
Proof of Claim and Release.
1.6 "Atlanta Marquis LP Settlement" means the settlement of the Sturm
Litigation.
1.7 "Atlanta Marquis LP Settlement Amount" means the aggregate of
$4.25 million or $8,018.86 for each of the former 530 Atlanta Marquis LP Units
that does not opt-out of the Atlanta Marquis Settlement and executes the Atlanta
Marquis LP Proof of Claim, reduced, however, by $8,018.86 for each Atlanta
Marquis LP Unit below 530 which fails to settle as provided herein.
1.8 "Atlanta Marquis LP Unit" means a unit of limited partnership
interest in Atlanta Marquis LP.
1.9 "CBM I LP" means the Courtyard by Marriott Limited Partnership.
1.10 "CBM I LP Consent Form" means the form contained in the CBM I LP
Purchase Offer/Consent Solicitation Statement to be completed and returned to
the Claims Administrator to vote on the Proposed CBM I LP Partnership Agreement
Amendments and CBM I LP Merger.
Settlement Agreement - Page 11
<PAGE>
1.11 "CBM I LP Purchase Offer/Consent Solicitation Statement" means the
Purchase/Offer Consent Solicitation Statement which may be set forth in one or
more documents, to be prepared by the Joint Venture and CBM I LP for inclusion
in the CBM I LP Notice and, following Court approval of the CBM I LP Notice,
distributed to the limited partners of CBM I LP seeking (i) their written
consent to the CBM I LP Merger and the Proposed CBM I LP Partnership Agreement
Amendments; and (ii) their assignment, transfer and conveyance to the Joint
venture or one or more of its designees of all right, title and interest in all
CBM I LP Units, half-CBM I LP Units and other fractional CBM I LP Units owned by
such person, together with all right, title and interest held, owned or claimed
in CBM I LP, free and clear of all pledges, security interests, liens and other
encumbrances whatsoever.
1.12 "CBM I LP Merger" means the merger of a subsidiary of the Joint
Venture with and into CBM I LP, with CBM I LP surviving, pursuant to an
agreement and plan of merger to be entered into and attached to the CBM I LP
Purchase Offer/Consent Solicitation Statement, as more particularly described in
Paragraph 2.9(b) hereof.
1.13 "CBM I LP Notice" means the Notice of Proposed Settlement of Class
Action and Settlement Hearing and the CBM I LP Purchase Offer/Consent
Solicitation Statement and Consent Form which will be approved by the Court and
given to the CBM I LP Class which will be certified as part of the CBM I LP
Settlement, and to the Palm Intervenors and Equity Intervenors who own CBM I LP
Units.
1.14 "CBM I LP Plaintiffs" means all persons named as parties in the
Haas Litigation who own units in and/or a claim concerning CBM I LP, other than
the Palm Intervenors and the Equity Intervenors, and all putative members of the
CBM I LP Class to be certified in the Haas Litigation.
Settlement Agreement - Page 12
<PAGE>
1.15 "CBM I LP Proof of Claim" means the CBM I LP Proof of Claim,
Assignment and Release.
1.16 "CBM I LP Settlement" means the satisfaction of all the Settlement
terms and conditions as set forth herein.
1.17 "CBM I LP Settlement Amount" means the aggregate of
$154,249,500.00 or $134,130.00 for each of the 1,150 CBM I LP Units, $67,065 for
each half-CBM I LP Unit, or a reduced pro-rata amount for each other fractional
CBM I LP Unit, that is assigned, transferred and conveyed to the Joint Venture
or to one or more its designees pursuant to this Settlement Agreement and for
which a CBM I LP Proof of Claim is provided pursuant to the CBM I LP Unit
Acquisition, the aggregate amount reduced, however, by $134,130.00 per CBM I LP
Unit, or a pro-rata amount for each half-CBM I LP Unit or fractional CBM I LP
Unit below 1,150 CBM I LP Units which is not so assigned, transferred or
conveyed (including the 15 CBM I LP Units held by CBM One LLC) and reduced
further by the amount, if any, a holder of any CBM I LP Unit owes on the
purchase price of such unit.
1.18 "CBM I LP Unit" means a unit of limited partnership interest in
CBM I LP.
1.19 "CBM I LP Unit Acquisition" means the acquisition by the Joint
Venture or one of more of its designees of the CBM I LP Units held by the CBM I
LP Plaintiffs, the Palm Intervenors, the Equity Intervenors and Insiders
(excluding CBM One LLC).
1.20 "CBM I LP Unit Acquisition Closing Date" means the date on which
the CBM I LP Unit Acquisition is consummated.
1.21 "CBM II LP" means the Courtyard by Marriott II Limited
Partnership.
Settlement Agreement - Page 13
<PAGE>
1.22 "CBM II LP Consent Form" means the form contained in the CBM II LP
Purchase Offer/Consent Solicitation Statement to be completed and returned to
the Claims Administrator to vote on the Proposed CBM II LP Partnership Agreement
Amendments and CBM II LP Merger.
1.23 "CBM II LP Purchase Offer/Consent Solicitation Statement" means
the Purchase/Offer Consent Solicitation Statement, which may be set forth in one
or more documents, to be prepared by the Joint Venture and CBM II LP for
inclusion in the CBM II LP Notice and, following Court approval of the CBM II LP
Notice, distributed to the limited partners of CBM II LP seeking (i) their
written consent to the CBM II LP Merger and the Proposed CBM II LP Partnership
Agreement Amendments; and (ii) their assignment, transfer and conveyance to the
Joint Venture or one or more of its designees of all right, title and interest
in all CBM II LP Units, half-CBM II LP Units and other fractional CBM II LP
Units owned by such person, together with all right, title and interest held,
owned or claimed in CBM II LP, free and clear of all pledges, security
interests, liens and other encumbrances whatsoever.
1.24 "CBM II LP Merger" means the merger of a subsidiary of the Joint
Venture with and into CBM II LP, with CBM II LP surviving, pursuant to an
agreement and plan of merger to be entered into and attached to the CBM II LP
Purchase Offer/Consent Solicitation Statement, as more particularly described in
Paragraph 3.8(b) hereof.
1.25 "CBM II LP Notice" means the Notice of Proposed Settlement of
Class Action and Settlement Hearing and the CBM II LP Purchase Offer/Consent
Solicitation Statement and Consent Form will be approved by the Court and given
to the CBM II LP Class, and to the Palm Intervenors and the Equity Intervenors
who own CBM II LP Units.
1.26 "CBM II LP Plaintiffs" means all persons named as parties in the
Milkes
Settlement Agreement - Page 14
<PAGE>
Litigation, who own units in and/or a claim concerning CBM II LP, other than the
Palm Intervenors and the Equity Intervenors, together with all members of the
CBM II LP Class certified in the Milkes Litigation.
1.27 "CBM II LP Proof of Claim" means the CBM II LP Proof of Claim,
Assignment and Release.
1.28 "CBM II LP Settlement" means the satisfaction of all the
Settlement terms and conditions as set forth herein.
1.29 "CBM II LP Settlement Amount" means the aggregate of
$217,499,730.00 or $147,959.00 for each of the 1,470 CBM II LP Units, $73,979.50
for each half-CBM II LP Unit, or a reduced pro-rata amount for each other
fractional CBM II LP Unit, that is assigned, transferred and conveyed to the
Joint Venture or to one or more of its designees pursuant to this Settlement
Agreement and for which a CBM II LP Proof of Claim is provided pursuant to the
CBM II LP Unit Acquisition, the aggregate amount reduced, however, by
$147,959.00 per CBM II LP Unit, or a pro-rata amount for each half-CBM II LP
Unit or fractional CBM II LP Unit below 1,470 CBM II LP Units which is not so
assigned, transferred or conveyed (including 21.5 CBM II LP Units held by CBM
Two LLC) and reduced further by the amount, if any, a holder of any CBM II LP
Unit owes on the purchase price of such unit.
1.30 "CBM II LP Unit" means a unit of limited partnership interest in
CBM II LP.
1.31 "CBM II LP Unit Acquisition" means the acquisition by the Joint
Venture or one or more of its designees of the CBM II LP Units held by the CBM
II LP Plaintiffs, the Palm Intervenors, the Equity Intervenors and Insiders
(excluding CBM Two LLC).
1.32 "CBM II LP Unit Acquisition Closing Date" means the date on which
the CBM II LP Unit Acquisition is consummated.
Settlement Agreement - Page 15
<PAGE>
1.33 "Claims Administrator" means GEMISYS, Proxy Department, 7103 South
Revere Parkway, Englewood, Colorado 80112.
1.34 "Defendants" means Host Marriott Corporation, Marriott
International, Inc., CBM One LLC (successor by merger to CBM One Corporation),
CBM Two LLC (successor by merger to CBM Two Corporation), Host International,
Inc., Courtyard by Marriott II Limited Partnership, RIBM One LLC (successor by
merger to RIBM One Corporation), RIBM Two LLC (successor by merger to Marriott
RIBM Two Corporation), Residence Inn by Marriott, Inc., FIBM One LLC (successor
by merger to Marriott FIBM One Corporation), Fairfield FMC Corporation, Inc.,
Marriott Desert Springs LLC (successor by merger to Marriott Desert Springs
Corporation), Marriott Desert Springs Development Corporation, Marriott Hotel
Services, Inc., Marriott Marquis Corporation, Marriott Hotels, Inc., Courtyard
Management Corporation and J.W. Marriott, Jr.
1.35 "Defendants' Counsel" means those attorneys and law firms
representing the Defendants in the Litigation.
1.36 "Desert Springs LP" means the Desert Springs Marriott Limited
Partnership.
1.37 "Desert Springs LP Notice" means the Notice of Proposed Settlement
of Class Action and Settlement Hearing to be given to the Desert Springs LP
Class which will be certified as part of the Desert Springs LP Settlement, and
to the Palm Intervenors and the Equity Intervenors who formerly owned units in
Desert Springs LP.
1.38 "Desert Springs LP Plaintiffs" means all persons named as parties
in the Haas Litigation who formerly owned units in and/or a claim concerning the
Desert Springs LP, other than the Palm Intervenors and the Equity Intervenors,
and all putative members of the Desert Springs LP Class to be certified in the
Haas Litigation.
Settlement Agreement - Page 16
<PAGE>
1.39 "Desert Springs LP Proof of Claim" means the Desert Springs LP
Proof of Claim and Release.
1.40 "Desert Springs LP Settlement" means the satisfaction of all the
Settlement terms and conditions as set forth herein.
1.41 "Desert Springs LP Settlement Amount" means the aggregate of
$12,111,000.00, or (i) $21,900.54 per unit to former holders of the 206 former
Desert Springs LP units who are currently Plaintiffs in the Haas Litigation that
do not opt-out of the Desert Springs LP Class and executes the Desert Springs LP
Proof of Claim, the aggregate amount reduced, however, by $21,900.54 for each
unit below 206 which fails to settle as provided herein; and (ii) $10,950.27 per
unit to the former holders of the 694 remaining former units of Desert Springs
LP as of December 28, 1998 that do not opt-out of the Desert Springs LP Class
and execute the Desert Springs LP Proof of Claim, the aggregate amount reduced,
however, by $10,950.27 for each unit below 694 which fails to settle as provided
herein.
1.42 "Effective Date" means the business day on which the Judgment
Order becomes Final.
1.43 "Equity Intervenors" shall mean Equity Resource Fund X, Equity
Resource Fund XII, Equity Resource Fund XIV, Equity Resource Fund XV, Equity
Resource Fund XVI, Equity Resource Fund XVII, Equity Resource Fund XX, Equity
Resource Fund XXI, Equity Resource Bay Fund, Equity Resource Bridge Fund, and
Equity Resource Pilgrim Fund, and any affiliate who purchased units in CBM I LP,
CBM II LP, Residence Inn I LP, Residence Inn II LP, Fairfield Inn LP, Desert
Springs LP, or Atlanta Marquis LP (if any).
1.44 "Equity's Counsel" means J. Patrick Deely and the law firm of
Cheslock, Deely & Rapp.
Settlement Agreement - Page 17
<PAGE>
1.45 "Escrow Agent" means Chase Bank of Texas, N.A.
1.46 "Fairfield Inn LP" means the Fairfield Inn by Marriott Limited
Partnership.
1.47 "Fairfield Inn LP Notice" means the Notice of Proposed Settlement
of Class Action and Settlement Hearing to be given to the Fairfield Inn LP Class
which will be certified as part of the Fairfield Inn LP Settlement, and to the
Palm Intervenors and the Equity Intervenors who own units in Fairfield Inn LP.
1.48 "Fairfield Inn LP Plaintiffs" means all persons named as parties
in the Haas Litigation and who own units in and/or a claim concerning Fairfield
Inn LP, other than the Palm Intervenors and the Equity Intervenors, and all
putative members of the Fairfield Inn LP Class to be certified in the Haas
Litigation.
1.49 "Fairfield Inn LP Proof of Claim" means the Fairfield Inn LP Proof
of Claim and Release.
1.50 "Fairfield Inn LP Settlement" means the satisfaction of all the
Settlement terms and conditions as set forth herein.
1.51 "Fairfield Inn LP Settlement Amount" means the aggregate of
$19,032,504.06, or $228.38 for each of the 83,337 Fairfield Inn LP partnership
units that does not opt-out of the Fairfield Inn LP Class and executes the
Fairfield Inn LP Proof of Claim, the aggregate amount reduced, however, by
$228.38 for each unit below 83,337 which fails to settle as provided herein.
1.52 "Final" when referring to the Judgment Order or an appeal of the
Judgment Order means that: (a) the Judgment Order is a final, appealable
judgment; and (b) either (i) the time for filing or noticing of any appeal or
other judicial review of the Judgment Order has expired without any such appeal
or other review of the judgment having been commenced, or (ii) if an
Settlement Agreement - Page 18
<PAGE>
appeal or other review of the Judgment Order has been filed, such appeal or
other review is finally concluded and is no longer subject to review by any
court, whether by appeal, writ of certiorari or otherwise, and such appeal or
other review has been resolved in such manner as to permit the consummation of
the Settlement as contemplated by the Judgment Order; provided (iii) that an
appeal of the Judgment Order relating solely to the amount, allocation or other
issue relating to an award of attorneys' fees to Plaintiffs' Counsel and/or
Atlanta Marquis LP's Counsel shall not affect the finality of the Judgment Order
for purposes of this Settlement and the Judgment Order shall be deemed "Final"
notwithstanding such an appeal.
1.53 "Haas Litigation" means the lawsuit styled: Cause No. 98-CI-04092;
Robert M. Haas, Sr., et al v. Host Marriott Corporation, et al; in the 57th
Judicial District Court of Bexar County, Texas (the "Court).
Settlement Agreement - Page 19
<PAGE>
1.54 "Hearing Order" means the Order with Respect to Hearing on the
Settlement, Notice, and Plaintiffs' Counsels' and Atlanta Marquis LP's Counsels'
Applications for Attorneys' Fees and Reimbursement of Litigation Costs and
Expenses.
1.55 "Host Marriott" means, individually and collectively, Host
Marriott Corporation, a Maryland corporation, and Host Marriott, L.P., a
Delaware limited partnership of which Host Marriott Corporation is the general
partner, and their respective successors and assigns.
1.56 "Insiders" means those persons or entities related to Defendants
and identified on Exhibit "A."
1.57 "Interest" means simple interest at the rate for one year
certificates of deposit as published in the Wall Street Journal "Money Rates" to
be adjusted (but not compounded) on a weekly basis on Monday of each week.
1.58 "Joint Venture" means a to-be-formed Delaware limited liability
company owned by Rockledge and by an indirect wholly-owned subsidiary of
Marriott International, and each other Person in which it directly or indirectly
will have an ownership interest, and their respective successors and assigns.
1.59 "Judgment Order" means the judgment order to be rendered by the
Court in the Milkes and Haas Litigations approving the fairness of the
Settlement, dismissing the Milkes and Haas Litigations with prejudice,
extinguishing as to the Released Persons the Released Claims and permanently
barring and enjoining such persons from asserting such Released Claims, and
addressing such other matters as the Court deems necessary and appropriate.
1.60 "Marriott International" means Marriott International, Inc., a
Delaware Corporation, and its successors and assigns.
Settlement Agreement - Page 20
<PAGE>
1.61 "Milkes Litigation" means the lawsuit styled: Cause No.
96-CI-08327; A.R. Milkes and D.R. Burklew v. Host Marriott Corporation, et al.;
in the 285th Judicial District Court of Bexar County, Texas (the "Court").
1.62 "Net Settlement Amount" means:
(a) as to each Plaintiff, the pro-rata portion of the settlement
amount due to such Plaintiff for a particular partnership, less Plaintiffs'
Counsel's Attorneys' Fees,; and reduced further by the amount, if any, such
Plaintiff owes on the purchase price of its unit.
(b) as to the Palm Intervenors, the pro-rata portion of the
settlement amount due to the Palm Intervenors for a particular partnership,
without any deduction for Plaintiffs' Counsel's Attorneys' Fees, it being
understood that the Palm Intervenors shall be separately responsible for payment
of attorneys' fees and litigation costs and expenses to Palm's Counsel and that
no request for reimbursement from the Settlement Fund will be made by Palm's
Counsel to the Court;
(c) as to the Equity Intervenors, the pro-rata portion of the
settlement amount due to the Equity Intervenors for a particular partnership,
without regard to any deduction for Plaintiffs' Counsel's Attorneys' Fees, it
being understood that the Equity Intervenors shall be separately responsible for
payment of attorneys' fees and litigation costs and expenses to Equity's Counsel
and that no request for reimbursement from the Settlement Fund will be made by
Equity's Counsel to the Court;
(d) as to the Insiders, the pro-rata portion of the settlement
amount due to Insiders in the CBM I LP Settlement or the CBM II LP Settlement,
without regard to deduction for Plaintiffs' Counsel's Attorneys' Fees, it being
understood that the Insiders were not represented by Plaintiffs' Counsel and
will make no separate application for reimbursement of
Settlement Agreement - Page 21
<PAGE>
attorneys' fees or litigation costs.
1.63 "Net Settlement Fund" means the Settlement Fund less (a)
Plaintiffs' Counsel's Attorneys' Fees; and (b) any and all payments to the
Equity Intervenors, the Palm Intervenors and/or the Insiders as set forth
herein.
1.64 "Palm Intervenors" shall mean Palm Investors, LLC and any
affiliates who purchased CBM II LP or CBM I LP Units.
1.65 "Palm's Counsel" means R. James George and the law firm of George
& Donaldson, LLP.
1.66 "Person" means a natural person or entity, corporation,
partnership, limited partnership, association, joint stock company, limited
liability company, estate, legal representative, trust, unincorporated
association, government or any political subdivision or agency thereof, or any
business or legal entity, and its respective spouses, heirs, predecessors,
successors, representatives, agents or assigns.
1.67 "Plaintiffs" means collectively all CBM I LP Plaintiffs, all CBM
II LP Plaintiffs, all Residence Inn I LP Plaintiffs, all Residence Inn II LP
Plaintiffs, all Fairfield Inn Plaintiffs, and all Desert Springs LP Plaintiffs.
1.68 "Plaintiffs' Counsel" means David Berg and the law firm of Berg,
Androphy & Wilson; Stephen Hackerman and the law firm of Hackerman, Peterson,
Frankel & Manela; David E. Warden, and the law firm of Yetter & Warden; James L.
Branton, and the law firm of Branton & Hall; James Moriarty and the law firm of
Moriarty & Associates, PC; J. Boyd Page and the law firm of Page & Bacek, LLP;
Linda Broocks and the law firm of Ogden, Gibson, White & Broocks, LLP; Charles
E. Dorr and the law firm of Charles E. Dorr, P.C.; Roy Barrera, Sr. and the law
firm of Nicholas & Barrera, P.C.; and J.A. Canales and the law firm of Canales &
Settlement Agreement - Page 22
<PAGE>
Simonson.
1.69 "Plaintiffs' Counsel's Attorneys' Fees" means the attorneys' fees
and reimbursement of litigation costs and expenses awarded by the Court to
Plaintiffs' Counsel less $4.25 million, the amount by which Plaintiffs' Counsel
has agreed to reduce their attorneys' fees pursuant to Paragraph 13.1 herein.
1.70 "Plan of Allocation" means a plan or formula of allocation of the
Settlement Fund to be approved by the Court whereby the Settlement Fund and the
Net Settlement Fund shall be distributed as set forth herein.
1.71 "Proposed CBM I LP Partnership Agreement Amendments" means the
amendments to the Amended and Restated Agreement of Limited Partnership of CBM I
LP, as amended, as requested by the Joint Venture or any of the Defendants in
order to permit, implement or facilitate the CBM I LP Settlement or any of the
transactions constituting a part thereof (including, without limitation, the CBM
I LP Unit Acquisition and the CBM I LP Merger), which amendments shall be
described in the CBM I LP Purchase Offer/Consent Solicitation Statement approved
by the Court as part of the CBM I LP Notice.
1.72 "Proposed CBM II LP Partnership Agreement Amendments" means the
amendments to the Amended and Restated Agreement of Limited Partnership of CBM
II LP, as amended, as requested by the Joint Venture or any of the Defendants in
order to permit, implement or facilitate the CBM II LP Settlement or any of the
transactions constituting a part thereof (including, without limitation, the CBM
II LP Unit Acquisition and the CBM II LP Merger), which amendments shall be
described in the CBM II LP Purchase/Offer/Consent Solicitation Statement
approved by the Court as part of the CBM II LP Notice.
Settlement Agreement - Page 23
<PAGE>
1.73 "Released Claims" means all those claims which are released,
settled and discharged as part of this Settlement as described on Exhibits B, C,
D, E, F, and G, attached hereto and incorporated herein by reference.
1.74 "Released Atlanta Marquis LP Claims" means all those claims which
are released, settled and discharged as part of the Atlanta Marquis LP
Settlement.
1.75 "Released CBM I LP Claims" means all those claims which are
released, settled and discharged as part of the CBM I LP Settlement, and which
are described on Exhibit B, attached hereto and incorporated herein by
reference.
1.76 "Released CBM II LP Claims" means all those claims which are
released, settled and discharged as part of the CBM II LP Settlement, and which
are described on Exhibit C, attached hereto and incorporated herein by
reference.
1.77 "Released Desert Springs LP Claims" means all those claims which
are released, settled and discharged as part of the Desert Springs LP
Settlement, and which are described on Exhibit D,, attached hereto and
incorporated herein by reference.
1.78 "Released Fairfield Inn LP Claims" means all those claims which
are released, settled and discharged as part of the Fairfield Inn LP Settlement,
and which are described on Exhibit E, attached hereto and incorporated herein by
reference.
1.79 "Released Persons" means: (i) each and all of the Defendants and
their predecessors, successors, parents, subsidiaries, divisions, affiliates and
related entities; (ii) each of the foregoing persons' or entities' respective
past or present directors, officers, employees, partners, members, principals,
trustees, agents, servants, appraisers, including, but not limited to, Stephen
Rushmore and Hospitality Valuation Services, Inc., underwriters, issuers,
shareholders, insurers, co-insurers, reinsurers, independent contractors,
controlling shareholders, wholesalers,
Settlement Agreement - Page 24
<PAGE>
resellers, distributors, retailers, attorneys, accountants, auditors,
consultants, investment bankers, advisors, personal representatives, affiliates,
predecessors, successors, parents, subsidiaries, divisions, assigns, spouses,
heirs, executors, administrators, associates, and related or affiliated
entities; and (iii) any members of the foregoing persons' immediate families, or
any trust of which any of the foregoing persons is the settlor or which is for
the benefit of any of the foregoing persons and/or member(s) of his or her
family.
1.80 "Released Residence Inn I LP Claims" means all those claims which
are released, settled and discharged as part of the Residence Inn I LP
Settlement, and which are described on Exhibit F, attached hereto and
incorporated herein by reference.
1.81 "Released Residence Inn II LP Claims" means all those claims which
are released, settled and discharged as part of the Residence Inn II LP
Settlement, and which are described on Exhibit G, attached hereto and
incorporated herein by reference.
1.82 "Residence Inn I LP" means the Marriott Residence Inn Limited
Partnership.
1.83 "Residence Inn I LP Notice" means the Notice of Proposed
Settlement of Class Action and Settlement Hearing to be given to the Residence
Inn I LP Class which will be certified as part of the Residence Inn I LP
Settlement, and to the Palm Intervenors and the Equity Intervenors who own units
in Residence Inn I LP.
1.84 "Residence Inn I LP Plaintiffs" means all persons named as parties
in the Haas Litigation who own units in and/or a claim concerning the Residence
Inn I LP, other than the Palm Intervenors and the Equity Intervenors, and all
putative members of the Residence Inn I LP Class to be certified in the Haas
Litigation.
1.85 "Residence Inn I LP Proof of Claim" means the Residence Inn I LP
Proof of Claim and Release.
Settlement Agreement - Page 25
<PAGE>
1.86 "Residence Inn I LP Settlement" means the satisfaction of all the
Settlement terms and conditions as set forth herein.
1.87 "Residence Inn I LP Settlement Amount" means the aggregate of
$14,981,728.00, or $228.38 for each of the 65,600 Residence Inn I LP partnership
units that does not opt-out of the Residence Inn I LP Class and executes the
Residence Inn I LP Proof of Claim, the aggregate amount reduced, however, by
$228.38 for each unit below 65,600 which fails to settle as provided herein.
1.88 "Residence Inn II LP" means the Marriott Residence Inn II Limited
Partnership.
1.89 "Residence Inn II LP Notice" means the Notice of Proposed
Settlement of Class Action and Settlement Hearing to be given to the Residence
Inn II LP Class which will be certified as part of the Residence Inn II LP
Settlement, and to the Palm Intervenors and the Equity Intervenors who own units
in Residence Inn II LP.
1.90 "Residence Inn II LP Plaintiffs" means all persons named as
parties in the Haas Litigation who own units in and/or a claim concerning
Residence Inn II LP, other than the Palm Intervenors and the Equity Intervenors,
and all putative members of the Residence Inn II LP Class to be certified in the
Haas Litigation.
1.91 "Residence Inn II LP Proof of Claim" means the Residence Inn II LP
Proof of Claim and Release.
1.92 "Residence Inn II LP Settlement" means the satisfaction of all the
Settlement terms and conditions as set forth herein.
1.93 "Residence Inn II LP Settlement Amount" means the aggregate of
$15,986,600.00, or $228.38 for each of the 70,000 Residence Inn II LP
partnership units that does not opt-out of the Residence Inn II LP Class and
executes the Residence Inn II LP Proof of
Settlement Agreement - Page 26
<PAGE>
Claim, the aggregate amount reduced, however, by $228.38 for each unit below
70,000 which fails to settle as provided herein.
1.94 "Rockledge" means Rockledge Hotel Properties, Inc., a Delaware
corporation in which Host Marriott owns approximately 95% of the economic
interests and which is the owner, directly or indirectly, of 99% of each of CBM
One LLC, CBM Two LLC, RIBM One LLC, RIBM Two LLC and FIBM One LLC, the general
partners of CBM I LP, CBM II LP, Residence Inn I LP, Residence Inn II LP and
Fairfield Inn LP, respectively, by virtue of their mergers with CBM One
Corporation, CBM Two Corporation, RIBM One Corporation, Marriott RIBM Two
Corporation and Marriott FIBM One Corporation, respectively, and its successors
and assigns. Rockledge has joined in this Settlement Agreement as an additional
party hereto.
1.95 "Settlement" means the resolution of the Milkes and Haas
Litigations, according to the terms and conditions set forth in this Settlement
Agreement.
1.96 "Settlement Agreement" means this Settlement Agreement.
1.97 "Settlement Fund" means the total of the CBM I LP Settlement
Amount , CBM II LP Settlement Amount,, Residence Inn I LP Settlement Amount,
Residence Inn II LP Settlement Amount,, Fairfield Inn LP Settlement Amount, and
Desert Springs LP Settlement Amount, plus any Interest pursuant to Paragraphs
11.2 and 17.1, less $4.25 Million to be taken out of any award of attorneys'
fees to Plaintiffs' Counsel as set forth herein.
1.98 "Settling Parties" means, collectively, each of the Defendants,
the Plaintiffs, the Palm Intervenors, the Equity Intervenors and the SLC, by and
through their respective counsel of record in the Haas and Milkes Litigations.
1.99 "SLC" means the Special Litigation Committee appointed by the
General Partners of CBM I LP and CBM II LP.
Settlement Agreement - Page 27
<PAGE>
1.100 "Sturm Litigation" means the lawsuit styled Civil Action No.
1:97-CV-3706-TWT; Hiram and Ruth Sturm, et al v. Marriott Marquis Corporation,
et al; In the United States District Court for the Northern District of Georgia.
1.101 "Sturm Plaintiffs" means all persons named as parties in the
Sturm Litigation who formerly owned units in and/or a claim concerning the
Atlanta Marquis LP, other than the Equity Intervenors, and all putative members
of the class to be certified in the Sturm Litigation.
2. CBM I LP Settlement
-------------------
2.1 As part of the CBM I LP Settlement, and subject to the terms and
conditions contained herein, the Joint Venture will pay or cause to be paid the
CBM I LP Settlement Amount on behalf of and for the benefit of the CBM I LP
Plaintiffs, the Palm Intervenors, the Equity Intervenors and the Insiders (other
than CBM One LLC).
2.2 As part of the CBM I LP Settlement, and subject to the terms and
conditions contained herein, Plaintiffs' Counsel, with the advice and consent of
Defendants' Counsel, will move for and be granted certification of a settlement
class consisting of all CBM I LP Unit holders, excluding, however, the Equity
Intervenors and the Palm Intervenors (the "CBM I LP Class").
2.3 As part of the CBM I LP Settlement, and subject to the terms and
conditions contained herein, the CBM I LP Plaintiffs, the Palm Intervenors and
the Equity Intervenors will RELEASE, ACQUIT and FOREVER DISCHARGE the Released
Persons from the Released CBM I LP Claims as of the Effective Date. The Released
CBM I LP Claims are defined in Exhibit B, attached hereto and incorporated
herein by reference.
2.4 As part of the CBM I LP Settlement, and subject to the terms and
conditions contained herein, the CBM I LP Plaintiffs, the Palm Intervenors, the
Equity Intervenors and the
Settlement Agreement - Page 28
<PAGE>
Insiders (other than CBM One LLC) will assign, transfer and convey to the Joint
Venture, or to one or more of its designees, all CBM I LP Units, half-units and
other fractional units, together with all right, title and interest held, owned
or claimed in CBM I LP.
2.5 As part of the CBM I LP Settlement, and subject to the terms and
conditions contained herein, each CBM I LP Plaintiff, Palm Intervenor and Equity
Intervenor will be given an opportunity to vote on those certain Proposed CBM I
LP Partnership Agreement Amendments which will be described in the CBM I LP
Purchase Offer/Consent Solicitation Statement to be sent to each CBM I LP
Plaintiff, Palm Intervenor and Equity Intervenor.
2.6 As part of the CBM I LP Settlement, and subject to the terms and
conditions contained herein, each CBM I LP Plaintiff, Palm Intervenor and Equity
Intervenor will be given the opportunity to vote on the CBM I LP Merger which
will be described in the CBM I LP Purchase Offer/Consent Solicitation Statement
sent to all CBM I LP Plaintiffs, Palm Intervenors and Equity Intervenors.
2.7 As part of the CBM I LP Settlement, and subject to the terms and
conditions contained herein, and before payment of any CBM I LP Settlement
Amount is made to any such person, each CBM I LP Plaintiff, Palm Intervenor,
Equity Intervenor and Insider will execute and timely return the CBM I LP Proof
of Claim in the form and manner described therein.
2.8 Defendants have the unilateral option, at their sole discretion
prior to the entry of the Judgment Order, to terminate the CBM I LP Settlement,
without cost or expense, other than notice costs relating to the CBM I LP
Settlement, if: (1) holders of more than ten percent (10%) of the CBM I LP Units
opt-out of the CBM I LP Settlement; or (2) holders of a majority of the CBM I LP
Units (other than those owned by Insiders) fail to vote in favor of or given
written consent to the CBM I LP Merger or the Proposed CBM I LP Partnership
Agreement
Settlement Agreement - Page 29
<PAGE>
Amendments; or (3) Defendants fail to receive any necessary third party
consents; or (4) any of the terms or conditions of Paragraph 10 are not
satisfied.
2.9 Subject to the terms and conditions set forth herein (including,
without limitation, the conditions set forth in Paragraphs 10.1 and 10.2
hereof), the CBM I LP Settlement will be effected through a fully-integrated
two-step process approved by the Court as described in this Paragraph 2.9.
(a) CBM I LP Unit Acquisition. The first step of the CBM I LP
-------------------------
Settlement shall be the acquisition by the Joint Venture or one or more of its
designees of the CBM I LP Units held by the CBM I LP Plaintiffs, the Palm
Intervenors, the Equity Intervenors and the Insiders (other than CBM One LLC)
and the release of the Released Persons from the Released CBM I LP Claims by the
CBM I LP Plaintiffs, the Palm Intervenors and the Equity Intervenors (the "CBM I
LP Unit Acquisition"). In the CBM I LP Unit Acquisition, the Joint Venture shall
pay or cause to be paid, at the appropriate time as provided herein, to each CBM
I LP Plaintiff, Palm Intervenor, Equity Intervenor and Insider (other than CBM
One LLC) after receipt by the Claims Administrator of a valid CBM I LP Proof of
Claim as described in Paragraph 1.15 hereof prior to the CBM I LP Unit
Acquisition Closing Date, an amount with respect to each CBM I LP Unit (or
half-CBM I LP Unit or other fractional CBM I LP Unit) so acquired equal to its
pro-rata proportion of the Net Settlement Amount with respect to CBM I LP. To
receive the Net Settlement Amount with respect to CBM I LP, a CBM I LP
Plaintiff, Palm Intervenor, Equity Intervenor or Insider (other than CBM One
LLC), as the case may be, shall have executed and delivered the CBM I LP Proof
of Claim prior to the CBM I LP Unit Acquisition Date, pursuant to which such
person shall have (A) assigned, transferred and conveyed to the Joint Venture or
one or more of its designees all right, title and interest in all CBM I LP
Units, half-CBM I LP
Settlement Agreement - Page 30
<PAGE>
Units and other fractional CBM I LP Units owned by such person, together with
all rights, title and interest held, owned or claimed in CBM I LP, free and
clear of all pledges, security interests, liens and other encumbrances
whatsoever, and (B) released the Released Persons from the Released CBM I LP
Claims. The CBM I LP Unit Acquisition shall be effective as of the Effective
Date, and the CBM I LP Unit Acquisition Closing Date shall be as soon as
practicable following the Effective Date.
(b) CBM I LP Merger. The second step of the Settlement with
---------------
respect to CBM I LP shall be the merger of a subsidiary of the Joint Venture
with and into CBM I LP, with CBM I LP surviving as the surviving limited
partnership (the "CBM I LP Merger"), pursuant to an agreement and plan of merger
to be entered into among CBM I LP, the Joint Venture and such merger subsidiary
and attached to the CBM I LP Purchase Offer/Consent Solicitation Statement. In
the CBM I LP Merger, (A) the general partner interest held by CBM One LLC and
each CBM I LP Unit held directly or indirectly by the Joint Venture (including,
without limitation, the CBM I LP Units acquired in the CBM I LP Unit
Acquisition) shall remain outstanding and shall be unaffected by the CBM I LP
Merger, (B) the interests in the merger subsidiary shall be converted into CBM I
LP Units, (C) each CBM I LP Unit held by a CBM I LP Plaintiff, Palm Intervenor,
Equity Intervenor, or Insider (other than CBM One LLC) who has not executed and
delivered to the Claims Administrator a CBM I LP Proof of Claim prior to the CBM
I LP Unit Acquisition Closing Date shall be converted into the right to receive
cash in an amount equal to their pro-rata proportion of the Net Settlement
Amount with respect to CBM I LP, and (D) each remaining CBM I LP Unit, being a
CBM I LP Unit held by a Person who has opted-out of the CBM I LP Class and
elected not to participate in the CBM I LP Settlement, shall be converted into
the right to receive cash in an amount equal to the value of such CBM I LP
Settlement Agreement - Page 31
<PAGE>
Unit, determined in the following manner: (I) two independent, nationally
recognized hotel valuation firms approved by the Court and identified in the CBM
I LP Merger Agreement shall appraise the market value of the hotels owned by CBM
I LP as of the Effective Date, which appraisals shall be completed within 60
days after the effective time of the CBM I LP Merger and set forth in a report
certified by a MAI appraiser as having been prepared in accordance with the
requirements of the Standards of Professional Practice of the Appraisal
Institute and the Uniform Standards of Professional Appraisal Practice of the
Appraisal Foundation (which may be based on site visits to 10 or more hotels and
a limited scope review deemed appropriate by such appraisal firm); and (II) the
value of such CBM I LP Unit shall be equal to the amount that would be
distributed with respect to such CBM I LP Unit if the CBM I LP hotels were sold
for an amount equal to the average of the appraised values determined by the two
appraisers, all outstanding indebtedness of CBM I LP and its subsidiaries were
repaid in full in accordance with its terms (including any applicable defeasance
costs and prepayment penalties), all other liabilities of CBM I LP and its
subsidiaries were paid in full (including all amounts due under the CBM I LP
management agreement), and CBM I LP thereafter were liquidated and the
liquidation proceeds were distributed among the CBM I LP partners in accordance
with the terms of the CBM I LP Partnership Agreement. The amount to be received
in the CBM I LP Merger by the holders of the CBM I LP Units who have opted-out
of the CBM I LP Class and elected not to participate in the CBM I LP Settlement
will not include any amount with respect to any claims against the Defendants.
The CBM I LP Merger shall be consummated and be effective on the CBM I LP Unit
Acquisition Closing Date immediately following consummation of the CBM I LP Unit
Acquisition, and thereafter the holders of CBM I LP Units who have not yet
delivered a CBM I LP Proof of Claim and holders of CBM I LP Units who have
opted-out of the
Settlement Agreement - Page 32
<PAGE>
CBM I LP Class and elected not to participate in the CBM I LP Settlement shall
no longer hold any equity interest in CBM I LP.
2.10 CBM I LP Plaintiffs who elect not to participate ("Opt-Out CBM I
LP Plaintiffs") will be informed in the proposed CBM I LP Notice that in
addition to the payment described in Paragraph 2.9(b)(D), they are free to
pursue individual claims against the Defendants by hiring independent counsel,
which will not include any counsel who have appeared for the CBM I LP Plaintiffs
in the Haas Litigation.
2.11 Notwithstanding the failure of any CBM I LP Plaintiff, Palm
Intervenors, Equity Intervenors or Insiders to execute and deliver the CBM I LP
Proof of Claim, upon the Judgment Order becoming Final, such CBM I LP
Plaintiffs, Palm Intervenors, Equity Intervenors and Insiders will be deemed to
have: (1) released the Released CBM I LP Claims against the Released Persons;
and (2) assigned, transferred and conveyed to the Joint Venture or one or more
of its designees, all CBM I LP Units, half-units and other fractional units in
CBM I LP.
3. CBM II LP Settlement
--------------------
3.1 As part of the CBM II LP Settlement, and subject to the terms and
conditions contained herein, the Joint Venture will pay or cause to be paid the
CBM II LP Settlement Amount on behalf of and for the benefit of the CBM II LP
Plaintiffs, the Palm Intervenors, the Equity Intervenors and the Insiders (other
than CBM Two LLC).
3.2 As part of the CBM II LP Settlement, and subject to the terms and
conditions contained herein, the CBM II LP Plaintiffs, the Palm Intervenors and
Equity Intervenors will RELEASE, ACQUIT and FOREVER DISCHARGE the Released
Persons from the Released CBM II LP Claims as of the Effective Date. The
Released CBM II LP Claims are defined in Exhibit C, attached hereto and
incorporated herein by reference.
Settlement Agreement - Page 33
<PAGE>
3.3 As part of the CBM II LP Settlement, and subject to the terms and
conditions contained herein, the CBM II LP Plaintiffs, the Palm Intervenors, the
Equity Intervenors and the Insiders (other than CBM Two LLC) will assign,
transfer and convey to the Joint Venture or to one or more of its designees, all
CBM II LP Partnership Units, half-units and other fractional units, together
with all rights, title and interest held, owned or claimed in CBM II LP.
3.4 As part of the CBM II LP Settlement, and subject to the terms and
conditions contained herein, each CBM II LP Plaintiff, Palm Intervenor and
Equity Intervenor will be given an opportunity to vote on those certain Proposed
CBM II LP Partnership Agreement Amendments which will be described in the CBM II
LP Purchase Offer/Consent Solicitation Statement to be sent to each CBM II LP
Plaintiff, Palm Intervenor and Equity Intervenor.
3.5 As part of the CBM II LP Settlement, and subject to the terms and
conditions contained herein, each CBM II LP Plaintiff, Palm Intervenor and
Equity Intervenor will be given an opportunity to vote on the CBM II LP Merger
which will be described in the CBM II LP Purchase/Offer Consent Solicitation
Statement sent to all CBM II LP Plaintiffs, Palm Intervenors and Equity
Intervenors.
3.6 As part of the CBM II LP Settlement, and subject to the terms and
conditions contained herein, and before payment of any CBM II LP Settlement
Amount is made to any such person, each CBM II LP Plaintiff, Palm Intervenor,
Equity Intervenor and Insider will execute and timely return the CBM II LP Proof
of Claim in the form and manner described therein.
3.7 Defendants have the unilateral option, at their sole discretion
prior to the entry of the Judgment Order, to terminate the CBM II LP Settlement,
without cost or expense, other than notice costs relating to the CBM II LP
Settlement, if: (1) holders of more than ten percent (10%) of the CBM II LP
Units opt-out of the CBM II LP Settlement; or (2) holders of a majority of the
Settlement Page - 34
<PAGE>
CBM II LP Units (other than those owned by Insiders) fail to vote in favor of or
give written consent to the CBM II LP Merger or the Proposed CBM II LP
Partnership Agreement Amendments; or (3) Defendants fail to receive any
necessary third party consents; or (4) the terms and conditions of Paragraph 10
are not satisfied.
3.8 Subject to the terms and conditions set forth herein (including,
without limitation, the conditions set forth in Paragraphs 10.1 and 10.2
hereof), the CBM II LP Settlement will be effected through a fully-integrated
two-step process approved by the Court as described in this Paragraph 3.8.
(a) CBM II LP Unit Acquisition. The first step of the CBM II LP
--------------------------
Settlement shall be the acquisition by the Joint Venture or one or more of its
designees of the CBM II LP Units held by the CBM II LP Plaintiffs, the Palm
Intervenors, the Equity Intervenors and Insiders (other than CBM Two LLC) and
the release of the Released Persons from the Released CBM II LP Claims by the
CBM II LP Plaintiffs, the Palm Intervenors, the Equity Intervenors and the
Insiders (the "CBM II LP Unit Acquisition"). In the CBM II LP Unit Acquisition,
the Joint Venture shall pay or cause to be paid, at the appropriate time as
provided herein, to each CBM II LP Plaintiff, Palm Intervenors, Equity
Intervenors and Insiders (other than CBM Two LLC) after receipt by the Claims
Administrator of a valid CBM II LP Proof of Claim as described in Paragraph 1.76
hereof, prior to the CBM II LP Unit Acquisition Closing Date, an amount with
respect to each CBM II LP Unit (or half-CBM II LP Unit or other fractional CBM
II LP Unit) so acquired equal to their pro-rata proportion of the Net Settlement
Amount with respect to CBM II LP. To receive the Net Settlement Amount with
respect to CBM II LP, a CBM II LP Plaintiff, Palm Intervenor, Equity Intervenor
and Insider (other than CBM Two LLC), as the case may be, shall have executed
and delivered the CBM II LP Proof of Claim, prior to the CBM II LP Unit
Settlement Agreement - Page 35
<PAGE>
Acquisition Closing Date, pursuant to which such person shall have (A) assigned,
transferred and conveyed to the Joint Venture or one or more of its designees
all rights, title and interest in all CBM II LP Units, half-CBM II LP Units and
other fractional CBM II LP Units owned by such person, together with all rights,
title and interest held, owned or claimed in CBM II LP, free and clear of all
pledges, security interests, liens and other encumbrances whatsoever, and (B)
released the Released Persons from the Released CBM II LP Claims. The CBM II LP
Unit Acquisition shall be effective as of the Effective Date and shall be
consummated as soon as practicable following the Effective Date.
(b) CBM II LP Merger. The second step of the Settlement with respect
----------------
to CBM II LP shall be the merger of a subsidiary of the Joint Venture with and
into CBM II LP, with CBM II LP surviving as the surviving limited partnership
(the "CBM II LP Merger"), pursuant to an agreement and plan of merger to be
entered into among CBM II LP, the Joint Venture and such merger subsidiary and
attached to the CBM II LP Purchase Offer/Consent Solicitation Statement. In the
CBM II LP Merger, (A) the general partner interest held by CBM One LLC and each
CBM II LP Unit held directly or indirectly by the Joint Venture (including,
without limitation, the CBM II LP Units acquired in the CBM II LP Unit
Acquisition) shall remain outstanding and shall be unaffected by the CBM II LP
Merger, (B) the interests in the merger subsidiary shall be converted into CBM
II LP Units, (C) each CBM II LP Unit held by a CBM II LP Plaintiff, a Palm
Intervenor, an Equity Intervenor or Insider (other than CBM Two LLC) who has not
executed and delivered to the Claims Administrator a CBM II LP Proof of Claim
prior to the CBM II LP Unit Acquisition Closing Date shall be converted into the
right to receive cash in an amount equal to their pro-rata proportion of the Net
Settlement Amount with respect to CBM II LP, and (D) each remaining CBM II LP
Unit, being a CBM II LP Unit held by a Person who has
Settlement Agreement - Page 36
<PAGE>
opted-out of the CBM II LP Class and elected not to participate in the CBM II LP
Settlement, shall be converted into the right to receive cash in an amount equal
to the value of such CBM II LP Unit, determined in the following manner: (I) two
independent, nationally recognized hotel valuation firms approved by the Court
and identified in the CBM II LP merger agreement shall appraise the market value
of the hotels owned by CBM II LP as of the Effective Date, which appraisals
shall be completed within 60 days after the effective time of the CBM II LP
Merger and set forth in a report certified by a MAI appraiser as having been
prepared in accordance with the requirements of the Standards of Professional
Practice of the Appraisal Institute and the Uniform Standards of Professional
Appraisal Practice of the Appraisal Foundation (which may be based on site
visits to 10 or more hotels and a limited scope review deemed appropriate by
such appraisal firm); and (II) the value of such CBM II LP Unit shall be equal
to the amount that would be distributed with respect to such CBM II LP Unit if
the CBM II LP hotels were sold for an amount equal to the average of the
appraised values determined by the two appraisers, all outstanding indebtedness
of CBM II LP and its subsidiaries were repaid in full in accordance with its
terms (including any applicable defeasance costs and prepayment penalties), all
other liabilities of CBM II LP and its subsidiaries were paid in full (including
all amounts due under the CBM II LP Management Agreement), and CBM II LP
thereafter were liquidated and the liquidation proceeds were distributed among
the CBM II LP partners in accordance with the terms of the CBM II LP Partnership
Agreement. The amount to be received in the CBM II LP Merger by the holders of
the CBM II LP Units who have opted-out of the CBM II LP Class and elected not to
participate in the CBM II LP Settlement will not include any amount with respect
to any claims against the Defendants. The CBM II LP Merger shall be consummated
and be effective on the CBM II LP Unit Acquisition Closing Date immediately
following consummation
Settlement Agreement - Page 37
<PAGE>
of the CBM II LP Unit Acquisition and thereafter the holders of CBM II LP Units
who have not yet delivered a CBM II LP Proof of Claim and holders of CBM II LP
Units who have opted-out of the CBM II LP Class and elected not to participate
in the CBM II LP Settlement shall no longer hold any equity interest in CBM II
LP.
3.9 CBM II LP Plaintiffs who elect not to participate ("Opt-Out CBM
II LP Plaintiffs") will be informed in the CBM II LP Notice that in addition to
the payment described in Paragraph 3.8(b)(D), they are free to pursue individual
claims against the Defendants by hiring independent counsel, which will not
include any counsel who have appeared for the CBM II LP Plaintiffs in the Milkes
Litigation.
3.10 Notwithstanding any CBM II LP Plaintiff, Palm Intervenors, Equity
Intervenors or Insiders failure to execute and deliver the CBM II LP Proof of
Claim, upon the Judgment Order becoming Final, such CBM II LP Plaintiffs, Palm
Intervenors, Equity Intervenors and Insiders will be deemed to have: (1)
released the Released CBM II LP Claims against the Released Persons; and (2)
assigned, transferred and conveyed to the Joint Venture or one or more of its
designees, all CBM II LP Partnership Units, half-units and other fractional
units in CBM II LP.
4. The Residence Inn I LP Settlement
---------------------------------
4.1 As part of the Residence Inn I LP Settlement, and subject to the
terms and conditions contained herein, Plaintiffs' Counsel, with the advice and
consent of Defendants' Counsel, will move for and be granted certification of a
settlement class consisting of all Residence Inn I LP unit holders, excluding,
however, the Equity Intervenors who own units in Residence Inn I LP (the
"Residence Inn I LP Class").
Settlement Agreement - Page 38
<PAGE>
4.2 As part of the Residence Inn I LP Settlement, and subject to the
terms and conditions contained herein, Rockledge and Marriott International or
its designee, will pay or cause to be paid the Residence Inn I LP Settlement
Amount.
4.3 As part of the Residence Inn I LP Settlement, and subject to the
terms and conditions contained herein, the Residence Inn I LP Plaintiffs, the
Palm Intervenors and the Equity Intervenors will RELEASE, ACQUIT and FOREVER
DISCHARGE the Released Persons from the Residence Inn I LP Released Claims as of
the Effective Date. The Residence Inn I LP Released Claims are described on
Exhibit F attached hereto and incorporated herein by reference.
4.4 As part of the Residence Inn I LP Settlement, and subject to the
terms and conditions contained herein, and before payment of any Residence Inn I
LP Settlement Amount is made to any such person, each Residence Inn I LP
Plaintiff and Equity Intervenor will execute and timely return the Residence Inn
I LP Proof of Claim in the form and manner described therein.
4.5 As part of the Residence Inn I LP Settlement, and subject to the
terms and conditions contained herein, Defendants will waive the right to
receive payment in the future of $29,781,000.00 in deferred management fees
presently owed to the manager pursuant to the terms of the Residence Inn I LP
Management Agreement.
4.6 Defendants have the unilateral option, at their sole discretion
prior to entry of the Judgment Order, to terminate the Residence Inn I LP
Settlement, without cost or expense, other than notice costs relating to the
Residence Inn I LP Settlement, if holders of more than ten percent (10%) of the
65,600 units outstanding in Residence Inn I LP opt-out of the Residence Inn I LP
Settlement. If the Residence Inn I LP Settlement proceeds with fewer than one
hundred
Settlement Agreement - Page 39
<PAGE>
percent (100%) of the 65,600 units participating, the amount of the Residence
Inn I LP Settlement Amount shall be reduced by $228.38 for every such
non-participating unit.
4.7 Residence Inn I LP Plaintiffs who elect not to participate
("Opt-Out Residence Inn I Plaintiffs") will be informed in the proposed
Residence Inn I LP Notice that they will receive no settlement payment but are
free to pursue individual claims against the Defendants by hiring independent
counsel, which will not include any counsel who have appeared for the Residence
Inn I LP Plaintiffs in the Haas Litigation.
4.8 The Residence Inn I LP Settlement is also subject to Paragraph 10
hereof.
4.9 Notwithstanding the failure of any Residence Inn I LP Plaintiff,
Palm Intervenors or Equity Intervenors to execute and deliver the Residence Inn
I LP Proof of Claim, upon the Judgment Order becoming Final, such Residence Inn
I LP Plaintiffs, Palm Intervenors and Equity Intervenors will be deemed to have
released the Released Residence Inn I LP Claims against the Released Persons.
5. The Residence Inn II LP Settlement
----------------------------------
5.1 As part of the Residence Inn II LP Settlement, and subject to the
terms and conditions contained herein, Plaintiffs' Counsel, with the advice and
consent of Defendants' Counsel, will move for and be granted certification of a
settlement class consisting of all Residence Inn II LP unit holders, excluding,
however, the Equity Intervenors who own units in Residence Inn II LP (the
"Residence Inn II LP Class").
5.2 As part of the Residence Inn II LP Settlement, and subject to the
terms and conditions contained herein, Rockledge and Marriott International or
its designee, will pay or cause to be paid the Residence Inn I LP Settlement
Amount.
5.3 As part of the Residence Inn II LP Settlement, and subject to the
terms and
Settlement Agreement - Page 40
<PAGE>
conditions contained herein, the Residence Inn II LP Plaintiffs, the
Palm Intervenors and the Equity Intervenors will RELEASE, ACQUIT and FOREVER
DISCHARGE the Released Persons from the Residence Inn II LP Released Claims as
of the Effective Date. The Residence Inn II LP Released Claims are described on
Exhibit G attached hereto and incorporated herein by reference.
5.4 As part of the Residence Inn II LP Settlement, and subject to the
terms and conditions contained herein, and before payment of any Residence Inn
II LP Settlement Amount is made to any such person, each Residence Inn II LP
Plaintiff and Equity Intervenor will execute and return the Residence Inn II LP
Proof of Claim in the form and manner described therein.
5.5 As part of the Residence Inn II LP Settlement, and subject to the
terms and conditions contained herein, Defendants will waive the right to
receive payment in the future of $22,693,000.00 in deferred management fees
presently owed to the manager pursuant to the terms of the Residence Inn II LP
Management Agreement.
5.6 Defendants have the unilateral option, at their sole discretion
prior to the entry of the Judgment Order, to terminate the Residence Inn II LP
Settlement, without cost or expense, other than notice costs relating to the
Residence Inn II LP Settlement, if holders of more than ten percent (10%) of the
70,000 units outstanding in Residence Inn II LP opt-out of the Residence Inn II
LP Settlement. If the Residence Inn II LP Settlement proceeds with fewer than
one hundred percent (100%) of the 70,000 units participating, the amount of the
Residence Inn II LP Settlement Amount shall be reduced by $228.38 for every such
non-participating unit.
5.7 Residence Inn II LP Plaintiffs who elect not to participate
("Opt-Out Residence Inn II Plaintiffs") will be informed in the proposed
Residence Inn II LP Notice that they will
Settlement Agreement - Page 41
<PAGE>
receive no settlement payment but are free to pursue individual claims against
the Defendants by hiring independent counsel, which will not include any counsel
who have appeared for Residence Inn II LP Plaintiffs in the Haas Litigation.
5.8 The Residence Inn II LP Settlement is also subject to Paragraph
10 herein.
5.9 Notwithstanding the failure of any Residence Inn II LP Plaintiff,
Palm Intervenors or Equity Intervenors to execute and deliver the Residence Inn
II LP Proof of Claim, upon the Judgment Order becoming Final, such Residence Inn
II LP Plaintiffs, Palm Intervenors and Equity Intervenors will be deemed to have
released the Released Residence Inn II LP Claims against the Released Persons.
6. The Fairfield Inn LP Settlement
-------------------------------
6.1 As part of the Fairfield Inn LP Settlement, and subject to the
terms and conditions contained herein, Plaintiffs' Counsel, with the advice and
consent of Defendants' Counsel, will move for and be granted certification of a
settlement class consisting of all Fairfield Inn LP unit holders, excluding,
however, the Equity Intervenors who own units in Fairfield Inn LP (the
"Fairfield Inn LP Class").
6.2 As part of the Fairfield Inn LP Settlement, and subject to the
terms and conditions contained herein, Rockledge and Marriott International or
its designee, will pay or cause to be paid the Fairfield Inn LP Settlement
Amount.
6.3 As part of the Fairfield Inn LP Settlement, and subject to the
terms and conditions contained herein, the Fairfield Inn LP Plaintiffs, the Palm
Intervenors and Equity Intervenors will RELEASE, ACQUIT and FOREVER DISCHARGE
the Released Persons from the Fairfield Inn LP Released Claims as of the
Effective Date. The Fairfield Inn LP Released Claims are described on Exhibit E
attached hereto and incorporated herein by reference.
Settlement Agreement - Page 42
<PAGE>
6.4 As part of the Fairfield Inn LP Settlement, and subject to the
terms and conditions contained herein, and before payment of any Fairfield Inn
LP Settlement Amount is made to any such person, each Fairfield Inn LP Plaintiff
and Equity Intervenor will execute and return the Fairfield Inn LP Proof of
Claim in the form and manner described therein.
6.5 As part of the Fairfield Inn LP Settlement, and subject to the
terms and conditions contained herein, Defendants will waive the right to
receive payment in the future of $23,483,000.00 in deferred management fees
presently owed to the manager pursuant to the terms of the Fairfield Inn LP
Management Agreement.
6.6 Defendants have the unilateral option, at their sole discretion
prior to entry of the Judgment Order, to terminate the Fairfield Inn LP
Settlement, without cost or expense, other than notice costs relating to the
Fairfield Inn LP Settlement, if holders of more than ten percent (10%) of the
83,337 units outstanding in Fairfield Inn LP opt-out of the Fairfield Inn LP
Settlement. If the Fairfield Inn LP Settlement proceeds with fewer than one
hundred percent (100%) of the 83,337 units participating, the amount of the
Fairfield Inn LP Settlement Amount shall be reduced by $228.38 for every such
non-participating unit.
6.7 Fairfield Inn LP Plaintiffs who elect not to participate ("Opt-
Out Fairfield Inn LP Plaintiffs") will be informed in the proposed Fairfield Inn
LP Notice that they will receive no settlement payment but are free to pursue
individual claims against the Defendants by hiring independent counsel, which
will not include any counsel who have appeared for the Fairfield Inn LP
Plaintiffs in the Haas Litigation.
6.8 The Fairfield Inn LP Settlement is subject to Paragraph 10
herein.
6.9 Notwithstanding the failure of any Fairfield Inn LP Plaintiff,
Palm Intervenors or Equity Intervenors to execute and deliver the Fairfield Inn
LP Proof of Claim, upon the
Settlement Agreement - Page 43
<PAGE>
Judgment Order becoming Final, such Fairfield Inn LP Plaintiffs, Palm
Intervenors and Equity Intervenors will be deemed to have released the Released
Fairfield Inn LP Claims against the Released Persons.
7. The Desert Springs LP Settlement
--------------------------------
7.1 As part of the Desert Springs LP Settlement, and subject to the
terms and conditions contained herein, Plaintiffs' Counsel, with the advice and
consent of Defendants' Counsel, will move for and be granted certification of a
settlement class consisting of all former Desert Springs LP unit holders in two
sub-classes: (1) the former holders of the 206 units in Desert Springs LP who
have individually appeared in the Haas Litigation; and (2) all other former
Desert Springs LP Unit holders, excluding the Equity Intervenors who formerly
owned units in Desert Springs LP (collectively the "Desert Springs LP Class").
7.2 As part of the Desert Springs LP Settlement, and subject to the
terms and conditions contained herein, Host Marriott and Marriott International
or its designee will pay or cause to be paid the Desert Springs LP Settlement
Amount.
7.3 As part of the Desert Springs LP Settlement, and subject to the
terms and conditions contained herein, the Desert Springs LP Plaintiffs, the
Palm Intervenors and the Equity Intervenors will RELEASE, ACQUIT and FOREVER
DISCHARGE the Released Persons from the Desert Springs LP Released Claims as of
the Effective Date. The Desert Springs LP Released Claims are described on
Exhibit D attached hereto and incorporated herein by reference.
7.4 As part of the Desert Springs LP Settlement, and subject to the
terms and conditions contained herein, and before payment of any Desert Springs
LP Settlement Amount is made to any such person, each Desert Springs LP
Plaintiff and Equity Intervenor will execute
Settlement Agreement - Page 44
<PAGE>
and return the Desert Spring LP Proof of Claim in the form and manner described
therein.
7.5 Defendants have the unilateral option, at their sole discretion
prior to entry of the Judgment Order, to terminate the Desert Springs LP
Settlement, without cost or expense, other than notice costs relating to the
Desert Springs LP Settlement, if the holders of more than ten percent (10%) of
the 900 former units outstanding in Desert Springs LP opt-out of the Desert
Springs LP Settlement. If the Desert Springs LP Settlement proceeds with fewer
than one hundred percent (100%) of the holders of the 900 former units
participating, the amount of the Desert Springs LP Settlement Amount shall be
reduced by the amount set forth in Paragraph 1.41 for every such
non-participating unit.
7.6 Desert Springs LP Plaintiffs who elect not to participate in the
Desert Springs LP Class ("Opt-Out Desert Springs LP Plaintiffs") will be
informed in the proposed Desert Springs LP Notice that they will receive no
settlement payment but are free to pursue individual claims against the
Defendants by hiring independent counsel, which will not include any counsel who
have appeared for the Desert Springs LP Plaintiffs in the Haas Litigation.
7.7 The Desert Springs LP Settlement is subject to Paragraph 10
herein.
7.8 Notwithstanding the failure of any Desert Springs LP Plaintiff,
Palm Intervenors or Equity Intervenors to execute and deliver the Desert Springs
LP Proof of Claim, upon the Judgment Order becoming Final, such Desert Springs
LP Plaintiffs, Palm Intervenors and Equity Intervenors will be deemed to have
released the Released Desert Springs LP Claims against the Released Persons.
Settlement Agreement - Page 45
<PAGE>
8. The Atlanta Marquis LP Settlement
---------------------------------
8.1 As part of this Settlement, Plaintiffs' Counsel and Equity's
Counsel will dismiss without prejudice any and all claims in the Haas Litigation
relating to Atlanta Marquis LP and inform the Atlanta Marquis Plaintiffs that
(i) they are dismissing all claims relating to Atlanta Marquis LP; and (ii) they
will be class members in the Sturm Litigation with respect to the Atlanta
Marquis LP Settlement.
8.2 As part of the Atlanta Marquis LP Settlement, Atlanta Marquis
LP's Counsel, with the advice and consent of Defendants' Counsel, will move for
and be granted certification of a settlement class consisting of all parties in
the Sturm Litigation who formerly owned units in Atlanta Marquis LP and all
other former Atlanta Marquis LP unit holders (the "Atlanta Marquis LP Class"),
excluding, however, Equity Intervenors who owned units in Atlanta Marquis LP.
8.3 As part of the Atlanta Marquis LP Settlement, Host Marriott and
Marriott International or its designee, will pay or cause to be paid the Atlanta
Marquis LP Settlement Amount.
8.4 As part of the Atlanta Marquis LP Settlement, the Sturm
Plaintiffs will RELEASE, ACQUIT and FOREVER DISCHARGE the Released Persons.
8.5 As part of the Atlanta Marquis LP Settlement, and before payment
of any Atlanta Marquis LP Settlement Amount is made to any such person, each
Sturm Plaintiff will execute and return the Atlanta Marquis LP Proof of Claim in
the form and manner described therein.
8.6 Defendants have the unilateral option, at their sole discretion
prior to entry of the Judgment Order to terminate the Atlanta Marquis LP
Settlement, without cost or expense, other than notice costs relating to the
Atlanta Marquis LP Settlement, if holders of more than ten
Settlement Agreement - Page 46
<PAGE>
percent (10%) of the former 530 unit holders in Atlanta Marquis LP opt-out of
the Atlanta Marquis LP Settlement. If the Atlanta Marquis LP Settlement proceeds
with fewer than one hundred percent (100%) of the 530 units participating, the
amount of the Atlanta Marquis LP Settlement Amount shall be reduced by $8,018.86
for every such non-participating unit.
8.7 Sturm Plaintiffs who elect not to participate ("Opt-Out Atlanta
Marquis LP Plaintiffs") will be informed in the Atlanta Marquis LP Notice that
they will receive no settlement payment but are free to pursue individual claims
against the Defendants by hiring independent counsel, which will not include any
counsel who have appeared for the Atlanta Marquis LP Plaintiffs or the Sturm
Plaintiffs.
9. The SLC
-------
9.1 The SLC agrees that the terms of the CBM II LP Settlement
(including, without limitation, the terms and conditions of the CBM II LP Unit
Acquisition and the CBM II LP Merger) are fair and reasonable and include a fair
and reasonable settlement of any and all derivative claims, expressed or
implied, made on behalf of CBM II LP in the Milkes Litigation. If holders of ten
percent (10%) or less of the CBM II LP Units opt-out of the CBM II LP
Settlement, or, at Defendants' sole option, if holders of more than ten percent
(10%) opt-out and Defendants waive, in writing, the condition set forth in
Paragraph 10.2(a) as to CBM II LP, the SLC agrees to release, on behalf of CBM
II LP and in favor of all Defendants, any and all such derivative claims.
9.2 The CBM II LP Notice shall state that if holders of ten percent
(10%) or less of the CBM II LP Units opt-out of the CBM II LP Settlement, or, at
Defendants' sole option, if holders of more than ten percent (10%) of the CBM II
LP Units opt-out and Defendants waive, in writing, the condition set forth in
Paragraph 10.2(a) as to CBM II LP, the SLC agrees to
Settlement Agreement - Page 47
<PAGE>
release upon the Effective Date, on behalf of CBM II LP and in favor of all
Defendants, any and all such derivative claims.
9.3 Based on the information received by the SLC to date, the terms
of the CBM I LP Settlement (including, without limitation, the terms and
conditions of the CBM I LP Unit Acquisition and the CBM I LP Merger) appear to
the SLC to be fair and reasonable and to include a fair and reasonable
settlement of any and all derivative claims, expressed or implied, made on
behalf of CBM I LP in the Haas Litigation. It further appears to the SLC to be
fair and reasonable to release, and subject to the SLC's due diligence review,
the SLC shall release, on behalf of CBM I LP, in favor of all Defendants, any
such derivative claims if ten percent (10%) or less of the CBM I LP Units
opt-out of the CBM I LP Settlement, or, at Defendants' sole option, if more than
ten percent (10%) opt-out and Defendants waive, in writing, the condition set
forth in Paragraph 10.2(a) as to CBM I LP.
9.4 Subject to the SLC's due diligence review, which shall be
concluded before the CBM I LP Notice is provided to the Court, the CBM I LP
Notice shall state that if holders of ten percent (10%) or less of the CBM I LP
Units opt-out of the CBM I LP Settlement, or, at Defendants' sole option, if
holders of more than ten percent (10%) of the CBM I LP Units opt-out and
Defendants waive, in writing, the condition set forth in Paragraph10.2(a) as to
CBM I LP, the SLC agrees to release upon the Effective Date, on behalf of CBM I
LP and in favor of all Defendants, any and all such derivative claims.
9.5 The fees and expenses of the SLC, the SLC's Counsel and any
experts retained by the SLC shall be paid by the Defendants or their designees.
10. Conditions to the Effectiveness of the Settlement
-------------------------------------------------
10.1 Conditions Prior to Notice. Defendants' obligation to proceed
--------------------------
with this
Settlement Agreement - Page 48
<PAGE>
Settlement Agreement and consummate the transactions contemplated in connection
therewith is subject to the condition precedent that any and all necessary
consents from third parties shall have been obtained and remain in full force
and effect; provided that Host Marriott, Rockledge and Marriott International
shall have the right, in their sole and absolute discretion, to waive any such
condition, in writing, as to any or all of such consents, which may include the
following:
(a) If required, the lenders under the Amended and Restated Credit
Agreement dated as of August 5, 1998 (as amended to the date hereof) under which
Host Marriott is the borrower;
(b) If required, the lender under the Loan Agreement dated as
of March 21, 1997 (as amended to the date hereof), under
which CBM I LP is the borrower (and any Rating Comfort
Letter (as defined therein) required in connection with the
Settlement shall have obtained);
(c) If required, the holders of a majority of the outstanding
principal amount of Senior Secured Notes due 2008 issued by
CBM II LP;
(d) If required, any ground lessor (other than Marriott
International or any affiliate thereof) with respect to any
hotel owned by either of CBM I LP or Courtyard II
Associates; and
(e) If required, Hospitality Properties Trust (or its
successors or assigns) shall have waived its right to
purchase any partnership interest in CBM I LP or CBM II LP
pursuant to that certain Purchase-Sale and Option Agreement
by and among HMH Courtyard Properties, Inc., HMH
Properties, Inc., and Hospitality Properties, Inc., dated
as of February 3, 1995, as amended to the date hereof.
(f) If required, permission by the Securities and Exchange
Commission ("SEC") to mail the definitive Purchase
Offer/Consent Solicitation Statement to the holders of CBM
I LP Units and CBM II LP Units or the SEC staff shall have
decided not to review the Purchase Offer/Consent
Solicitation Statements.
Following execution of this Settlement Agreement, Defendants will use
reasonable
Settlement Agreement - Page 49
<PAGE>
efforts to obtain such consents/permission within sixty (60) days, and notify
Plaintiffs' Counsel, Equity's Counsel and Palm's Counsel in writing when such
consents have been obtained. If Defendants determine in their sole discretion
that such consents/permission cannot be obtained, unless Defendants elect in
their sole discretion to waive the requirement of obtaining such
consent/permission in writing, Defendants shall notify Plaintiffs' Counsel,
Palm's Counsel and Equity's Counsel in writing, at which time this Settlement
Agreement and the Settlement shall be null and void and without cost or expense
(including Interest expense) to any party, and without further action, the
Defendants, the Joint Venture and Rockledge shall be relieved of any obligations
under this Settlement Agreement. If Defendants Counsel has not, within 120 days
of the execution of this Settlement Agreement, notified Plaintiffs' Counsel,
Palm's Counsel and Equity's Counsel that (i) such consents/permission have been
obtained; (ii) such consents/permission have been waived; or (iii) such
consents/permission cannot be obtained, then Plaintiffs' Counsel has the option
to notify Defendants' Counsel in writing that the Settlement shall be null and
void without cost or expense (including Interest expense) to any party, and
Palm's Counsel and/or Equity's Counsel has the option to notify Defendants'
Counsel in writing that the Palm Intervenors and/or the Equity Intervenors (as
the case may be) withdraw from the Settlement without cost or expense (including
Interest expense) to any party; provided that such notice from Plaintiffs'
Counsel, Palm's Counsel and/or Equity's Counsel is sent prior to notice being
sent by Defendants' Counsel that the consents/permission have been obtained or
waived.
10.2 Conditions Following Notice. Assuming all conditions in Paragraph
---------------------------
10.1 have been satisfied or waived, and following the approval by the Court of
certification of the CBM I
Settlement Agreement - Page 50
<PAGE>
LP Class, the Residence Inn I LP Class, the Residence Inn II LP Class, the
Fairfield Inn LP Class, and the Desert Springs LP Class, and the sending to the
Plaintiffs of the appropriate Notices, Defendants shall be obligated to proceed
with this Settlement only if each of the following events shall have occurred
and remain in effect within the time set for all Plaintiffs, the Palm
Intervenors and Equity Intervenors to return the Consent Forms and/or Proof of
Claims or opt-out of the Settlements:
(a) Holders of ten percent (10%) or less of the units held by
limited partners (other than Insiders) in CBM I LP, CBM II
LP, Residence Inn I LP, Residence Inn II LP, Desert Springs
LP and Atlanta Marquis LP shall have elected not to
participate in ("opted-out" of) the Settlement;
(b) Limited partners holding a majority of the CBM I LP Units
(excluding CBM I LP Units held by Insiders) shall have
submitted valid written CBM I LP Consent Forms voting in
favor of the CBM I LP Merger and the Proposed CBM I LP
Partnership Agreement Amendments; and
(c) Limited partners holding a majority of the CBM II LP Units
(excluding the CBM II LP Units held by Insiders) shall have
submitted valid written CBM II LP Consent Forms voting in
favor of the CBM II LP Merger and the Proposed CBM II LP
Partnership Agreement Amendments.
If any of the above conditions are not satisfied, unless Host Marriott,
Rockledge and Marriott International elect, in writing, in their sole and
absolute discretion, to waive any such condition and proceed with all, or any
one or more, or any combination of the CBM I LP Settlement, CBM II LP
Settlement, Residence Inn I LP Settlement, Residence Inn II LP Settlement,
Desert Springs LP Settlement and Atlanta Marquis LP Settlement, solely at the
option of Host Marriott, Rockledge and Marriott International, set forth in
writing, this Settlement Agreement and the Settlement as to all or any such
Partnerships shall be null and void and without cost or expense to any party
(including Interest expense) (and except for the Notice
Settlement Agreement - Page 51
<PAGE>
costs, as set forth elsewhere herein), and without further action, the
Defendants, the Joint Venture and Rockledge shall be relieved of any obligations
under this Settlement Agreement.
10.3 Plaintiffs' Counsel has substantially completed its due diligence
regarding the Settlement subject to receipt within fourteen (14) days of the
remaining documents previously requested from Defendants.
11. Payment of the Settlement Fund
------------------------------
11.1 On or before the third business day following the entry by the
Court of the executed Judgment Order, the Joint Venture, Rockledge, Host
Marriott and Marriott International, or one or more of their designees, shall
pay or cause to be paid by wire transfer the Settlement Fund to the Escrow
Agent, which will be deposited by the Escrow Agent in an interest-bearing
account pursuant to the Escrow Agreement in substantially the form attached as
Exhibit H. In the event that the Judgment Order does not become Final because an
appeal or other review of the Judgment Order has been filed, the Escrow Agent
will return the Settlement Fund, with interest, to the Joint Venture, Rockledge,
Host Marriott and Marriott International, in amounts as jointly instructed by
these four entities, by wire transfer, within two (2) business days after the
date the Escrow Agent receives documentation of such event. The Joint Venture,
Rockledge, Host Marriott and Marriott International or one or more of their
designees, will pay or cause to be paid by wire transfer the Settlement Fund
back to the Escrow Agent within three (3) business days after the order or
judgment by the appellate court affirming the Judgment Order becomes Final.
11.2 In the event that the Settlement Fund is returned to the Joint
Venture, Rockledge,
Settlement Agreement - Page 52
<PAGE>
Host Marriott Corporation and Marriott International pursuant to Paragraph 11.1
above, the Defendants agree to accrue Interest on the Fairfield Inn LP
Settlement Amount, Residence Inn I LP Settlement Amount, Residence Inn II LP
Settlement Amount and Desert Springs LP Settlement Amount until such time as the
Settlement Fund, with such accrued Interest (including Interest earned on that
portion of the Settlement Fund relating to such Settlement Amounts pursuant to
Paragraph 11.1 above), is paid back to the Escrow Agent pursuant to Paragraph
11.1 above.
11.3 The Escrow Agent shall not be authorized to distribute any amount
from the Settlement Fund to any Plaintiff, Palm Intervenor, Equity Intervenor,
Insider, or Plaintiffs' Counsel until after the Effective Date, and in
accordance with the Plan of Allocation and the Court's order with respect to the
payment of Plaintiffs' Counsel's Attorneys' Fees and reimbursement of expenses.
11.4 The Escrow Agent will not distribute any amount from the
Settlement Fund to any Plaintiff, Palm Intervenor, Equity Intervenor or Insider
unless and until a fully executed Proof of Claim is received by the Claims
Administrator and provided to Defendants' Counsel and Plaintiffs' Counsel.
11.5 If the Settlement does not become effective, all such Interest
shall inure to the benefit of the Joint Venture, Rockledge, Host Marriott and
Marriott International and shall be returned to the Joint Venture, Rockledge,
Host Marriott and Marriott International in such proportions as they shall agree
among themselves and in accordance with the provisions of Paragraph 11.1, less
any amounts necessary to pay the fees and expenses of the Escrow Agent and the
Claims Administrator.
11.6 The Escrow Agent shall not use or disburse any funds from the
Settlement Fund
Settlement Agreement - Page 53
<PAGE>
except as provided for in this Settlement Agreement, the Escrow Agreement, as
permitted by Order of the Court or with the written consent of the Parties.
11.7 In addition to the other terms and conditions contained herein,
the receipt by any Plaintiff, Palm Intervenor, Equity Intervenor or Insider of
any payment from the Settlement Fund or the execution, negotiation or deposit of
any check transferring or paying any amount from the Settlement Fund shall
constitute: (1) a full and final release of the Released Claims; and (2) an
assignment, conveyance and transfer of all CBM I LP and CBM II LP Units,
half-units and other fractional units owned by that person or its designees.
11.8 The Settlement Fund shall be deemed and considered to be in
custodia legis of the Court, and shall remain subject to the jurisdiction of the
Court, until such time as the Settlement Fund shall be distributed pursuant to
this Settlement Agreement and/or further Order(s) of the Court.
11.9 In the event that this Settlement Agreement is not approved, is
terminated, canceled, or fails to become effective for any reason, then none of
the Joint Venture, Rockledge, Host Marriott and Marriott International shall be
under any obligation to pay the Settlement Fund. In the event that the Judgment
Order does not become Final, or is reversed, or substantially modified on
appeal, then none of the Joint Venture, Rockledge, Host Marriott and Marriott
International shall be under any obligation to repay to the Escrow Agent the
Settlement Fund and this Settlement Agreement shall be terminated with the Joint
Venture, Rockledge, Host Marriott and Marriott International having no
obligation to pay the Settlement Fund.
12. Distribution of the Settlement Amounts and Settlement Documents
---------------------------------------------------------------
12.1 The Escrow Agent, subject to the supervision, direction and
approval of the Court, and subject to all the terms and conditions contained
herein, shall administer and oversee
Settlement Agreement - Page 54
<PAGE>
the distribution of the Settlement Fund to the Plaintiffs, Palm Intervenors,
Equity Intervenors, Insiders, and Plaintiffs' Counsel, pursuant to this
Settlement Agreement, the Escrow Agreement and the Plan of Allocation approved
by the Court.
12.2 Payment of the Settlement Fund in the manner provided in the Plan
of Allocation shall be deemed conclusive against any claim by any person or
entity receiving such payment.
12.3 Seven (7) days after the Effective Date, the Escrow Agent will be
authorized to distribute from the Settlement Fund to Plaintiffs' Counsel
Plaintiffs' Counsel's Attorneys' Fees.
12.4 Seven (7) days after the Effective Date, the Escrow Agent will be
authorized to distribute from the Settlement Fund to the Palm Intervenors,
Equity Intervenors and Insiders who have executed and timely returned their
Proof of Claims to the Claims Administrator before the Effective Date, their
pro-rata portion of the CBM I LP Settlement Amount, CBM II LP Settlement Amount,
Residence Inn I LP Settlement Amount, Residence Inn II LP Settlement Amount,
Fairfield Inn LP Settlement Amount, and/or Desert Springs LP Settlement Amount,
as the case may be, with no proportionate reduction for Plaintiffs' Counsels'
Attorneys' Fees.
12.5 For any Plaintiff who has submitted a valid Proof of Claim to the
Claims Administrator on or before the Effective Date, within seven (7) business
days following the Effective Date, the Escrow Agent shall distribute to that
person or entity their pro-rata portion of the Net Settlement Fund as set forth
in the Plan of Allocation. For any Plaintiff, Palm Intervenor, Equity Intervenor
or Insider who submits a valid Proof of Claim after the Effective Date, within
seven (7) business days following the receipt of the Proof of Claim by the
Claims Administrator, the Escrow Agent shall distribute to that person or entity
their Net Settlement Amount; provided that for any Plaintiff who has not
returned a Proof of Claim to the Claims Administrator within ninety (90) days
following the Effective Date, Plaintiffs' Counsel, as the
Settlement Agreement - Page 55
<PAGE>
case may be, may execute a Proof of Claim on behalf of that Plaintiff and
distribute to that Plaintiff that Plaintiff's pro-rata portion of the Net
Settlement Fund as set forth in the Plan of Allocation and the Judgment Order.
12.6 Completed and executed Proof of Claims, the CBM I LP Consent Forms
and the CBM II LP Consent Forms (collectively "Settlement Documents") shall be
sent to the Claims Administrator. Until the Effective Date, the Claims
Administrator shall hold all Settlement Documents and not distribute such
documents to Defendants; provided, however, that the Claims Administrator shall
give at least weekly (and otherwise, upon request) accountings of the status of
same to all counsel for the Settling Parties and will advise all counsel, in
writing, with sufficient back-up proof, including copies of the Consent Forms
and Proof of Claims, when the conditions set forth in Paragraph 10 of the
Settlement Agreement have been satisfied with respect to CBM I LP and CBM II LP.
On the day following the Effective Date, the Claims Administrator shall release
to the Defendants the Settlement Documents it has received to date. After the
Effective Date, the Claims Administrator shall, every two (2) days, release to
the Defendants all Settlement Documents it receives.
12.7 The Defendants and Defendants' Counsel shall have no
responsibility for or liability whatsoever with respect to the investment or
distribution of the Settlement Fund, the determination, administration,
calculation or payment of claims, or any losses incurred in connection
therewith, or with the formulation or implementation of the Plan of Allocation,
or the giving of any notice with respect to same.
12.8 It is understood and agreed by the Settling Parties that any
proposed Plan of Allocation of the Settlement Fund including, but not limited
to, any adjustments to be set forth therein, is not a part of this Settlement
Agreement, and may be considered by the Court
Settlement Agreement - Page 56
<PAGE>
separately from the Court's consideration of the fairness, reasonableness and
adequacy of the Settlement set forth in this Settlement Agreement, and any order
or proceedings relating to the Plan of Allocation or any appeal from any order
relating thereto or any reversal or modification thereof shall not operate to
terminate or cancel this Settlement Agreement or affect or delay the finality of
the Judgment Order and the Settlement of the Milkes and Haas Litigations as set
forth herein.
12.9 Each Plaintiff, Palm Intervenor, Equity Intervenor and Insider
shall be deemed to have submitted to the jurisdiction of the Court with respect
to all matters relating to the allocation of the Settlement Fund and/or any such
person's interest therein.
12.10 All proceedings with respect to the Settlement described by this
Settlement Agreement and the determination of all controversies relating
thereto, including disputed questions of law and all such fact with respect to
the validity of claims, shall be subject to the jurisdiction of the Court.
12.11 Payment of the fees and expenses of the Escrow Agent and Claims
Administrator shall be made (i) first, out of any interest accrued on the
Settlement Fund during the time the Settlement Fund is in escrow, and (ii) to
the extent such accrued interest is insufficient to cover such fees and
expenses, by Defendants.
12.12 Any disputes concerning the identity of the proper Person(s) to
receive any or all of a Plaintiffs' Net Settlement Amount, if not otherwise
resolved, will be finally determined by the Court. In the event of such a
dispute, the Escrow Agent will retain the Net Settlement Amount relating to such
Person(s) in the Settlement Fund until it receives a written order of the Court.
13. Agreement to Reduce Attorneys' Fees.
Settlement Agreement - Page 57
<PAGE>
13.1 In exchange for the waiver of deferred fees identified in
Paragraphs 4.5, 5.5 and 6.5, Plaintiffs' Counsel hereby agrees to reduce their
attorneys' fees by $4.25 million from the amount of attorneys' fees ultimately
awarded by the Court. The amount to be contributed to the Settlement Fund to pay
the attorneys' fees awarded to Plaintiffs' Counsel shall be reduced accordingly.
Anything to the contrary notwithstanding, however, such reduction shall not
reduce the amounts to be contributed to or distributed from the Settlement Fund
for and on behalf of the Plaintiffs. The Settling Parties and Plaintiffs'
Counsel hereby agree that for all purposes, including, without limitation,
federal and state income tax purposes, the $4.25 million shall not be treated as
having been paid.
14. Hearing Order, Notice And Settlement Hearing
--------------------------------------------
14.1 Promptly after execution of this Settlement Agreement, after all
necessary consents prior to Notice (as set forth in Paragraph 10.1) have been
obtained, and after the SLC has completed its due diligence review, Plaintiffs'
Counsel shall move for certification of a settlement class of the limited
partners (other than Defendants) in CBM I LP, CBM II LP, Residence Inn I LP,
Residence Inn II LP, Fairfield Inn LP and Desert Springs LP, as set forth
herein.
Settlement Agreement - Page 58
<PAGE>
14.2 Plaintiffs' Counsel, with the advice and consent of Defendants'
Counsel, shall prepare the Notices and the Plan of Allocation. Defendants'
Counsel, with the advice and consent of Plaintiffs' Counsel, shall prepare the
Hearing Order, Consent Solicitations, Consent Forms and Proof of Claims.
Thereafter, Plaintiffs' Counsel shall submit to the Court a motion for
authorization to disseminate the Notice, Proof of Claim, Consent Solicitations
and Consent Forms as appropriate. The Motion shall include (i) a proposed form
of, method for, and date of dissemination of the Notices, Proof of Claims,
Consent Solicitations and Consent Forms; (ii) a proposed date for the return of
the Proof of Claim and Consent Form; and (iii) a proposed hearing date.
14.3 Defendants will pay the costs of sending the Notice to the CBM I
LP, CBM II LP, Residence Inn I LP, Residence Inn II LP, Fairfield Inn LP and
Desert Springs LP Class Members and to the Palm Intervenors and Equity
Intervenors.
15. Plaintiffs' Counsels' Fees And Reimbursement of Litigation Costs
----------------------------------------------------------------
and Expenses
------------
15.1 Plaintiffs' Counsel intend to submit an application or
applications (the "Fee and Expense Application") to the Court for an award from
the Settlement Fund. The amount of attorneys' fees and litigation costs and
expenses awarded by the Court to Plaintiffs' Counsel shall be in the sole
discretion of the Court.
15.2 Plaintiffs' Counsel agree that they will seek fees, reimbursement
of all litigation costs and expenses, and any other costs and expenses solely
from the Settlement Fund and not from Defendants. In no event will Defendants be
obligated or required to pay any amount in excess of the Settlement Fund, except
as provided herein
15.3 The procedure for and the allowance or disallowance by the Court
of any Fee and
Settlement Agreement - Page 59
<PAGE>
Expense Applications by Plaintiffs' Counsel are not part of the Settlement set
forth in this Settlement Agreement, and may be considered by the Court
separately from the Court's consideration of the fairness, reasonableness and
adequacy of the Settlement set forth in this Settlement Agreement, and any order
or proceeding relating to Plaintiffs' Counsels' application(s) for the award of
attorneys' fees and reimbursement of litigation costs and expenses, or any
appeal from any order relating thereto or reversal or modification thereof,
shall not operate to terminate or cancel this Settlement Agreement, or affect or
delay the finality of the Judgment Order and the Settlement of the Milkes and
Haas Litigations as set forth herein.
Settlement Agreement - Page 60
<PAGE>
16. Continued Interest in the CBM I and CBM II Partnerships
-------------------------------------------------------
16.1 Prior to the Judgment Order becoming Final, all Plaintiffs, Palm
Intervenors, Equity Intervenors and Insiders shall continue to own their
interest in CBM I LP and CBM II LP. Prior to entry of the Judgment Order, the
General Partner of CBM I LP and CBM II LP shall make such distributions of Cash
Available for Distribution as defined and provided for in the CBM I LP and CBM
II LP Partnership Agreements, for the period prior to the Judgment Order; it
being understood and agreed that there may be a delay in such distribution to
the extent the Judgment Order is entered in the middle of an accounting period
or the General Partner is otherwise unable to finally determine the amount of
the distribution. In such case, the General Partner shall provide to the Court
an estimate as to the amount of the distribution anticipated for the period
prior to the Judgement Order at the time of the Fairness Hearing to approve the
Settlement. The appropriateness of the determination of the Cash Available for
Distribution in CBM I LP and CBM II LP for the period from execution of this
Settlement Agreement to the entry of the Judgment Order shall be considered by
the Court as part of the approval of the Settlement, and any claims relating to
such distributions shall be covered by the Released Claims.
16.2 Following entry of a Judgment Order, and until the Judgment Order
becomes Final, assuming there is no appeal, the benefits of ownership of the
Units shall inure to the benefit of the Joint Venture and the Defendants, and no
further Cash Available for Distribution shall be distributed by the General
Partners of CBM I LP or CBM II LP to the Plaintiffs or Palm Intervenors or
Equity Intervenors, and Plaintiffs and the Palm Intervenors and Equity
Intervenors waive any claim for such distributions.
16.3 Following the entry of the Judgment Order, and in the event of an
appeal, the
Settlement Agreement - Page 61
<PAGE>
owners of CBM I LP Units and owners of CBM II LP Units (collectively, the
"Units") will remain owners, and retain all benefits of the ownership of the
Units (including, but not limited to any distributions) until the Judgment Order
becomes Final; and (ii) the General Partners of CBM I LP and CBM II LP shall
make such distributions of Cash Available for Distribution as provided for and
defined in the CBM I LP and CBM II LP partnership agreements, to the owners of
the Units, for the period from the entry of the Judgment Order and ending when
the Judgment Order becomes Final, it being understood and agreed that such
period will constitute a fiscal period for purposes of determining Cash
Available for Distribution as provided for, defined in and has been customary
pursuant to the CBM I LP and CBM II LP partnership agreements; and it being
further understood and agreed that there may be a delay in such distribution to
the extent the Judgment Order becomes Final in the middle of an accounting
period or the General Partner is otherwise unable to finally determine the
amount of the distribution prior to the Judgment Order becoming Final.
17. Interest Prior to Notice
------------------------
17.1 If Defendants have not obtained the consents/permission required
by Paragraph 10.1 of this Settlement Agreement within sixty (60) days of the
execution of this Settlement Agreement, Defendants shall pay from the
sixty-first day forward, Interest on the Settlement Fund. Interest under this
provision shall cease to run as of the date Defendants' Counsel notifies
Plaintiffs' Counsel, Equity's Counsel and Palm's Counsel in writing that the
required consents/permission have been obtained, or the condition has been
waived by Defendants. Assuming that consents/permission required by Paragraph
10.1 have been obtained or waived at some time after the sixty-first day, and
that the Judgment Order is thereafter entered, Defendants will cause to be
deposited pursuant to the provisions of Paragraph 11.1 of this Settlement
Settlement Agreement - Page 62
<PAGE>
Agreement, the Settlement Fund, plus the Interest accumulated pursuant to this
Paragraph. If the Settlement with respect to any Partnership is not consummated
as a result of a failure of any of the conditions set forth in Paragraph 10,
Defendants shall have no obligations under this Paragraph 17.1 with respect to
such Partnerships.
18. Binding Nature of This Settlement Agreement
-------------------------------------------
18.1 This Settlement Agreement, and each and every term and obligation
hereunder, shall not be subject to limitation, impairment, modification, or
termination for any reason (except as expressly set forth herein), including,
without limitation, the following:
(a) Any judicial, legislative or other governmental action,
decision or announcement of any type, including but not
limited to the tax laws, regulations, rules or opinions,
which allegedly relates to any of the terms of this
Settlement or to any issue, claim, allegation or defense
which has been or might have been asserted in the Milkes
and/or Haas Litigations;
(b) Any change, whether adverse or positive, in the financial
condition, assets, liabilities, business, or any other
corporate or personal activity of any of the Settling
Parties; or
(c) Any allegedly newly discovered facts, legal issues, events
or allegations of any type which allegedly relate to any of
the terms of this Settlement or to any Released Claims.
18.2 Except as otherwise provided herein, in the event the Settlement
is terminated, modified in any material respect, or fails to become effective
for any reason, then the Parties to this Settlement Agreement shall be deemed to
have reverted to their respective status in the Milkes Litigation and Haas
Litigation as of the date and time immediately prior to the execution of this
Settlement Agreement and, except as otherwise expressly provided, the Parties
shall proceed in all respects as if this Settlement Agreement, the Settlement
Documents and any related orders had not been entered.
Settlement Agreement - Page 63
<PAGE>
19. Miscellaneous Provisions
------------------------
19.1 The signatories to this Settlement Agreement certify that they
are authorized to enter into and sign this Settlement Agreement.
19.2 The Settling Parties agree to cooperate to the extent necessary
to effectuate and implement all terms and conditions of this Settlement
Agreement and to exercise their best efforts promptly to accomplish the
foregoing terms and conditions of this Settlement Agreement.
19.3 Plaintiffs' Counsel and the SLC's Counsel agree, and shall
represent to the Court, that the Settlement provided herein is fair, reasonable
and adequate, and that it is in the best interests of the Plaintiffs to enter
into this Settlement Agreement in full and final Settlement of the Milkes and
Haas Litigations and the release of all Released Claims.
19.4 This Settlement Agreement, the Settlement and any Court Orders
provided herein, whether or not consummated, and any act performed or document
executed pursuant to or in furtherance of this Settlement Agreement or the
Settlement and any negotiations or proceedings relating thereto, shall not be:
(i) deemed or construed to be or used as an admission of, or evidence of, the
validity of any Released Claim, or of any wrongdoing or liability of any
Released Person or any other person; (ii) deemed or construed to be or used as
an admission of, or evidence of, any fault or omission of any of the Released
Persons or of any other person in any civil, criminal or administrative
proceeding in any court, administrative agency or other tribunal; or (iii)
deemed or construed or used to evidence any presumption, concession or admission
by, or to establish liability of, any Released Person. Nothing herein, however,
shall prevent any of the Released Persons from filing or otherwise using this
Settlement Agreement, the Final Judgment Order or related documents in any
action that may be brought against them in order to support a defense or
counterclaim based on principles of res judicata, collateral
Settlement Agreement - Page 64
<PAGE>
estoppel, release, judgment, bar, reduction or any other theory of claim
preclusion or issue preclusion or similar defense or counterclaim. The
Defendants have denied and continue to deny each and all of the claims alleged
in the Milkes and Haas Litigation.
19.5 Plaintiffs' Counsel agree that any agreements made during the
course of the Milkes and Haas Litigations relating to the confidentiality of
information and requirements for return or destruction of documents shall
survive this Settlement Agreement.
19.6 All of the Exhibits to this Settlement Agreement are material and
integral parts hereof and are fully incorporated herein.
19.7 This Settlement Agreement may be amended or modified only by a
written instrument signed by or on behalf of all Settling Parties or their
successors-in-interest, and approved by the Court.
19.8 This Settlement Agreement and the Exhibits attached hereto
constitute the entire agreement between and among the Settling Parties with
respect to the Settlement of the Milkes and Haas Litigations and the other
matters contained herein, and no representations, warranties or inducements have
been made to any party concerning this Settlement Agreement or its Exhibits
other than the representations, warranties and covenants contained and
memorialized in such documents. Except as otherwise provided herein, as between
the Plaintiffs, Palm Intervenors, Equity Intervenors and Defendants, each party
shall bear its own costs.
19.9 This Settlement Agreement may be executed in one or more
counterparts and by facsimile signatures. For each such document, all executed
counterparts and each of them shall be deemed to be one and the same instrument.
Plaintiffs' Counsel, Palm's Counsel, Equity's Counsel and Defendants' Counsel
shall exchange among themselves original signed counterparts and a complete set
of original executed counterparts of this Settlement Agreement shall be filed
Settlement Agreement - Page 65
<PAGE>
with the Court.
19.10 This Settlement Agreement shall be binding upon, and inure to the
benefit of, the successors and assigns of the Plaintiffs, Palm Intervenors,
Equity Intervenors, Defendants, the Joint Venture and Rockledge.
19.11 The Court shall retain jurisdiction with respect to
implementation and enforcement of the terms of this Settlement Agreement, and
the Plaintiffs, Palm Intervenors, Equity Intervenors, Defendants, the Joint
Venture and Rockledge submit to the jurisdiction of the Court for purposes of
implementing and enforcing the Settlement embodied in this Settlement Agreement.
19.12 This Settlement Agreement shall be considered to have been
negotiated, executed and delivered, and to be wholly performed, in the State of
Texas, and the rights and obligations of the Settling Parties shall be construed
and enforced in accordance with, and governed by, the internal, substantive laws
of the State of Texas without giving effect to that State's choice of law
principles. Venue of any disputes arising out of or by virtue of this
Stipulation shall be in the 285th Judicial District Court of Bexar County,
Texas.
19.13 The Settling Parties agree that no single party shall be deemed
to have drafted this Settlement Agreement or any portion thereof and that these
documents are the collaborative effort of all the Plaintiffs' Counsel, Palm's
Counsel, Equity's Counsel and the Defendants' Counsel.
19.14 The waiver by any party of any breach by any other party of any
term of this Settlement Agreement shall not be deemed or construed as a waiver
with respect to any other party, or of any other breach, whether prior to,
subsequent to or contemporaneous with this Settlement Agreement.
Settlement Agreement - Page 66
<PAGE>
19.15 This Settlement Agreement shall be deemed to have been executed
upon the last date of execution by the undersigned.
19.16 Plaintiffs' Counsel shall be solely responsible for filing all
informational and other tax returns necessary to report any net taxable income
earned by the Settlement Fund and shall file all informational and other tax
returns necessary to report any income earned by the Settlement Fund and shall
be solely responsible for taking out of the Settlement Fund, as and when legally
required, any tax payments, including interest and penalties due on income
earned by the Settlement Fund. All taxes (including any interest and penalties)
due with respect to the income earned by the Settlement Fund shall be paid from
the Settlement Fund. Defendants shall have no responsibility to make any filings
relating to the Settlement Fund and will have no responsibility to pay tax on
income earned by the Settlement Fund or pay any taxes on the Settlement Fund,
unless the Settlement is not consummated and the Settlement Fund is returned. In
the event the Settlement is not consummated, the Defendants shall be responsible
for the payment of all taxes (including any interest or penalties) on said
income.
19.17 Counsel for all the Settling Parties will jointly move to have
the Haas Litigation designated as a complex case and transferred to the
Honorable Michael Peden, Judge of the 285th Judicial District Court of Bexar
County, Texas.
19.18 In entering this Settlement Agreement, the Plaintiffs, the Palm
Intervenors and Equity Intervenors, by and through their counsel of record in
the Milkes and Haas Litigations, expressly acknowledge, represent, warrant,
covenant and agree that in entering into this Settlement Agreement, they are
relying solely on their own independent analysis, beliefs and judgment
concerning the value of CBM I LP and CBM II LP, and the value of the Released
Settlement Agreement - Page 67
<PAGE>
Claims in CBM I LP, CBM II LP, Residence Inn I LP, Residence Inn II LP,
Fairfield Inn LP and Desert Springs LP , and expressly waive, disclaim, abandon
and relinquish any reliance (actual, perceived or otherwise) on any Defendant in
electing to consummate the transactions made the subject of this Settlement
Agreement, other than as expressly contained herein.
19.19 Any notice, demand or request which may be permitted, required or
desired to be given in connection herewith shall be in writing and directed to
the other parties and their counsel by certified mail, return receipt requested,
postage prepaid, or by telecopy or by personal delivery at the last known
business addresses of counsel for each party to this Settlement Agreement. In
the event such notice or other communication is effected by personal delivery,
or by telecopy, the date and hour of actual delivery shall fix the time of
notice. In the event of delivery of notice by certified United States mail, the
notice shall be effective three (3) business days after the date upon which the
sealed envelope containing the notice is deposited in the United States mail,
properly addressed and with postage prepaid.
19.20 In the event that any suit arising out of this Settlement
Agreement is brought by any party to this Settlement Agreement, the prevailing
party or parties shall be entitled to recover their reasonable attorneys' fees
and expenses incurred as a result of such suit.
19.21 Marriott International and Host Marriott hereby jointly and
severally, unconditionally and irrevocably guarantee the full and timely
performance by the Joint Venture and Rockledge of their obligations hereunder.
19.22 The headings of any section are formal and not substantive.
Settlement Agreement - Page 68
<PAGE>
AGREED TO THIS 9TH DAY OF MARCH, 2000.
BERG & ANDROPHY
By: /s/ David Berg
--------------------------
David Berg
3704 Travis
Houston, Texas 77002
(713) 529-5622 - telephone
(713) 529-3785 - facsimile
HACKERMAN, PETERSON, FRANKEL & MANELA, P.C.
By: /s/ Stephen M. Hackerman
--------------------------
Stephen M. Hackerman
State Bar No. 08667500
1122 Bissonnet
Houston, Texas 77005
(713) 528-2500 - telephone
(713) 528-2509 - facsimile
JAMES R. MORIARTY & ASSOCIATES
By: /s/ James R. Moriarty
--------------------------
James R. Moriarty
State Bar No. 14459000
Kevin Leyendecker
1150 Bissonet
Houston, Texas 77005
(713) 528-0700 - telephone
(713) 528-1390 - facsimile
YETTER & WARDEN, LLP
By: /s/ David E. Warden
--------------------------
David E. Warden
State Bar No. 20856750
3800 Chase Tower, 600 Travis
Houston, Texas 77002
(713) 238- 2002 - telephone
(713) 238-2002 - facsimile
ATTORNEYS FOR PLAINTIFFS
Settlement Agreement - Page 69
<PAGE>
CHESLOCK, DEELY & RAPP
By: /s/ J. Patrick Deely
--------------------------
J. Patrick Deely
State Bar No. 05713600
405 N. St. Mary's Street, Suite 600
San Antonio, Texas 78205
(210) 224-5008 - telephone
(210) 224-8470 - facsimile
ATTORNEYS FOR INTERVENORS,
EQUITY RESOURCE FUND X, EQUITY RESOURCE FUND XV, EQUITY RESOURCE FUND XVI,
EQUITY RESOURCE FUND XVII, EQUITY RESOURCE FUND XX, EQUITY RESOURCE FUND XXI,
EQUITY RESOURCE BAY FUND, EQUITY RESOURCE BRIDGE FUND, And EQUITY RESOURCE
PILGRIM FUND
GEORGE & DONALDSON, LLP
By: /s/ R. James George
--------------------------
R. James George
State Bar No. 07810000
1100 Norwood Tower
114 W. 7th Street
Austin, Texas 78701
(512) 495-1410 - telephone
(512) 499-0094 - facsimile
ATTORNEYS FOR INTERVENORS
PALM INVESTORS LLC
CUNNINGHAM, DARLOW, ZOOK & CHAPOTON, LLP
By: /s/ Debbie Darlow
--------------------------
Tom Alan Cunningham
State Bar No. 05244700
Debbie Darlow
State Bar No. 05186900
Kelley M. Keller
State Bar No. 11198240
1700 Chase Tower, 600 Travis
Houston, Texas 77002
(713) 659-5522 - telephone
(713) 659-4466 - facsimile
ATTORNEYS FOR DEFENDANTS,
HOST MARRIOTT CORPORATION, CBM TWO LLC
<PAGE>
And HOST INTERNATIONAL, INC.
Settlement Agreement - Page 71
<PAGE>
WILLIAMS & CONNOLLY LLP
By: /s/ Richard Hoffman
--------------------------
Richard Hoffman
725 Twelfth Street, N.W.
Washington, DC 20005
(202) 434-5000 - telephone
(202) 343-5029 - facsimile
JENKENS & GILCHRIST
By: /s/ Seagal V. Wheatley
--------------------------
Seagal V. Wheatley
State Bar No. 21252000
Charles L. Smith
State Bar No. 00000060
Jenkens & Gilchrist, P.C.
1800 Frost Bank Tower
100 W. Houston Street
San Antonio, Texas 78205
(210) 246-6500 - telephone
(210) 246-5999 - facsimile
ATTORNEYS FOR DEFENDANTS,
MARRIOTT INTERNATIONAL, INC. and
COURTYARD MANAGEMENT CORPORATION
MILBANK, TWEED, HADLEY & McCLOY, LLP
By: /s/ Richard C. Tufaro
--------------------------
Richard C. Tufaro
1825 Eye Street, N.W., Suite 1100
Washington, D.C. 20006
(202) 835-7500 - telephone
(202) 835-7586 - facsimile
James L. Walker
Albon O. Head, Jr.
JACKSON & WALKER
112 E. Pecan St., Suite 2100
San Antonio, TX 78205
ATTORNEYS TO THE SPECIAL LITIGATION COMMITTEE
OF COURTYARD BY MARRIOTT II LIMITED PARTNERSHIP
AND COURTYARD BY MARRIOTT LIMITED PARTNERSHIP
<PAGE>
Exhibit 12
MARRIOTT INTERNATIONAL, INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
($ in millions, except ratio)
<TABLE>
<CAPTION>
Twelve
weeks ended
March 24, 2000
--------------
<S> <C>
Income before income taxes $ 149
Loss/(income) related to equity method investees 1
-----
150
Add/(deduct):
Fixed charges 45
Interest capitalized (8)
Distributed income of equity method investees 1
-----
Earnings available for fixed charges $ 188
=====
Fixed charges:
Interest expensed and capitalized (1) $ 31
Estimate of the interest within rent expense 14
-----
Total fixed charges $ 45
=====
-----
Ratio of earnings to fixed charges 4.2
=====
</TABLE>
(1) "Interest expensed and capitalized" includes amortized premiums, discounts
and capitalized expenses related to indebtedness.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-29-2000 DEC-31-1999
<PERIOD-START> JAN-01-2000 JAN-02-1999
<PERIOD-END> MAR-24-2000 MAR-26-1999
<CASH> 372 0
<SECURITIES> 0 0
<RECEIVABLES> 805 0
<ALLOWANCES> 0 0
<INVENTORY> 117 0
<CURRENT-ASSETS> 1,564 0
<PP&E> 3,098 0
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 7,550 0
<CURRENT-LIABILITIES> 1,669 0
<BONDS> 0 0
0 0
0 0
<COMMON> 3 0
<OTHER-SE> 2,787 0
<TOTAL-LIABILITY-AND-EQUITY> 7,550 0
<SALES> 2,167 1,895
<TOTAL-REVENUES> 2,167 1,895
<CGS> 0 0
<TOTAL-COSTS> 1,974 1,702
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 23 11
<INCOME-PRETAX> 149 160
<INCOME-TAX> 55 60
<INCOME-CONTINUING> 94 100
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 94 100
<EPS-BASIC> 0.39 0.41
<EPS-DILUTED> 0.37 0.38
</TABLE>
<PAGE>
Exhibit 99
Forward-Looking Statements
The following factors, among others, could cause actual results to differ
materially from those contained in forward-looking statements made in this
report or presented elsewhere by management.
Dependence on Others: Our present growth strategy for development of additional
lodging and senior living facilities entails entering into and maintaining
various arrangements with present and future property owners, including Host
Marriott Corporation, Crestline Capital Corporation and New World Development
Company Limited. There can be no assurance that any of our current strategic
arrangements will continue, or that we will be able to enter into future
collaborations.
Contract Terms for New Units: The terms of the operating contracts, distribution
agreements, franchise agreements and leases for each of our lodging facilities
and senior living communities are influenced by contract terms offered by our
competitors at the time such agreements are entered into. Accordingly, we
cannot assure you that contracts entered into or renewed in the future will be
on terms that are as favorable to us as those under existing agreements.
Competition: The profitability of hotels, vacation timeshare resorts, senior
living communities, corporate apartments, and distribution centers we operate is
subject to general economic conditions, competition, the desirability of
particular locations, the relationship between supply of and demand for hotel
rooms, vacation timeshare resorts, senior living facilities, corporate
apartments, distribution services, and other factors. We generally operate in
markets that contain numerous competitors and our continued success will depend,
in large part, upon our ability to compete in such areas as access, location,
quality of accommodations, amenities, specialized services, cost containment
and, to a lesser extent, the quality and scope of food and beverage services and
facilities.
Supply and Demand: The lodging industry may be adversely affected by (1) supply
additions, (2) international, national and regional economic conditions, (3)
changes in travel patterns, (4) taxes and government regulations which influence
or determine wages, prices, interest rates, construction procedures and costs,
and (5) the availability of capital to allow us and potential hotel and senior
living community owners to fund investments. Our timeshare and senior living
service businesses are also subject to the same or similar uncertainties and,
accordingly, we cannot assure you that the present level of demand for timeshare
intervals and senior living communities will continue, or that there will not be
an increase in the supply of competitive units, which could reduce the prices at
which we are able to sell or rent units.
Internet Reservation Channels: Some of our hotel rooms are booked through
internet travel intermediaries such as Travelocity and Priceline. As this
percentage increases, these intermediaries may be able to obtain higher
commissions, reduced room rates or other significant contract concessions from
us. Moreover, some of these internet travel intermediaries are attempting to
commoditize hotel rooms, by increasing the importance of price and general
indicators of quality (such as "three-star downtown hotel") at the expense of
brand identification. These agencies hope that consumers will eventually
develop brand loyalties to their reservations system rather than to our lodging
brands. If this happens our business and profitability may be significantly
harmed.
