<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN
PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF
THE SECURITIES EXCHANGE ACT OF 1934
FILED BY THE REGISTRANT: [X]
FILED BY A PARTY OTHER THAN THE REGISTRANT [ ]
CHECK THE APPROPRIATE BOX:
[ ] PRELIMINARY PROXY STATEMENT
[ ] CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY (AS PERMITTED BY
RULE 14a-6(E)(2))
[X] DEFINITIVE PROXY STATEMENT
[ ] DEFINITIVE ADDITIONAL MATERIALS
[ ] SOLICITING MATERIAL PURSUANT TO RULE 14a-11(C) OR RULE 14a-12
CASA MUNRAS HOTEL PARTNERS, L.P.
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
N/A
(NAME OF PERSON(S) FILING PROXY STATEMENT, IF OTHER THAN THE REGISTRANT)
PAYMENT OF FILING FEE (CHECK THE APPROPRIATE BOX):
[X] NO FEE REQUIRED
[ ] FEE COMPUTED ON TABLE BELOW PER EXCHANGE ACT RULES 14a-6(I)(1)
AND 0-11.
(1) TITLE OF EACH CLASS OF SECURITIES TO WHICH
TRANSACTION APPLIES: _______________________
(2) AGGREGATE NUMBER OF SECURITIES TO WHICH
TRANSACTION APPLIES: ______________________
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(3) PER UNIT PRICE OR OTHER UNDERLYING VALUE OF
TRANSACTION COMPUTED PURSUANT TO EXCHANGE ACT
RULE 0-11: ___________________________
(4) PROPOSED MAXIMUM AGGREGATE VALUE OF
TRANSACTION:_________
(5) TOTAL FEE PAID: _______________________
[ ] FEE PAID PREVIOUSLY WITH PRELIMINARY MATERIALS.
[ ] CHECK BOX IF ANY PART OF THE FEE IS OFFSET AS PROVIDED BY EXCHANGE
ACT RULE 0-11(a)(2) AND IDENTIFY THE FILING FOR WHICH THE OFFSETTING FEE WAS
PAID PREVIOUSLY. IDENTIFY THE PREVIOUS FILING BY REGISTRATION STATEMENT NUMBER,
OR THE FORM OR SCHEDULE AND THE DATE OF ITS FILING.
(1) AMOUNT PREVIOUSLY PAID:__________________________________
(2) FORM, SCHEDULE OR REGISTRATION STATEMENT NO.:____________
(3) FILING PARTY:____________________________________________
(4) DATE FILED:______________________________________________
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Dear Limited Partner: May 15, 1998
As you are aware, your General Partners are in the process of obtaining a $7.0
million, fixed-rate, long-term mortgage loan for the Casa Munras Hotel. When
that loan closes, each Limited Partner will receive a tax-deferred cash
distribution equal to at least $1,000 per original $1,000 Unit of investment in
the Partnership. The closing of this loan, which was expected to take place
several weeks ago, is now scheduled to occur on or about May 31, 1998.
The delay in closing the loan was related to certain amendments to our
Partnership Agreement required by our mortgage lender, which amendments must be
approved by a majority-in-interest of the Limited Partners of the Partnership.
As soon as this approval is received by your General Partners, the loan may be
closed and distributions of loan proceeds can be paid to the Limited Partners.
Because our Partnership Units are registered with the SEC and publicly owned, a
formal "Proxy Statement" must be issued to the Limited Partners in order to
solicit their consent to the Partnership Agreement amendments which are being
proposed. That Proxy Statement, and the Consent Form on which you are requested
to cast your vote, is enclosed herewith.
EACH LIMITED PARTNER SHOULD CAREFULLY REVIEW THE PROXY STATEMENT AND COMPLETE,
SIGN, DATE AND RETURN THE ACCOMPANYING SELF-ADDRESSED (POSTAGE PAID) CONSENT
FORM AS SOON AS POSSIBLE. UNTIL YOUR GENERAL PARTNERS RECEIVE THE FAVORABLE VOTE
FROM A MAJORITY-IN-INTEREST OF THE LIMITED PARTNERS TO THE PARTNERSHIP AGREEMENT
AMENDMENTS, THE MORTGAGE LOAN CANNOT BE CLOSED AND DISTRIBUTIONS CANNOT BE PAID
TO LIMITED PARTNERS.
Simply stated, the amendments to the Partnership Agreement required by the
lender are designed to convert the Partnership into a "single-purpose,
bankruptcy-remote entity." Therefore, the amendments include the following:
1. removal of the "individual" General Partners (Rothman and Young) as the
General Partners of the Partnership and the appointment of an "entity"
in the form of a Limited Liability Company (owned by Rothman and Young)
as the replacement General Partner;
2. adoption of language in the Partnership Agreement prohibiting the
Partnership from investing in any property other than the Casa Munras
Hotel;
3. assignment of the interest in the Partnership held by the current
individual General Partners to the Limited Liability Company being
appointed as the new General Partner of the Partnership; and,
4. changes in provisions of the Partnership Agreement related to certain
tax matters.
We understand that these amendments may seem complex when you review them in the
Proxy Statement. Nevertheless, your General Partners believe that they will have
no adverse financial impact upon the Limited Partners or their rights as Limited
Partners of the Partnership. If you have any questions concerning the enclosed
Proxy Statement, please feel free to contact the offices of the Partnership.
Otherwise, PLEASE VOTE AND RETURN YOUR CONSENT FORM AS SOON AS POSSIBLE so that
our mortgage loan can be closed.
Thank you for your patience and we apologize for the delay.
John F. Rothman Ronald A. Young
General Partner General Partner
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CASA MUNRAS HOTEL PARTNERS, L.P.
5525 OAKDALE AVENUE, SUITE 300
WOODLAND HILLS, CALIFORNIA 91364
(818) 888-6500
------------------------
MAY 15, 1998
NOTICE OF SOLICITATION OF CONSENTS OF LIMITED PARTNERS
To the Limited Partners of Casa Munras Hotel Partners, L.P.:
CASA MUNRAS HOTEL PARTNERS, L.P., a California limited partnership (the
"Partnership"), hereby solicits the consents of the limited partners (the
"Limited Partners") of the Partnership as of May 6, 1998 (the "Record Date") to
(i) the removal of John F. Rothman and Ronald A. Young (the "Individual General
Partners") as the general partners of the Partnership and their replacement as
general partner with Casa Munras GP, LLC, a California limited liability company
(the "LLC General Partner") and (ii) the amendment of certain provisions of the
Certificate and Agreement of Limited Partnership, as amended to date (the
"Partnership Agreement"), of the Partnership. Such consents are being solicited
and shall be acted upon as a unified proposal (the "Proposal").
The primary purpose of the Proposal is to satisfy certain conditions
imposed by AMRESCO Capital, L.P. (the "Lender"), the lender in connection with a
secured limited-recourse loan (the "Loan") of up to $7 million contemplated by
the Partnership. The Proposal provides for the removal of the Individual General
Partners as general partners of the Partnership, and the election, as
replacement general partner, of the LLC General Partner, a single
purpose/bankruptcy remote California limited liability company recently
organized by the Individual General Partners, to act as general partner of the
Partnership. The Proposal also provides for the adoption of certain amendments
to the Partnership Agreement, which amendments are required by the Lender for
the purpose of causing the Partnership, itself, to become a single
purpose/bankruptcy remote entity and of other amendments incidental thereto. In
addition, the Proposal provides for the adoption of certain other amendments to
the Partnership Agreement relating to the assignment by a general partner of its
partnership interest and certain tax matters. If approved by the Limited
Partners, the removal of the Individual General Partners and the election of the
LLC General Partner as the replacement general partner of the Partnership, and
the amendment of the Partnership Agreement in accordance with the Proposal, will
be effective immediately prior to, and conditioned upon, the closing of the
Loan.
The proposed amendments and related matters are more fully discussed in the
attached Consent Solicitation Statement, which (together with the exhibits
thereto) forms a part of this notice and is incorporated herein by reference.
Adoption of the Proposal requires the written consent of Limited Partners
holding a majority in interest of the limited partnership units (the "Units")
held by Limited Partners entitled to vote thereon. The solicitation of Limited
Partner consents is being made upon the terms and is subject to the conditions
in the Consent Solicitation Statement and the accompanying form of consent (the
"Consent").
It is the present intention of the Partnership to close this consent
solicitation at the earliest possible time. The earliest possible time that this
consent solicitation can be closed is that date on which the valid and unrevoked
written Consents (i.e., those Consents that are voted "FOR" the Proposal) of at
least a majority of the Units outstanding have been received by the Partnership
(the "Approval Date"). The Partnership is seeking, if possible, to close this
consent solicitation on or about May 25, 1998. Any Limited Partner delivering a
Consent pursuant to the Consent Solicitation Statement has the power to change
the vote shown on the Consent at any time prior to the Approval Date by giving
written notice of such change to the Partnership or by executing a Consent
bearing a later date and delivering it to the Partnership.
Sincerely,
Ronald A. Young, General Partner
John F. Rothman, General Partner
YOU ARE ASKED TO COMPLETE, SIGN, DATE AND RETURN THE ACCOMPANYING SELF-
ADDRESSED CONSENT FORM PROMPTLY, WHICH REQUIRES NO POSTAGE IF MAILED IN THE
UNITED STATES.
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CASA MUNRAS HOTEL PARTNERS, L.P.
------------------------
CONSENT SOLICITATION STATEMENT
This Consent Solicitation Statement is furnished by Casa Munras Hotel
Partners, L.P., a California limited partnership (the "Partnership"), to the
holders (the "Limited Partners") of limited partnership units (the "Units") in
connection with the solicitation of the consents of the Limited Partners to the
proposal hereinafter set forth. Such consents are being solicited and shall be
acted upon as a unified proposal (the "Proposal"). The Proposal provides for the
removal of Ronald A. Young and John F. Rothman (the "Individual General
Partners") as general partners of the Partnership, and the election, as
replacement general partner, of Casa Munras GP, LLC (the "LLC General Partner"),
a single purpose/bankruptcy remote California limited liability company,
recently organized by the Individual General Partners to act as general partner
of the Partnership. The Proposal also provides for the adoption of certain
amendments to the Certificate and Agreement of Limited Partnership of the
Partnership, as amended to date (the "Partnership Agreement") which amendments
are required for the purpose of causing the Partnership, itself, to become a
single purpose/bankruptcy remote entity and of other amendments incidental
thereto. In addition, the Proposal provides for the adoption of certain other
amendments to the Partnership Agreement relating to the assignment by a general
partner of its partnership interest and certain tax matters.
The primary purpose of the Proposal is to satisfy certain conditions
imposed by AMRESCO Capital, L.P. (the "Lender"), the lender in connection with a
secured limited-recourse loan (the "Loan") of up to $7 million contemplated by
the Partnership. If approved by the Limited Partners, the removal of the
Individual General Partners and the election of the LLC General Partner as the
replacement general partner of the Partnership, and the amendment of the
Partnership Agreement in accordance with the Proposal, will be effective
immediately prior to, and conditioned upon, the closing of the Loan.
John F. Rothman and Ronald A. Young each own a 0.5% general partner
interest in and serve as a general partner of the Partnership. Messrs. Rothman
and Young also currently hold 32 Units (0.718% of outstanding Units) and 44
Units (0.988% of outstanding Units), respectively.
The approximate date on which this Consent Solicitation Statement and the
enclosed form of consent (the "Consent") are first being mailed to Limited
Partners is May 15, 1998. Only persons who were Limited Partners on May 6, 1998
(the "Record Date") will be entitled to submit Consents with respect to the
Proposal. It is the present intention of the Partnership to close this consent
solicitation at the earliest possible time. The earliest possible time that this
consent solicitation can be closed is that date on which the valid and unrevoked
written Consents (i.e., those Consents that are voted "FOR" the Proposal) of at
least a majority of the Units outstanding have been received by the Partnership
(the "Approval Date"). The Partnership is seeking, if possible, to close this
consent solicitation on or about May 25, 1998. Any Limited Partner delivering a
Consent pursuant to this Consent Solicitation Statement has the power to change
the vote shown on the Consent at any time prior to the Approval Date by giving
written notice of such change to the Partnership or by executing a Consent
bearing a later date and delivering it to the Partnership.
Consents should be completed, signed and returned promptly to the
Partnership at 5525 Oakdale Avenue, Suite 300, Woodland Hills, California 91364.
This Consent Solicitation Statement is accompanied by a separate Consent.
THE INDIVIDUAL GENERAL PARTNERS RECOMMEND THAT LIMITED PARTNERS CONSENT TO
(I.E., VOTE "FOR") THE PROPOSAL. PLEASE SIGN, DATE AND MAIL YOUR CONSENT TODAY!
If you have any questions or need any assistance in connection with the
voting procedures, please call John F. Rothman, an Individual General Partner,
at (818) 888-6500.
This Consent Solicitation Statement is dated May 15, 1998.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
BACKGROUND............................................................ 1
THE REFINANCING....................................................... 1
THE PROPOSAL.......................................................... 3
Part I Adoption of Single Purpose Vehicle Provisions............... 3
Part II Removal of the Individual General Partners and Election of
Casa Munras GP, LLC, as General Partner..................... 5
Part III Tax-Related Amendments...................................... 6
Use of Proceeds....................................................... 6
Impact on Future Distributions........................................ 6
Federal Income Tax Consequences....................................... 7
Reasons for Obtaining Limited Partner Consent......................... 7
GENERAL PARTNERS' RECOMMENDATION...................................... 7
OTHER INFORMATION..................................................... 8
Market Prices for the Partnership's Units............................. 8
Directors and Executive Officers...................................... 8
INTEREST OF CERTAIN PERSONS IN MATTERS TO BE ACTED UPON............... 8
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT........ 9
EXECUTIVE COMPENSATION................................................ 10
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS........................ 11
INDEPENDENT PUBLIC ACCOUNTS........................................... 11
CONSENT PROCEDURES.................................................... 11
FURTHER INFORMATION................................................... 13
EXHIBIT A -- The Commitment........................................... A-1
EXHIBIT B -- The Proposal............................................. B-1
</TABLE>
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BACKGROUND
Casa Munras Hotel Partners, L.P., a California limited partnership (the
"Partnership"), was organized on March 31, 1978, following the completion of a
public offering of 4,455 limited partnership units (the "Units") at a public
offering price of $1,000 per Unit and a capital contribution to the Partnership
of an aggregate of $45,000 by John F. Rothman and Ronald A. Young, its two
general partners (the "Individual General Partners" and, together with any
successor general partners, the "General Partners"). The Limited Partners and
the General Partners collectively are hereinafter referred to as the "Partners."
The Partnership's principal executive offices are located at 5525 Oakdale
Avenue, Suite 300, Woodland Hills, California 91364. Its telephone number is
(818) 888-6500.
The Partnership owns a hotel that contains restaurant, bar, and banquet
facilities and several leased retail stores in Monterey, California, known as
the Casa Munras Garden Hotel (the "Hotel"). The Partnership acquired and began
operating the Hotel on May 1, 1978. The Hotel is located at the southwest corner
of Munras and Fremont Streets in Monterey, California. While portions of the
main Hotel building are more than 150 years old, most of the guest rooms were
constructed and placed in operation 30 to 35 years ago. Unless the context
indicates otherwise, references herein to the "Hotel" are to the entire hotel,
restaurant, bar, banquet and retail complex.
The business of the Partnership has been to hold the Hotel and any
additional hotels, when and if acquired, for long-term investment. The principal
objectives of the Partnership are to generate cash flow for periodic
distributions to its Partners and to realize capital growth and appreciation in
the underlying value of the Partnership's assets, the achievement of neither of
which objectives can be assured.
In March 1994, an affiliate of one of the Individual General Partners
advanced $250,000 to the Partnership and the Partnership executed an unsecured
promissory note in favor of such affiliate (the "Affiliate Note"). Interest
accrues on the unpaid principal balance at the rate of 10% per annum. The note
provides that principal and all accrued and unpaid interest are payable on
demand. For the years ended December 31, 1997 and 1996, $34,713 and $31,421,
respectively, of accrued but unpaid interest were added to principal. The
proceeds of the advance were used by the Partnership to purchase property and
equipment in connection with the renovation of the Hotel.
On October 1, 1996, the Partnership's $900,000 line of credit with a bank
expired, and the Partnership converted the balance outstanding under that
facility into long-term borrowings by executing an unsecured promissory note
(the "Bank Note") payable to the bank in the original principal amount of
$394,500. The Bank Note is payable over 48 months beginning November 1, 1996, in
monthly installments of $8,219 principal amount plus accrued interest and with a
final payment of the then remaining principal plus accrued and unpaid interest
due on October 1, 2000. The outstanding principal amount of the Bank Note bears
interest at the bank's prime rate from time to time plus 1.5%, based upon a
360-day year. As of April 30, 1998, approximately $238,000 in principal was
outstanding under the Bank Note.
The Bank Note includes covenants requiring the submission of certain
accounting information by specified times, an annual requirement that the
Partnership have a cash flow ratio before distribution to Partners, as defined
in the Bank Note, equal to 1.25 to 1 and a provision requiring that the
Partnership indemnify against certain environmental liabilities.
Upon the closing of the Loan (as hereinafter defined), all outstanding
principal of and interest on the Affiliate Note and the Bank Note will be paid
in full.
THE REFINANCING
In January 1998, the partnership obtained a Term Loan Commitment (the
"Commitment") from AMRESCO Capital, L.P. (the "Lender") for a secured
non-recourse loan (the "Loan") of up to $7 million at 7.7% interest, with a ten
year term (the "Term"). The commitment originally was to expire on March 31,
1998, but has been extended until June 15, 1998.
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THE FOLLOWING PARAGRAPHS SUMMARIZE THE TERMS OF THE COMMITMENT. THIS
SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE ACTUAL COMMITMENT, A COPY OF WHICH
IS ANNEXED HERETO AS EXHIBIT A. MOREOVER, THERE CAN BE NO ASSURANCE THAT THE
LOAN WILL BE CONSUMMATED, AND, IF CONSUMMATED, THAT THE TERMS WILL BE THOSE SET
FORTH IN THE COMMITMENT.
The Loan will be secured by a first mortgage or deed of trust on the Hotel
(the "Deed of Trust"), and a first security interest in all leases, rents,
income and profits, and all other personal property, rights and interest owned
by the Partnership and related or appurtenant to the Hotel and will be amortized
based on a 25-year amortization schedule, with the understanding that the Loan
will be payable in full at the end of the Term.
Subject to the Partnership's satisfaction of certain conditions (including
payment of a 1.0% fee), the Partnership will have a one-time right to transfer
title to the Hotel to a third party acceptable to the Lender who assumes the
Loan. Any sale, transfer or conveyance of all or any part of the Hotel without
the Lender's prior written consent will give the Lender the right to declare the
balance of the Loan immediately due and payable. In addition, except as
expressly permitted by the Deed of Trust and the other loan documents, neither
subordinate financing (whether or not secured by a lien on the Hotel or any
other assets of the Partnership) nor any indebtedness other than the Loan and
trade and operational debt incurred in the ordinary course of business for the
Hotel will be allowed.
The loan documents will require a general replacement reserve of 5.0% of
gross revenues from the Hotel to be funded through monthly deposits by the
Partnership. Monies deposited will be released to the Partnership for
reimbursement of hotel case goods and soft goods, carpeting and other interior,
exterior, structural, HVAC and mechanical improvements and repairs in accordance
with the terms of the applicable loan documents. This reserve is subject to
adjustment upon Lender's evaluation of an engineering report to be obtained in
connection with the Loan. In addition, the Partnership will be required to
deposit at closing of the Loan, 125.0% of the estimated cost of any needed
maintenance and repairs as determined by the Lender's evaluation of the
engineering report. These monies will be released to the Partnership for
reimbursement of costs of such maintenance and repairs. The Partnership believes
that approximately $5,000 will be required to be deposited at the closing on
account of the costs of such maintenance and repairs.
The Commitment provides that the Partnership will pay all costs and
expenses incurred by the Lender in connection with underwriting, preparing for
and closing the Loan and a processing fee of $5,000, whether or not the Loan is
closed. In connection with the Commitment, the Partnership has paid the Lender
the processing fee and a deposit of $136,600 (including $83,000 to lock the
interest rate at 7.7%). If the Loan is not closed for reasons other than a
Borrower Default (as defined in the Commitment), the rate lock deposit and the
balance of the deposit in excess of the sum of Lender's loan expenses will be
refunded. In addition, upon the closing of the Loan, Churchill Mortgage Company
will be entitled to a brokerage fee in the amount of 1% of the principal amount
of the Loan.
In connection with the Loan, Ronald A. Young and John F. Rothman (the
"Guarantors) will each execute a guaranty for the benefit of the Lender with
respect to certain limited recourse carve-out provisions described below. The
Loan will be limited recourse against the Partnership, the General Partner and
the Guarantors. Thus, no deficiency or other judgment for repayment of principal
and interest on the Loan will be entered by the Lender following an event of
default except in the event of fraud or material misrepresentation by the
Partnership or the Guarantors in connection with the Loan. In addition, the
Partnership and Guarantors will execute an environmental indemnity agreement
with respect to the existence of hazardous or toxic substances or the failure of
the Hotel to comply with environmental laws, and will be liable for certain
other recourse obligations as more particularly provided in the Lender's
standard promissory note form.
The closing of the Loan is subject to the satisfaction of customary closing
conditions, including, without limitation, (i) satisfactory title insurance and
survey, (ii) evidence of proper zoning and permitting, (iii) the existence of
adequate fire and hazard insurance coverage, (iv) the delivery of a satisfactory
opinion of the Partnership's counsel, (v) a recent third party MAI appraisal
showing that the Hotel and other collateral for the Loan has sufficient value so
that the principal amount of the Loan does not exceed 70% of the value of
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such property at the closing, (vi) a recent third party engineering report,
showing that all improvements are in good and workable condition and comply with
all applicable regulations (including the Americans with Disabilities Act) or,
if not, an estimate of the cost and description of any deferred maintenance and
repairs, (vii) a recent third-party environmental site assessment, showing that
there is no toxic substance, hazardous waste or other adverse environmental
condition affecting the Hotel, (viii) income statements evidencing that, at the
time of the closing of the Loan, the annual cash flow from the Hotel available
for debt service, divided by the annual amount of principal and interest
payments on the Loan, will result in a debt service coverage ratio of at least
1.40 to 1.00, (ix) the negotiation of satisfactory loan documentation, (x) the
absence of a material adverse change or deterioration in the financial condition
of the Hotel, the Partnership or the Guarantors, between the issuance of the
Commitment and the closing of the Loan. In addition, as a condition for the
closing, the Partnership and its General Partner must be special
purpose/bankruptcy remote entities acceptable to the Lender. Compliance with
this final closing condition is the principal purpose of the Proposal.
THE PROPOSAL
PART I ADOPTION OF SINGLE PURPOSE VEHICLE PROVISIONS
The Lender requires as a condition to the closing of the Loan that the
Partnership and the General Partner each be special purpose/bankruptcy remote
entities acceptable to the Lender. In particular, the Lender requires that the
Certificate and Agreement of Limited Partnership, as amended to date (the
"Partnership Agreement") be amended to include certain provisions of a type that
are generally found in limited partnership agreements for special
purpose/bankruptcy remote limited partnerships (the "SPV Amendment"). Set forth
below is a summary of the SPV Amendment. It is qualified is its entirety by the
actual SPV Amendment, which is included in the proposed amendments (the
"Amendment") to the Partnership Agreement forming Part I of the entire Proposal
set forth as Exhibit B.
To date, the sole business of the Partnership has been to acquire and
operate the Hotel. Nevertheless, Article III, Nature of Business, of the
Partnership Agreement grants the Partnership to the right to conduct generally
the business of acquiring, owning, holding and operating motor hotels and
related bar and restaurant facilities. Under the SPV Amendment, Article III
would be amended to permit the Partnership only to acquire, own, operate and
manage the Hotel, and conduct certain necessary or incidental activities.
The SPV Amendment would add a new paragraph to Article IX of the
Partnership Agreement, which would provide that, so long as any obligations
secured by the Deed of Trust are outstanding, the General Partner will have no
authority to take any of the following actions (except, (a) if such action would
not result in a violation of, or default under, the Deed of Trust, with the vote
or written consent of the General Partner and the holders of a majority of the
Units of Participation then held by the Limited Partners entitled to vote, or
(b) otherwise, with the unanimous vote or written consent of the General Partner
and the holders of the Units of Participation):
(i) borrow money or incur indebtedness on behalf of the Partnership
other than normal trade accounts payable and lease obligations in the
normal course of business or grant consensual liens on the Partnership's
property, except in connection with the Loan and other indebtedness
expressly permitted by the Deed of Trust and the other loan documents;
(ii) dissolve or liquidate the Partnership;
(iii) sell or lease, or otherwise dispose of all or substantially all
of the assets of the Partnership;
(iv) file a voluntary petition or otherwise initiate bankruptcy or
insolvency proceedings, consent to institution of bankruptcy or insolvency
proceedings against the Partnership, or seek relief under bankruptcy or
insolvency laws, seek or consent to the appointment of a trustee, receiver,
conservator, assignee, sequestrator, custodian, liquidator or other similar
official of the Partnership or its assets, or make any general assignment
for the benefit of creditors or admit in writing the inability of the
Partnership to pay its debts generally as they become due or declare or
effect a moratorium on the Partnership debt;
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(v) amend, modify or alter any of the terms of the Partnership
Agreement, added as part of the SPV Amendment; or
(vi) merge or consolidate with any other entity.
In addition, so long as any obligations secured by the Deed of Trust are
outstanding, (1) the Partnership will have only a limited liability company as a
General Partner (the LLC Operating Agreement of which will, in turn, contain
certain comparable mandatory provisions) and (2) the General Partner will have
no authority to (a) take any of the actions specified above unless such action
has been approved by the unanimous vote of the managers of the General Partner,
or (b) take any of the actions specified above (other than those specified in
clause (iv) above), without the written consent of the beneficiary under the
Deed of Trust.
Article XIII, Death of Limited Partner, of the Partnership Agreement
currently provides in part, that the death, incompetency or bankruptcy of one or
more Limited Partners will not dissolve the Partnership or entitle his
representatives to a return of capital. The right of such Limited Partner to
share in net profits, losses, and return of capital will devolve upon his
personal representative, subject to the terms and conditions of the Partnership
Agreement, including the provisions concerning transfers and assignments and
substituted Limited Partners. The SPV Amendment contains an amplification of
Article XIII. Under the SPV Amendment the bankruptcy, death, dissolution,
liquidation, termination or adjudication of incompetency of a Limited Partner
will not cause the termination or dissolution of the Partnership and the
business of the Partnership will continue. Upon any such occurrence, the
trustee, receiver, executor, administrator, committee, guardian or conservator
of such Limited Partner will have all the rights of such Limited Partner for the
purpose of settling or managing its estate or property, subject to satisfying
conditions precedent to the admission of such assignee as a substitute Limited
Partner. The transfer by such trustee, receiver, executor, administrator,
committee, guardian or conservator of any Partnership Interest will be subject
to all of the restrictions under the Partnership Agreement to which such
transfer would have been subject if such transfer had been made by such
bankrupt, deceased, dissolved, liquidated, terminated or incompetent Limited
Partner.
The SPV Amendment would add a new paragraph to Article XXI to the
Partnership Agreement which would provide that the Partnership is required to do
the following:
(i) maintain books and records and bank accounts separate from those
of any other person;
(ii) maintain its assets in such a manner that it is not costly or
difficult to segregate, identify or ascertain such assets;
(iii) hold regular Partnership meetings, as appropriate, to conduct
the business of the Partnership, and observe all other Partnership
formalities;
(iv) hold itself out to creditors and the public as a legal entity
separate and distinct from any other entity;
(v) prepare separate tax returns and financial statements, or if part
of a consolidated group, then be shown as a separate member of such group;
(vi) allocate and charge fairly and reasonably any common employee or
overhead shared with affiliates and maintain a sufficient number of
employees in light of its contemplated business operations;
(vii) transact all business with affiliates on an arm's-length basis
and pursuant to enforceable agreements;
(viii) conduct business in its own name, and use separate stationery,
invoices and checks;
(ix) not commingle its assets or funds with those of any other person;
(x) not assume, guarantee or pay the debts or obligations of any other
person;
(xi) pay its own liabilities out of its own funds;
(xii) not acquire obligations or securities of its partners or
members;
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(xiii) not pledge its assets for the benefit of any other entity or
make any loans or advances to any entity;
(xiv) correct any known misunderstanding regarding its separate
identity;
(xv) maintain adequate capital in light of its contemplated business
operations; and
(xvi) maintain all required qualifications to do business in the state
in which the Partnership's property is located.
The SPV Amendment would add two new paragraphs to Article XXII of the
Partnership Agreement. The first would provide that all property owned by the
Partnership will be owned by the Partnership as an entity and, insofar as
permitted by applicable law, no Partner will have any ownership interest in any
Partnership property in its individual name or right. The second new paragraph
would confirm that in the event of any conflict between any of the terms added
to the Partnership Agreement as part of the SPV Amendment and any of the other
terms of the Partnership Agreement, the terms added by the SPV Amendment would
prevail.
PART II REMOVAL OF THE INDIVIDUAL GENERAL PARTNERS AND ELECTION OF CASA MUNRAS
GP, LLC, AS GENERAL PARTNER
The current general partners of the Partnership are John F. Rothman and
Ronald Young (collectively, the "Individual General Partners"). As a condition
to the closing of the Loan, the Lender requires that the general partner of the
Partnership, like the Partnership itself, be a special purpose/bankruptcy remote
entity. In order to satisfy such condition of the Lender, the Individual General
Partners have organized the Casa Munras GP, LLC, a California limited liability
company (the "LLC General Partner") solely for the purpose of acting as general
partner of the Partnership. The LLC Operating Agreement of the LLC General
Partner contains provisions mandated by the Lender for the purpose of creating a
special purpose/bankruptcy remote entity. The General Partner is owned one-half
by each of Messrs. Rothman and Young, will be managed by Messrs. Rothman and
Young and, to date, has conducted no business and has no material assets or
liabilities.
Under paragraph (b) of Article X of the Partnership Agreement, the Limited
Partners have the right, by vote or written consent of the holders of a majority
of the Units then held by Limited Partners entitled to vote, to remove the
Individual General Partners and elect one or more replacement general partners.
Part II of the Proposal provides that the Limited Partners consent to the
removal of the Individual General Partners and the election of the LLC General
Partner as the replacement general partner. The LLC General Partner has
delivered to the Partnership its consent in writing to perform all of the
obligations of the Individual General Partners under the Partnership Agreement,
effective upon the removal of the Individual General Partners and the election
of the LLC General Partner as General Partner.
In order to fully vest in the LLC General Partner the entire general
partnership interests of the Individual General Partners, each of the Individual
General Partners intends to assign (effective upon the substitution of the LLC
General Partner as General Partner) to the LLC General Partner his 0.5% interest
in the equity, profits and losses of the Partnership. Article XIV of the
Partnership Agreement provides, however, that except for each Individual General
Partner's interest in the Initial General Partners' Profits (as defined in the
Partnership Agreement) the General Partners will not assign, pledge, encumber,
sell or otherwise dispose of their interests as general partners in the
Partnership. Part II of the Proposal contains an amendment to Article XIV of the
Partnership Agreement, which would permit any general partner of the Partnership
to sell or assign its interest in the Partnership to any entity that has been
admitted as a general partner in accordance with the terms of the Partnership
Agreement.
If Limited Partners holding a majority of the Units then held by Limited
Partners entitled to vote, consent (i.e., vote "FOR") the Proposal, the LLC
General Partner will become the sole general partner of the Partnership,
satisfying the condition of the Lender as to the General Partner, and the
Individual General Partners will transfer to the LLC General Partner their
interests, as general partners, in the Partnership.
5
<PAGE> 12
PART III TAX-RELATED AMENDMENTS
Subsequent to the formation of the Partnership in 1978, the Internal
Revenue Service Regulations (the "Regulations") relating to the taxation of
partnerships were materially changed. The amendments contained in Part III of
the Proposal (the "Tax Amendments") update the Partnership Agreement by adding
certain provisions contemplated by such Regulations and which are now
traditionally found in partnership agreements. Specifically, the Tax Amendments
add a new Article to the Partnership Agreement which includes (i) that capital
accounts will be maintained in accordance with the Regulations, (ii) qualified
income offset and minimum gain chargeback provisions and (iii) provision for
allocation of excess non-recourse liabilities. Such changes should not adversely
affect any Limited Partner. Please see Part III of the Proposal attached as
Exhibit B for the full text of the Tax Amendments.
USE OF PROCEEDS
The Individual General Partners expect that the Refinancing will provide
the Partnership with gross loan proceeds of $7.0 million. The net proceeds to
the Partnership, after loan fees and expenses incurred in connection with the
Refinancing, escrowed reserves and deposits, new room development costs and loan
repayments, and legal fees and closing costs are anticipated to be approximately
$5,129,000 based upon the following calculation:
<TABLE>
<S> <C> <C> <C>
Gross Refinancing Proceeds........................................ $ 7,000,000
Refinancing Costs and Expenses:
Loan brokerage fee $70,000
Lender due diligence expense 50,000
Processing fee and expenses 5,434 (125,434)
-------
Loan Escrows and Deposits:
Property tax reserve $33,600
Insurance reserve 17,533
Deferred maintenance escrow 3,750
Prepaid interest deposit 24,835 (79,718)
-------
Expenses of Consent Solicitation.................................. (10,000)
Legal Fees and Loan Closing Expenses.............................. (50,000)
-----------
Net Refinancing Proceeds.......................................... 6,734,848
New Room Development Costs........................................ (1,000,000)
Affiliate Note Repayment.......................................... (375,441)
Bank Note Repayment............................................... (230,124)
-----------
Proceeds Available for Distribution............................... $ 5,129,283
===========
</TABLE>
IMPACT ON FUTURE DISTRIBUTIONS
In accordance with the Partnership Agreement, the net cash proceeds from
any refinancing of any Partnership property, except for working capital and the
establishment of such reserves as the General Partners deem advisable, are
generally to be distributed as follows:
(i) The Partners, each in proportion to his Partnership Interest,
shall first receive an amount equal to an amount equal to the excess, if
any, of the sum of $4,500,00 plus 12% of the aggregate original capital
contributions of the Partners cumulated for each year of the Partnership
following May 1, 1978 [partial years prorated], over the aggregate of prior
distributions to the Partners whether from net profits, as a return of
capital, or otherwise;
(ii) The General Partners shall then receive, in the proportion in
which their respective Partnership interests bear to one another, an amount
equal to 25% of the amount by which the net proceeds from the refinancing
exceeds the amount distributed to the Partners pursuant to clause (i)
above; and
6
<PAGE> 13
(iii) All remaining cash, if any, shall be distributed to the
Partners, each in proportion to his Partnership interest.
The net cash proceeds of the Loan, after payment of the associated
transaction costs, net of estimated reserves and working capital requirements,
after repayment of the Affiliate Note and the Bank Note and an allowance for the
cost of developing new rooms, are expected to be approximately $5.1 million of
which approximately $4.8 million (or approximately $1,000 per Unit) will be
distributed to the Partners in accordance with clause (i) above, and
approximately $286,000 in the aggregate, will be distributed to the General
Partners in accordance with clause (ii) above. There will be no balance in
excess of such distributions to be distributed to the Partners in accordance
with clause (iii) above. No taxable income should be realized on the
distribution of the loan proceeds for federal income tax purposes. See "Federal
Income Tax Consequences" for additional information regarding tax consequences
of the distribution. The General Partners' share of the net proceeds will be
approximately $362,000 in the aggregate (including distributions under clause
(i) above, on account of their Partnership interests). The Partnership will seek
to distribute such net proceeds as promptly as practicable following the closing
of the Loan.
In the year ended December 31, 1997, the Partnership generated aggregate
cash flow before financing activities of approximately $937,000. Including
distributions made in January 1998, the Partnership made distributions to the
Partners aggregating $540,000 ($120 per Unit) on account of such 1997 cash flow.
The balance of the Partnership's cash flow (a total of $397,000) was added to
Partnership reserves. On a pro-forma basis, after giving effect to the Loan as
if it had occurred prior to January 1, 1997, the Partnership would have
generated cash flow before distributions of approximately $200,000 (or
approximately $45 per unit) in 1997.
The amount of future distributions will be affected by a number of factors,
including the anticipated decline in Partnership cash flow as a result of the
Loan. The Individual General Partners cannot, however, predict with certainty
the amount of any future Partnership distributions.
FEDERAL INCOME TAX CONSEQUENCES
The following is a brief discussion of certain federal income tax
considerations relating to the approval of the Proposal and the distribution of
the net proceeds of the Loan. Each Limited Partner should consult his or her own
tax advisor regarding the specific tax consequences of the approval of the
Proposal and the distribution of the net proceeds of the Loan in the Limited
Partner's particular circumstances.
The approval of the Proposal and the distribution of the net proceeds of
the Loan should not result in the realization of taxable income by any Limited
Partner. Under Section 731 of the Internal Revenue Code, no gain is recognized
by a partner on a distribution of cash unless the amount distributed exceeds the
adjusted tax basis of the partnership interest of that partner. In addition,
under Section 752 of the Internal Revenue Code, the tax basis of each partner's
interest is increased by his allocable share of partnership liabilities. In this
case, 75% of the principal amount of the Loan should be allocable to the Limited
Partners, thereby increasing the tax basis of their partnership interests so
that no taxable income would be realized on the distribution of the net Loan
proceeds.
REASONS FOR OBTAINING LIMITED PARTNER CONSENT
The Loan cannot be completed without the consent to (i.e., a vote "FOR")
the Proposal of Limited Partners holding a majority of the Units. If the
Proposal is approved by Limited Partners holding a majority of the Units, the
General Partners will promptly notify, in writing, all Limited Partners who did
not consent to the Proposal. Dissenting Limited Partners are not entitled to
appraisal rights under the Partnership Agreement.
If Limited Partner consent is not obtained, the Loan will not be
consummated at this time. In that case the likelihood of any refinancing of the
Partnership property is substantially decreased.
GENERAL PARTNERS' RECOMMENDATION
The General Partners recommend that Limited Partners CONSENT to (i.e., vote
"FOR") the Proposal.
7
<PAGE> 14
OTHER INFORMATION
MARKET PRICES FOR THE PARTNERSHIP'S UNITS
The approximate number of holders of the Units as of May 6, 1998 was 596.
No public trading market exists for the Units.
The following cash distributions were paid to the Partners during 1996,
1997 and through May 6, 1998:
<TABLE>
<CAPTION>
DISTRIBUTION AGGREGATE AMOUNT
DATE OF DISTRIBUTION PER UNIT(*) OF DISTRIBUTION(*)
-------------------- ------------ ------------------
<S> <C> <C>
January 31, 1996........................................ $20.00 $ 90,000
April 30, 1996.......................................... 10.00 45,000
July 31, 1996........................................... 20.00 90,000
October 31, 1996........................................ 70.00 315,000
January 31, 1997........................................ 38.00 171,000
April 30, 1997.......................................... 10.00 45,000
July 31, 1997........................................... 20.00 90,000
October 31, 1997........................................ 70.00 315,000
January 31, 1998........................................ 20.00 90,000
</TABLE>
- ---------------
(*) For the purpose of distributions, the General Partners' $45,000 capital
contribution is considered the equivalent of 45 Units.
DIRECTORS AND EXECUTIVE OFFICERS
The Partnership has no directors or executive officers and, therefore, has
no board of directors. Messrs. Rothman and Young are the General Partners. Mr.
Rothman, age 63, and Mr. Young, age 70, have been the General Partners of the
Partnership since its formation, and are named as the General Partners by the
Partnership Agreement.
Following the approval of the Proposal, and effective upon closing of the
Loan, Messrs. Rothman and Young will be removed as General Partners and the LLC
General Partner will become sole General Partner of the Partnership. The LLC
General Partner is owned one-half by each of Messrs. Rothman and Young, and
managed by Messrs. Rothman and Young.
The Partnership has no standing audit, nominating or compensation
committees or committees performing similar functions.
Since March 1990, Mr. Rothman has been an independent real estate investor.
Mr. Rothman is also currently a consultant to Westland Hotel Corporation
("Westland"), and the sole shareholder of The Northstar Group, a corporation
leasing and operating a hotel/casino in Las Vegas, Nevada.
Since December 1992, Mr. Young has been the president and chief executive
officer and the sole stockholder of Westland, which has a management contract
with the Partnership to manage the operations of the Hotel, which expires in
April of 2014. See "Certain Relationships and Related Transactions" for
additional information regarding the relationship among Messrs. Rothman and
Young, Westland and the Partnership.
INTEREST OF CERTAIN PERSONS IN MATTERS TO BE ACTED UPON
The Individual General Partners will, by virtue of their ownership of
Units, be entitled to a pro rata portion of the distributions made to all
Limited Partners upon the closing of the Loan. The Individual General Partners
will receive an aggregate of approximately $45,000 by virtue of their ownership
of their interests as General Partners of the Partnership and approximately
$76,000 by virtue of their ownership of an aggregate of 76 Units. In addition,
pursuant to the Partnership Agreement, which provides that the General Partners
are
8
<PAGE> 15
entitled to 25% of the net cash proceeds of a refinancing (subordinated to a 12%
per annum cumulative return on capital contributions of Partners and the return
of capital contributions to the Partners), the Individual General Partners will
receive an additional aggregate amount of approximately $286,000 upon the
closing of the Loan. Thus, the aggregate amount the Individual General Partners
will receive will be approximately $407,000. See "The Proposal -- Impact on
Future Distributions" and "Executive Compensation."
In addition, pursuant to the terms of the management contract between the
Partnership and Westland, a corporation controlled by Mr. Young, an Individual
General Partner, Westland is entitled to receive a fee equal to 5% of the direct
costs of the construction of any additional rooms or real property improvements
at the Hotel. Therefore, if, as planned, $1 million from the proceeds of the
Loan is used to develop new rooms at the Hotel, Westland will receive a $50,000
fee pursuant to the terms of such management contract. See "Certain Relationship
and Related Transactions."
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
On the Record Date (May 6, 1998), there were 4,455 Units issued and
outstanding and entitled to vote.
Except as set forth below, there is no person known to the Partnership to
be the beneficial owner of more than 5% of the Units. The following information
is based upon Amendment No. 1 to Schedule 13D filed with the Securities and
Exchange Commission dated March 5, 1988, and as updated by the records of the
Partnership.
<TABLE>
<CAPTION>
NUMBER OF UNITS
AND NATURE OF
BENEFICIAL
OWNERSHIP AT PERCENT OF
TITLE OF CLASS NAME AND ADDRESS OF BENEFICIAL OWNER(1) MAY 6, 1998(2) CLASS
-------------- --------------------------------------- ----------------- ----------
<C> <S> <C> <C>
Limited Partnership Units Liquidity Fund XI 7 .157
Liquidity Fund XII 11 .247
Liquidity Fund XIV 117 2.626
Liquidity Fund XV 3 .067
Liquidity Income/Growth Fund 85 48 1.077
Liquidity Fund Tax-Exempt Partners 28 .629
Liquidity Fund Tax-Exempt Partners II 72 1.616
LF 73 30 .673
LF 74 46 1.033
Liquidity Financial Grp L.P. 9 .202
Liquidity Fund General Ptrs. II 1 .022
Liquidity Fund General Ptrs. II FBO 1 .022
Sean S. Subas
LFG Liquidating Interest, L.P. 5 .112
LF 31 47 1.055
</TABLE>
- ---------------
(1) Each of said funds (the "Funds") is located at 2200 Powell Street,
Emeryville, CA 94608
(2) Each of such Funds owns such Units directly. Each of such funds has sole
voting and disposition power with respect to such Units, which powers are
exercised on behalf of such Fund by its general partner(s). Liquidity Fund
General Partners ("LFGP") is the sole general partner of Liquidity Fund XI,
Liquidity Fund XII, Liquidity Fund XIII, Liquidity Fund XIV, Liquidity Fund
XV and Liquidity Income/Growth Fund 85. The general partners of Liquidity
Fund IX are Liquidity Fund Management, Inc. ("LFMI") and Messrs. Richard G.
Wollack, Bryson S. Randolph and Brent R. Donaldson. The general partners of
Liquidity Fund High Yield Institutional Investors are LFGP and Liquidity
Fund Associates II ("LFA"). The general partners of LFGP are Messrs.
Wollack, Randolph, Donaldson and Sean S. Subas. The officers and directors
of LFMI are Messrs. Wollack, Donaldson and Subas. The general partner of LFA
is LFGP. The general partners of Liquidity Fund Tax-Exempt Partners and
Liquidity Fund Tax-Exempt
9
<PAGE> 16
Partners II are Liquidity Fund General Partners II ("LFGPII") and Liquidity
Fund Partners ("LFP"). The general partners of LFGPII are Messrs. Wollack,
Donaldson, Subas and Robert S. Condon. The general partner of LFP is LFGPII.
Security ownership of management is set forth in the table below:
<TABLE>
<CAPTION>
NUMBER OF UNITS AND
NATURE OF BENEFICIAL
NAME OF OWNERSHIP AS OF CLOSE PERCENT
TITLE OF CLASS BENEFICIAL OWNER OF BUSINESS ON MAY 6, 1998 OF CLASS
-------------- ---------------- -------------------------------- --------
<S> <C> <C> <C>
Limited Partnership John F. Rothman 32 Units* .718
Units Ronald A. Young 44 Units* .988
</TABLE>
- ---------------
(*) Owned directly.
In addition, each Individual General Partner owns a .5% interest in the
equity, profits and losses of the Partnership by virtue of his $22,500 capital
contribution to the Partnership upon its formation.
EXECUTIVE COMPENSATION
The Individual General Partners have never received any compensation from
the Partnership for serving as the Partnership's general partners. Set forth
below is a summary of all compensation which may be payable to the General
Partner in the future pursuant to the Partnership Agreement, as amended by the
Proposal. All such fees and amounts are payable one-half to each of the
Individual General Partners. Upon removal as General Partners, Messrs. Rothman
and Young will assign their rights to such compensation to the LLC General
Partner as the replacement General Partner.
(1) Operations. The General Partners are entitled to a transfer fee of
up to $50 per transfer of Units.
(2) Disposition or Borrowing. Upon the sale or refinancing of the
Hotel, the General Partners are entitled to 25% of the net cash proceeds
subordinated to (i) a 12% per annum cumulative return on the capital
contributions of the Partners, and (ii) the return of such capital
contributions to the Partners, to the extent such proceeds are distributed
to the Partners, as more fully set forth above under "The
Proposal -- Impact on Future Distributions."
(3) Removal of General Partners. The Partnership Agreement provides
that if either or both of Messrs. Rothman and Young should be removed as
General Partner(s) of the Partnership by vote or written consent of the
holders of a majority of the Units then held by Limited Partners entitled
to vote, the Partnership will have the right, but not the obligation, to
terminate a removed General Partner's interest in the compensation owed to
such General Partner upon the sale or refinancing of the Hotel upon payment
to such General Partner of an amount equal to the value of his interest in
such compensation on the date of his removal, based upon the market value
of the assets of the Partnership on and as if such assets were sold on the
date of his removal. If the removed General Partner and the Partnership
cannot mutually agree upon such value within 30 days following the election
by the Partnership to so terminate the General Partner's interest, such
value will be determined by arbitration. Payment to a removed General
Partner of the value of his interest at the option of the Partnership will
be made either (i) in a lump sum within 30 days following determination of
the value thereof, or (ii) in equal installments of principal and interest
at 7% per annum over a period of 60 months.
If the Proposal is approved, the Individual General Partners will assign
their interests as General Partners to the LLC General Partner and the
Partnership will not take the actions set forth in paragraph 3 above with
respect to the termination of the Individual General Partners' general partner
interests. Accordingly, the LLC General Partner will be entitled to receive the
compensation payable to the Individual General Partners under the Partnership
Agreement, as assignee of the Individual General Partners' general partner
interests.
10
<PAGE> 17
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
All of the outstanding stock of Westland, which has a management contract
(the "Contract") with the Partnership to manage the operations of the Hotel, is
owned by Mr. Young. Mr. Rothman is a consultant to Westland. Messrs. Young and
Rothman have agreed that a portion of Westland's net income (based upon a
predetermined formula) will be paid to Mr. Rothman for his consulting services.
Pursuant to the Contract, Westland is entitled to receive from the
Partnership for Westland's services in managing the Hotel: (a) a minimum
management fee equal to 4% of room revenues and food and beverage sales ("Hotel
Revenues"), payable monthly and adjusted at year-end, and (b) an incentive
management fee, calculated and paid annually, equal to the lesser of (1) 12% of
profits before debt service and depreciation, as defined, and (2) the excess of
the Partnership's cash flow over an amount equal to 12% of the Partners' then-
invested capital, as defined. Proceeds of any sale or refinancing of the Hotel
are not considered in computing the incentive management fee.
During 1997, Westland made available to the Partnership various services in
connection with the acquisition of furniture, fixtures, equipment and supplies
for the Hotel, the procurement of insurance for the Hotel, and other
administrative matters. Such services or goods were purchased by the Partnership
from Westland at its cost. For 1997 and 1996, $607,662 and $572,541,
respectively, were paid or payable to Westland as reimbursement for such
purchases.
Westland made available to the Partnership all trade discounts offered by
vendors for early payment.
During 1997, Westland provided bookkeeping services to the Partnership. The
fee paid by the Partnership to Westland for these services is computed by
Westland by taking the total of all direct labor costs of providing bookkeeping
services to the hotels it manages and allocating to the Partnership a pro rata
portion of such costs based on the ratio of the number of rooms in the Hotel to
the number of rooms in all hotels managed by Westland. Westland also is entitled
to reimbursement by the Partnership of certain payroll related costs,
administration expenses and professional fees, when incurred. The bookkeeping
service fee and other reimbursable costs, expenses and fees paid or payable to
Westland for 1997 and 1996 totaled $26,592 for each year.
Westland is entitled to receive 5% of the direct costs of the construction
of any additional rooms or real property improvements, including the
construction of additional rooms at the Hotel.
INDEPENDENT PUBLIC ACCOUNTS
The Partnership's auditors are Deloitte & Touche LLP. The audit services
rendered by Deloitte & Touche LLP for the fiscal year ended December 31, 1997
included: examination of the financial statements of the Partnership,
consultation in connection with the preparation and filing of the Form 10-K
Annual Report with the Securities and Exchange Commission and consultation with
the Partnership on accounting and related matters.
CONSENT PROCEDURES
The Partnership Agreement sets forth the respective rights, duties and
obligations of the Individual General Partners and the Limited Partners. Article
X of the Partnership Agreement provides that the Limited Partners have the right
by vote or written consent of the holders of a majority of the Units then held
by Limited Partners entitled to vote to amend the Partnership Agreement and to
remove the Limited Partnership's General Partners and elect one or more new
replacement General Partners.
As of May 6, 1998 (the "Record Date"), there were 596 Limited Partners who
own (collectively) a 99% interest in the Partnership. As of the Record Date, the
Partnership had 4,500 Units outstanding, including 76 Units held by the
Individual General Partners. Each Limited Partner shall be entitled to one vote
for each Unit owned of record by such Limited Partner on the Record Date. At
such time as the Partnership receives valid and unrevoked written consents
representing at least a majority of the Units outstanding, the Proposal
11
<PAGE> 18
will take effect. The Partnership believes that written consents (i.e., votes
"FOR") representing at least 2,251 Units will constitute the requisite number of
written consents to effectuate the Proposal. WE URGE YOU TO READ THIS CONSENT
SOLICITATION STATEMENT CAREFULLY AND THEN SIGN, DATE AND PROMPTLY MAIL THE
ENCLOSED CONSENT FORM TO THE PARTNERSHIP.
Only Limited Partners of record may consent to the Proposal. If your Units
are held in the name of a brokerage firm, bank, nominee or other institution,
only such institution can vote and sign the Consent with respect to your Units
and can do so only at your direction. Accordingly, if your Units are so held,
please contact your account representative and give instructions to have the
enclosed Consent form executed with respect to your Units.
The Limited Partners' consent to the Proposal is being solicited and may
only be voted upon as a unified proposal. Accordingly, a Limited Partner may not
consent to (i.e., vote "FOR") or withhold consent to (i.e., vote "AGAINST" OR
"ABSTAIN") one part of the Proposal without similarly consenting to or
withholding consent from the others.
YOUR CONSENT IS IMPORTANT. NO MATTER HOW MANY UNITS YOU OWN, THE
PARTNERSHIP URGES YOU TO COMPLETE, SIGN AND RETURN YOUR CONSENT PROMPTLY TO THE
PARTNERSHIP AT 5525 OAKDALE AVENUE, SUITE 300, WOODLAND HILLS, CALIFORNIA 91364.
THIS CONSENT SOLICITATION STATEMENT IS ACCOMPANIED BY A SEPARATE CONSENT.
Because approval of the Proposal requires the affirmative consent (i.e.,
vote "FOR") of Limited Partners owning of record at least a majority of the
Units outstanding, abstentions and broker non-votes will have the effect of
votes against the Proposal. The Partnership urges that Limited Partners execute
the enclosed Consent form "FOR" the Proposals.
It is the present intention of the Partnership to close this consent
solicitation at the earliest possible time. The earliest possible time that this
consent solicitation can be closed is that date on which the valid and unrevoked
written consents (i.e., votes "FOR") of at least a majority of the Units
outstanding have been received by the Partnership (the "Approval Date"). The
Partnership is seeking, if possible, to close this consent solicitation on or
about May 25, 1998.
Any Limited Partner delivering a Consent pursuant to this Consent
Solicitation Statement has the power to change the vote shown on the Consent at
any time prior to the Approval Date by giving written notice of such change to
the Partnership or by executing a Consent bearing a later date and delivering it
to the Partnership. Unless the Partnership receives written notice of a change
of the vote shown on the Consent or a duly executed Consent bearing a later
date, the Consent will be voted in the manner specified therein.
If the Proposal is approved, the approved amendments to the Partnership
Agreement will become effective immediately prior to, and conditioned upon, the
closing of the Loan. The amendments will be executed by the Individual General
Partners on their own behalves and as attorneys-in-fact for the Limited Partners
in accordance with Article XIX of the Partnership Agreement. The Individual
General Partners will immediately thereafter transfer and assign their general
partner interests to the LLC General Partner and the LLC General Partner will
become the sole general partner of the Partnership.
The expenses of this consent solicitation, including the cost of preparing
this Consent Solicitation Statement and the legal fees incurred by the
Partnership in connection with the preparation of this Consent Solicitation
Statement and the form of Consent will be paid by the Partnership. To date, the
costs have been approximately $20,000, and the Partnership estimates that it
will incur additional costs of approximately $10,000. This solicitation will be
made through the mail, and the General Partner and their affiliates and
employees may solicit votes by telephone, telegram and personal interview. Such
persons will receive no additional compensation for such services. The General
Partner intends to request persons holding Units in their name or custody, or in
the name of nominees, to send solicitation materials to their principals and
request authority for the execution of the Consents, and the Partnership will
reimburse such persons for their expense in so doing.
12
<PAGE> 19
FURTHER INFORMATION
This Consent Solicitation Statement does not purport to be a complete
description of all agreements and matters relating to the condition of the
Partnership, its properties and the transactions described herein. Accompanying
this Consent Solicitation Statement is the 1997 Annual Report of the Partnership
(including the Form 10-KSB) which provides additional information regarding the
Partnership. With respect to statements contained in this Consent Solicitation
Statement as to the content of any contract or other document attached as an
exhibit hereto, each such statement is qualified in all respects by reference to
such exhibit. If you would like to request any further information, please send
such request to the Partnership: 5525 Oakdale Avenue, Suite 300, Woodland Hills,
California 91364, Attn: John F. Rothman.
13
<PAGE> 20
EXHIBIT A
AMRESCO LETTERHEAD
January 9, 1998
Casa Munras Hotel Partners, L.P.
c/o Mr. Gary Braun
Churchill Mortgage Company
5959 West Century Boulevard, Suite 1400
Los Angeles, California 90045
RE: TERM LOAN COMMITMENT -- CASA MUNRAS HOTEL
Gentlemen:
This letter (including all attachments hereto, the "Commitment") confirms
that AMRESCO CAPITAL, L.P. (together with its successors and assigns, "Lender")
will lend up to the principal amount set forth below (the "Loan") to Borrower
(as defined below), subject to the terms and conditions contained herein. This
Commitment is conditioned on and subject to, among other things, the completion
of Lender's underwriting process and verification to Lender's satisfaction of
all of the following:
BORROWER: The first addressee of this Commitment or an entity
to be formed thereby, subject in any event to
approval by Lender and its legal counsel of the
borrowing entity as provided herein.
PROPERTY: That certain 152-room hotel known as Casa Munras
Garden and located on a 4.014 acre tract of land at
700 Munras Avenue in Monterey, Monterey County,
California, the legal description of which tract
must be confirmed by a current survey acceptable to
Lender. The Property is owned by Borrower and being
refinanced with the proceeds of the Loan.
LOAN AMOUNT: $6,830,000, with a possible increase up to an
amount not to exceed $7,000,000, provided that at
such increased Loan Amount a minimum debt service
coverage ratio of 1.40 to 1.00 is attained.
TERM: Ten years.
INTEREST RATE: The Interest rate has been locked at 7.70% per
annum and will remained locked at such rate through
the Closing Date specified below since Borrower has
posted with Lender an additional Rate Lock Deposit
(herein so called) equal to 1% of the proposed Loan
Amount, which deposit shall be refundable to
Borrower on the same terms and conditions as the
Deposit provided for below.
AMORTIZATION OF PRINCIPAL: Based on 25 years, subject to confirmation from the
third-party reports required by Lender that all
improvements on the Property have a remaining
economic, useful life of at least seven years
beyond such amortization period, with the
understanding that the Loan is payable in full at
the end of the Term first stated above.
MAXIMUM LTV RATIO: A third-party MAI appraisal ("Appraisal")
acceptable to and addressed to Lender must show
sufficient value so that the Loan Amount does not
exceed 70.0% of the value of the Property at the
time of closing. The Appraisal must also address,
to Lender's satisfaction, market rents, vacancy and
tenant improvement and leasing commission costs,
all of which will be among the items used by Lender
in determining cash flow available for debt
service.
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<PAGE> 21
MINIMUM DSC RATIO: The current and historical statements of Property
income and expenses and rent roll submitted and to
be submitted by Borrower must be verified by
Lender. At the time of closing, the annual cash
flow from the Property available for debt service,
divided by the annual amount of principal and
interest payments on the Loan, must result in a
debt service coverage ratio of at least 1.40 to
1.00. Cash flow available for debt service will be
the sum of all income collected from the Property,
based on the 12-month period ending December 31,
1997 in form acceptable to Lender at the time of
such review; plus potential income recognized by
Lender from laundry, telephone and restaurant
operations substantiated by Borrower and recognized
by Lender from laundry, telephone and restaurant
operations substantiated by Borrower and recognized
by Lender as stable and continuing throughout the
term of the Loan; less all operating and other
expenses for the Property during such 12-month
period. In determining cash flow available for debt
service, and in addition to making any other
adjustments to income and expenses provided for in
Lender's written underwriting guidelines, Lender
will do the following: deduct the annual amounts of
all on-going escrows and reserves (the adequacy of
which, together with the estimated cost of deferred
maintenance and repairs, must be verified pursuant
to Lender's site inspection and third-party reports
and the full amounts of which will be deducted from
income hereunder, even if Lender has agreed in this
Commitment to suspend or otherwise modify
Borrower's obligation to make deposits with Lender
for such purposes), including the amounts of all
insurance premiums and taxes (as determined by
Lender), the general replacement reserve, and all
other on-going escrows and reserves provided for in
this Commitment not otherwise deducted hereunder;
limit recognition of rents to the lesser of
contractual rents or market rents (as reflected in
the Appraisal); reduce all room revenues by a
combined market franchise fee and sales and
marketing expense factor of not less that 11.0%. In
addition to its other underwriting criteria in
determining cash flow available for debt service,
Lender must be satisfied with its verification of
average daily rates in the market and at the
subject Property, occupancy levels in the market, a
sustainable occupancy level of at least 64.0% for
the Property, market expenses and other market data
relative to the Property. At the present time,
annual cash flow available for debt service is
estimated to be $870,753 and principal and interest
payments are estimated to be $616,379 per year. It
is understood that a reduction in the amount of
cash flow available for debt service as finally
underwritten by Lender by the time of closing to
less that $862,931 may result in a reduction of the
Loan Amount in order to attain the minimum debt
service coverage ratio.
RETURN DATE: Duplicates of this Commitment, executed by Borrower
and Key Principals identified below, must be
received by Lender within one week after the date
of this Commitment, or Lender may at its option
withdraw the same and reject any tender by Borrower
of this Commitment and the Deposit.
CLOSING DATE: March 31, 1998 (unless extended in writing by
Lender), by which date the Loan must have been
closed and funded or this Commitment will have
expired.
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<PAGE> 22
FUNDING: Loan funding shall occur as soon as practical after
delivery of executed Loan Documents (as hereinafter
defined) and satisfaction of all closing
requirements.
LENDER'S FEES:
PROCESSING FEE: $5,000, previously paid by Borrower, earned by
Lender and non-refundable in any event.
DEPOSIT: $68,300 (1.0% of the proposed Loan Amount),
previously paid by Borrower. If the Loan is not
closed for reasons other than a Borrower Default
(as defined in the "CONDITIONS FOR PARTIAL REFUND"
paragraph below), the balance of the Deposit in
excess of the sum of Lender's Loan Expenses
(hereinafter defined) will be refunded, as will the
Rate Lock Deposit provided for above. If Lender
determines at any time prior to closing that its
Loan Expenses are exceeding the balance of the
Deposit, then Lender may request, and Borrower will
pay within three days, an additional amount
determined by Lender to be sufficient to cover such
expenses.
CORRESPONDENT FEE: Any compensation for Churchill Mortgage Company
("Correspondent") or any other broker shall be the
sole responsibility of Borrower and Key Principals.
Without liability for failure to do so, Lender will
use reasonable efforts (but only upon the closing
of the Loan) to honor Borrower's written request
that Correspondent be paid out of the proceeds of
the Loan the fee agreed to by said Correspondent be
paid out of the proceeds of the Loan the fee agreed
to by said parties.
OTHER LOAN TERMS:
LIMITED RECOURSE: No deficiency or other judgment for repayment of
principal and interest on the Loan will be entered
by lender against Borrower or Key Principals
identified below following an event of default
except in the event of fraud or material
misrepresentation by Borrower or Key Principals in
connection with the Loan (including but not limited
to the failure to pay the first full monthly
payment of principal and interest when due). In
addition, Borrower and Key Principals will be
liable for certain recourse obligations as more
particularly provided in Lender's standard
promissory note form and described in paragraph 23
of the Summary of Standard Terms and Conditions
attached hereto.
CARVE-OUTS: Ronald A. Young and John F. Rothman ("Key
Principals", whether one or more) will each execute
a guaranty with respect to the limited recourse
carve-out provisions described above.
SECURITY: The Loan shall be secured by a first and prior
mortgage or deed of trust on the Property, and a
perfected first security interest in all leases,
rents, income and profits, and all other personal
property, rights and interest owned by Borrower and
related or appurtenant to the Property.
REPAYMENT TERMS: If funding of the Loan does not occur on the first
day of a calendar month, Borrower will pay interest
accruing up to the first day of the next calendar
month, in advance at closing. Thereafter, principal
and interest (payable in arrears) shall be due in
monthly installments until maturity. Interest shall
be computed and payable in arrears on a monthly
basis assuming a 360-day year consisting of 12
months of 30 days each, except
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<PAGE> 23
that interest due and payable for a period less
than a full month shall be calculated by
multiplying the actual number of days elapsed in
such period by a daily rate based on said 360-day
year. As more particularly provided in the Loan
Documents, the Interest Rate will be subject to
increase if the Loan is not paid in full at the end
of the term stated above or if there is an event of
default, and interest on the Loan, including all
fees and charges treated as such under applicable
law, shall be limited so as never to exceed the
highest rate allowed by such law.
PREPAYMENT: Except in the case of casualty or condemnation
proceeds actually applied to the Loan balance, the
Loan may not be prepaid before the expiration of
120 months after the due date of the first constant
payment under the promissory note evidencing the
Loan ("Note"). After this lockout period, the Loan
may be prepaid only in accordance with the
defeasance provisions of the Note, as more
particularly described in paragraph 5 of the
Summary of Standard Terms and Conditions. Borrower
has the right to prepay the Loan in full at par on
any scheduled payment date during the last six
months.
DUE ON SALE: Subject to Borrower's satisfaction of certain
conditions as provided in the Loan Documents
(including payment of a 1.0% fee), Borrower has a
one-time right to transfer title to a third party
acceptable to Lender who assumes the Loan. Any
sale, transfer or conveyance of all or any part of
the Property without Lender's prior written consent
shall give Lender the right to declare the balance
of the Loan immediately due and payable. In
addition, neither subordinate financing (whether or
not secured by a lien on the Property or any other
assets of Borrower) nor any indebtedness other than
the Loan and trade and operational debt incurred in
the ordinary course of business for the Property
shall be allowed.
REPORTS: During the first 12 months after the closing of the
Loan, monthly occupancy (including rent roll, if
applicable) reports and financial statements
(including month-by-month and year-to-date
operating results) the Property are required to be
provided within 20 days after the close of each
calendar month. Thereafter, quarterly occupancy
(including rent roll, if applicable) reports and
financial statements (including month-by-month and
year-to-date operating results) for the Property
are required to be provided within 45 days after
the close of each calendar quarter, in addition to
all franchise inspection reports and certain annual
and other reports required under the Loan
Documents. If so required by any national rating
agency or otherwise in Lender's reasonable
discretion, such financial statements, together
with those to be furnished in underwriting the
Loan, must be prepared and/or audited by a
certified public accountant. In addition, the Loan
Documents provide for audits in certain events of
default.
ESCROWS AND RESERVES:
TAXES AND INSURANCE: Escrows shall be maintained by a monthly deposit by
Borrower of 1/12 of the annual taxes and insurance
premiums as estimated by Lender. At closing, the
escrow will be funded in an amount which, when the
required monthly payments are added thereto, will
be sufficient to pay such charges when due.
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<PAGE> 24
GENERAL: A general replacement reserve of 5.0% of gross
revenues from the Property will be funded through
monthly deposits by Borrower. Monies deposited will
be released to Borrower for reimbursement of hotel
case goods and soft goods, carpeting and other
interior, exterior, structural HVAC and mechanical
improvements and repairs in accordance with the
terms of the applicable Loan Documents. This
reserve may be adjusted upward after Lender's
evaluation of the Engineering Report (hereinafter
defined).
REPAIRS: 125.0% of the estimated cost of any needed
maintenance and repairs as determined by lender's
evaluation of the Engineering Report will be
deposited at closing. These monies will be released
to Borrower for reimbursement of costs of such
maintenance and repairs, which must be completed
within the time period established by Lender in
accordance with the terms of the applicable Loan
Documents.
OTHER: Any additional funding of the foregoing required at
closing and any escrow for debt service or other
purposes as may be provided in the Special
Conditions Supplement, all of which shall be
pursuant to escrow agreements acceptable to Lender
and executed by Borrower at closing.
LOAN CLOSING CONDITIONS
Closing the Loan is conditioned upon certain additional requirements,
including (i) the Property, Borrower and Key Principals being as represented and
meeting Lender's underwriting criteria, (ii) execution and delivery by Borrower
of all Loan Documents, attorney's opinions, evidence of corporate authority, and
other matters required by lender, and (iii) Borrower's prior delivery of and
Lender's satisfaction (in its sole discretion) with the following:
TITLE INSURANCE AND CURRENT SURVEY acceptable to Lender, to be provided not
less than 60 days before closing.
UCC/LITIGATION/TAX LIEN SEARCH acceptable to lender, to be provided not
less than 60 days before closing.
EVIDENCE OF PROPER ZONING AND PERMITTING acceptable to Lender, including
without limitation all licenses required for all existing and contemplated uses
of the Property, the adequacy of the amount of and all legal arrangements for
parking, as well as the compliance thereof with all legal requirements, and the
rebuildability of existing improvements in the event of any destruction thereof,
to be provided not less than 30 days before closing.
MANAGEMENT of the Property shall be conducted by an entity acceptable to
Lender. Any management contract or agreement shall be subordinate to the
Lender's mortgage, shall be assigned to Lender and shall be subject to
termination in event of default; evidence of same to be provided not less than
30 days before closing.
FIRE & HAZARD INSURANCE coverage, rent loss and business interruption,
comprehensive general liability and such other insurance (including law and
ordinance, flood and/or earthquake, if applicable) as Lender may require in a
form and for an amount acceptable to Lender, issued by a company satisfactory to
Lender and fully paid by time of closing, to be provided not less than 30 days
before closing.
UNPAID TAXES AND ASSESSMENTS due at the time of closing are to be paid
prior to disbursement of the Loan.
OPINION OF BORROWER'S COUNSEL in Lender's standard form with assumptions
and limitations acceptable to Lender, addressing, without limitation, the
validity and enforceability of the Loan Documents, the compliance by the
Property with all applicable zoning, building and other laws and the valid
existence of the borrowing entity, to be provided not less than 15 days before
closing.
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<PAGE> 25
THIRD-PARTY MAI APPRAISAL acceptable to Lender and supporting the maximum
loan-to-value ration and market rent and vacancy factor described above, to be
dated not more than 90 days before closing.
THIRD-PARTY ENGINEERING REPORT to be ordered by Lender ("Engineering
Report") and dated not more than 60 days before closing, showing that all
improvements are in good and workable condition and comply with all applicable
regulations (including ADA) or, if not, an estimate of the cost and description
of any deferred maintenance and repairs.
THIRD-PARTY ENVIRONMENTAL SITE ASSESSMENT to be ordered by Lender
("Environmental Report") and dated not more than 60 days before closing, showing
that there is no toxic substance, hazardous waste or other adverse environmental
condition affecting the Property and confirming the matters stated in the
attached Environmental Questionnaire and Certificate, which is a part of this
Commitment and must be completed and signed by Borrower and Key Principals and
submitted herewith. Borrower and Key Principals will execute an environmental
indemnity agreement with respect to the existence of hazardous or toxic
substances or the failure of the Property to comply with environmental laws, and
Borrower and Key Principals hereby represent to Lender that they are not aware
of any asbestos-containing materials, storage tanks, lead-based paint, toxic
substance, hazardous waste or other adverse environmental condition affecting
the Property, either now or in the past, except as follows:
INCOME AND EXPENSE STATEMENTS acceptable to Lender and supporting the
minimum debt service coverage ratio above.
FINANCIAL STATEMENTS, CREDIT REPORTS AND REFERENCES on Borrower and
Key Principals, supporting a current financial condition of such parties
satisfactory to lender, together with current rent rolls and historical
financial information on the Property.
COSTS AND EXPENSES: Borrower shall pay all costs and expenses incurred
in connection with underwriting, preparing for and closing the Loan ("Loan
Expenses") and the Processing Fee (which is included in Loan Expenses
unless such fee is paid separately from the Deposit ), whether or not the
Loan is closed. It is understood that Loan Expenses include, but are not
limited to, the following: (a) the cost of all third-party reports
described above and any third-party reviews of such reports, all inspection
fees, credit report fees, insurance policy review fees, title insurance
report fees, surveyor's fees, zoning and surveyor consultant's fees, legal
fees and disbursements (including fees and disbursements of lender's
counsel, as well as local counsel selected by Lender) and fees for all
title, UCC, litigation and tax lien searches; and (b) all note taxes,
intangibles taxes, transfer taxes, documentary stamp taxes, all taxes,
costs and fees for recording and filing the mortgage and other Loan
Documents, all license and permit fees, fees in connection with the
preparation and premiums for title and other insurance, escrow and
disbursement fees and other closing costs, This paragraph shall survive the
termination of this Commitment, and if Borrower fails to pay all Loan
Expenses, then Key Principals shall each be responsible for the payment of
same.
INSPECTION of the Property and approval thereof by Lender is required.
ADVERSE CHANGE or deterioration in the financial condition of the
Property, Borrower or any Key Principals after issuance of this Commitment,
but prior to closing, may result in a termination of this Commitment and
all obligations of Lender thereunder.
LOAN DOCUMENTS executed by Borrower at closing on Lender's standard
forms without material change and in form and substance satisfactory to
Lender in its sole discretion. Attached hereto is a Summary of Standard
Terms and Conditions that will be found in the Loan Documents or are
required by Lender in connection with its review of the Loan, as well as
certain representations and warranties of Borrower and Key Principals made
in connection with this Commitment. It is understood that negotiations as
to any of such terms and conditions will result in increased legal fees to
be paid to Borrower.
SPECIAL PURPOSE/BANKRUPTCY REMOTE BORROWING ENTITY acceptable to
Lender, with entity documents acceptable to Lender, as provided in the
Special Conditions Supplement described below.
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<PAGE> 26
MISCELLANEOUS: Such other evidence, documents, subordinations,
estoppel certificates, searches and items required by Lender that are
customarily provided in loan transactions of this type or otherwise
reasonably required in connection with Lender's underwriting of the Loan.
As of the date of closing, all representations, warranties and
certifications made by Borrower and Key Principals to Lender shall be true
and correct and there must exist no event of default (or event with which
notice or lapse of time or both could constitute an event of default) under
the Loan Documents.
SPECIAL CONDITIONS SUPPLEMENT: Special provisions of this Commitment
are set forth in this Special Conditions Supplement attached and
incorporated by reference. If any such special provision is in conflict
with another term or condition of this Commitment, the special provisions
shall control.
ADDITIONAL INFORMATION: Borrower and Key Principals agree to timely
furnish Lender the information outlined in the attached Borrower
Documentation List and any additional information or documentation that
shall be required by Lender to process this Commitment.
OTHER MATTERS
CONDITIONS FOR PARTIAL REFUND: If the Loan is not closed, Borrower will be
entitled to a refund of the Rate Lock Deposit and that portion of the Deposit
which is in excess of the sum of all of Lender's Loan Expenses unless this
Commitment expires or is terminated by Lender because Borrower, its Key
Principals or agents (a) make a material misrepresentation, (b) fail to furnish
information required under this Commitment or to comply with a condition
precedent within their control (including without limitation the failure to
complete any construction or meet any leasing requirements provided for in this
Commitment), or (c) terminate negotiations prior to the execution of the Loan
Documents or otherwise fail or refuse to close the Loan. In any of the events
described in clauses (a), (b) or (c)of the foregoing sentence (collectively,
"Borrower Default"), Lender will be entitled, as compensation for its services,
to retain all funds paid and draw on any letter of credit posted for the Rate
Lock Deposit and the Deposit, and Lender may also, at its option, recover from
Borrower and Key Principals the sum of all of Lender's Loan Expenses in addition
to being entitled to the Rate Loan Deposit and the Deposit. In any such event
Borrower will also be directly responsible for the payment of any fee or
commission earned by the Correspondent (if any) or any other broker used in this
transaction. Borrower agrees with Lender that this paragraph will survive the
expiration or termination of this Commitment and acknowledges that Lender is
issuing this Commitment and agreeing to underwrite the Loan based upon
Borrower's agreements in the "BORROWER COOPERATION" paragraph below.
BORROWER COOPERATION: Borrower is being provided with the attached Borrower
Documentation List and will be provided by lender with a detailed Due Diligence
and Legal Checklist, including the dates by which such information must be
furnished. Borrower agrees to provide Lender and agents in a timely fashion all
of such information and such other items as Lender may request in order to
underwrite and close the Loan. Borrower acknowledges that Lender is issuing this
Commitment and underwriting the Loan based upon such agreement and in reliance
on the representations by Borrower, its Key Principals and agents concerning the
property and the financial and other condition of Borrower and Key Principals
and that the failure to furnish complete and accurate information in a timely
manner and otherwise to cooperate in underwriting and closing the Loan may cause
this Commitment to expire and/or entitle Lender to terminate this Commitment on
account of such Borrower Default, and Lender will be entitled to compensation as
provided in the "CONDITIONS FOR PARTIAL REFUND" paragraph above.
INDEMNITY FOR BROKER CLAIMS: Borrower agrees to pay the commission of the
Correspondent (if any) identified in the "CORRESPONDENT FEE" paragraph of this
Commitment and of any other broker used in this transaction, and Borrower and
Key Principals agree to hold harmless and defend the Lender (and Correspondent,
if any) from and against any and all claims for brokers' or finders' fees and
commissions in connection with the transaction. This indemnification paragraph
shall survive the termination of this Commitment.
A-7
<PAGE> 27
ROLE OF CORRESPONDENT: Borrower understands that Correspondent (if any)
does not have the authority to and cannot bind Lender in any respect, including
without limitation, the authority to waive any conditions or make any changes to
this Commitment.
FINANCIAL DEALINGS: Except as set forth in detail in a separate written
explanation attached to and made a part of this Commitment, or previously
delivered to Lender, neither Borrower, its Principal Owners (being defined as
any person or entity directly or indirectly owning or controlling 25.0% or more
of an ownership interest in Borrower or having the power to direct the
management and polies of Borrower, whether by contract, through an ownership
interest, or otherwise) nor any Key Principals: (i) during the past seven years,
has had any judgment remain unsatisfied more than 30 days; (ii) during the past
seven years, has transferred its right, title, and interest in a property
through a deed-in-lieu or foreclosure action, or has filed or has had filed
against it any action under the bankruptcy laws of the United States, (iii) is
currently a co-maker; endorser or guarantor on or of any note (except as
disclosed to Lender in writing as provided above); (iv) is currently a party to
any lawsuit; (v) has received notice of, or is otherwise aware of, any
bankruptcy, insolvency or comparable proceedings, condemnation, litigation, or
any other action against or affecting the Property, Borrower or any Key
Principals or contemplates filing any such proceedings; or (vi) has ever been
convicted of a felony. Any such exception must be acceptable to Lender. Neither
Borrower, its Principal Owners, nor any Key Principals has any other loan closed
or pending with Lender, and this Loan is not related to any other loan or
proposed loan from Lender except as follows:
ADDITIONAL CERTIFICATIONS: Borrower and all of its Principal Owners
are domestic United States entities or individuals, and neither Borrower
nor any of its Principal Owners is a pension, retirement, welfare, benefit
or other "employee benefit plan" as defined in applicable provisions of the
Employee Retirement Income Security Act of 1974 (as amended from time to
time and including the regulations promulgated thereunder, "ERISA") or owns
"plan assets" as defined in ERISA, and no employee benefit plan owns or
controls, directly or indirectly, any interests in Borrower or any of its
Principal owners. The provisions of this paragraph shall survive the
termination of this Commitment, and Borrower and Key Principals warrant
that the representations made in this paragraph shall continue to be true
and correct until all sums owed under the Loan Documents to Lender or other
holder of the Note have been paid in full.
LENDER AUTHORIZED: Borrower agrees Lender and its agents are
authorized to enter the property for any purpose related to this Commitment
during normal business hours with reasonable notice to Borrower. Lender is
further authorized to obtain credit reports on Borrower and its Key
Principals as well as verification of statements made in his Commitment and
any attachments hereto.
INFORMATION COMPLETE: Borrower and Key Principals each certify that
all information, representations, exhibits and other material submitted to
Lender by, or to be submitted by, Borrower and Key Principals are and will
be true, correct and complete.
SECONDARY MARKET: Borrower acknowledges that Lender intends to sell
the proposed Loan, if closed and funded. Lender has the right to disclose
such information concerning the proposed Loan, Borrower, Key Principals and
the Property as Lender deems necessary in connection with any such sale,
and such assignee shall have the benefit of any warranty, indemnity or
other covenant by Borrower or Key Principals under this Commitment which
survives the closing of the Loan.
NO ASSIGNMENT OR THIRD-PARTY RELIANCE: Borrower's rights under this
Commitment may not be assigned to, or relied on by, any person or entity
who is not a party hereto other than any borrowing entity to be formed in
accordance with the requirements of this Commitment and approved in writing
by Lender.
PUBLIC ANNOUNCEMENT: Upon closing of the Loan, Lender is authorized in
its discretion to issue news releases and at its own expense to publish
"tombstone ads" and other announcements in newspapers, trade journals and
other appropriate media, containing information about the Loan as may be
deemed noteworthy by Lender, including without limitation the legal and
trade name (and if such information is public, the ownership affiliation)
of Borrower, the term and amount of the Loan, the
A-8
<PAGE> 28
Interest Rate, the name, nature and location of the Property and, at
Lender's expense, to have prepared and distributed to persons involved in
the Loan acrylic "cubes" containing all or part of such information.
TITLE COMPANY SELECTION: Borrower acknowledges that it has designated
the approved title company agent and underwriter in the section following
Borrower's signature below, which section is part of this Commitment. If
Borrower fails to make such selection, Lender is authorized to designate
such agent and underwriter. Upon receipt of the Deposit, Lender's loan
closer will contact Borrower to coordinate the placement of Borrower's
order for the commitment for title insurance, which is to be provided by
Borrower within 20 days after submission of this Commitment.
GOVERNING LAWS: THIS COMMITMENT SHALL BE DEEMED TO BE EXECUTED IN AND
PERFORMABLE I, AND GOVERNED BY THE SUBSTANTIVE LAWS OF, THE STATE OF TEXAS
(WITHOUT REGARD TO ANY CONFLICT OF LAWS PRINCIPLES). UPON THE CLOSING OF THE
LOAN, THE LOAN DOCUMENTS WILL BE GOVERNED BY THE LAWS OF THE STATE IN WHICH THE
PROPERTY IS LOCATED (EXCEPT AS LENDER MAY DETERMINE OTHERWISE ON ACCOUNT OF
USURY OR OTHER PECULIAR LAWS IN SUCH STATE) AND BY APPLICABLE LAWS OF THE UNITED
STATES OF AMERICA.
WAIVER OF JURY TRIAL; LIMITATIONS ON DAMAGES: BORROWER, KEY PRINCIPALS AND
LENDER EACH AGREE NOT TO ELECT A TRIAL BY JURY OF ANY ISSUE TRIABLE OF RIGHT BY
JURY, AND WAIVES ANY RIGHT TO TRIAL BY JURY FULLY TO THE EXTENT THAT ANY SUCH
RIGHT SHALL NOW OR HEREAFTER EXIST WITH REGARD TO THIS COMMITMENT OR THE OTHER
LOAN DOCUMENTS, OR ANY CLAIM, COUNTERCLAIM OR OTHER ACTION ARISING IN CONNECTION
THEREWITH. IN NO EVENT SHALL LENDER OR ANY ASSIGNEE OF THE LOAN BE LIABLE FOR
ANY SPECIAL, INCIDENTAL, CONSEQUENTIAL OR PUNITIVE DAMAGES WHATSOEVER (INCLUDING
WITH LIMITATION LOSS OF BUSINESS PROFITS OR OPPORTUNITY) AND BY THEIR EXECUTION
OF THIS COMMITMENT, BORROWER AND KEY PRINCIPALS EACH WAIVE ANY RIGHT TO CLAIM OR
SEEK ANY SUCH DAMAGES. LENDER'S LIABILITY FOR ANY DAMAGES CLAIMED BY BORROWER OR
ANY KEY PRINCIPALS FOR ANY CAUSE WHATSOEVER ARISING OUT OF, OR IN ANY WAY
RELATED TO, THIS COMMITMENT SHALL BE LIMITED TO THE LESSER OF ACTUAL DAMAGES OR
THE FEES ACTUALLY PAID HEREUNDER. THIS PARAGRAPH SHALL SURVIVE THE TERMINATION
OF THIS COMMITMENT.
A-9
<PAGE> 29
THIS COMMITMENT, AND THE OTHER LOAN DOCUMENTS REFERRED TO OR CONTEMPLATED
HEREIN, REPRESENT OR WILL REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND
MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE
PARTIES.
Lender: AMRESCO CAPITAL, L.P.,
a Delaware limited partnership
By: AMRESCO Mortgage Capital, Inc.,
a Delaware corporation, its sole
General Partner
By: /s/ LEONARD R. SIMPSON, JR.
----------------------------------
Name: Leonard R. Simpson, Jr.
Title: Senior Investment Officer
ACCEPTED AND AGREED by the undersigned on January 9, 1998.
Borrower: CASA MUNRAS HOTEL PARTNERS,
L.P.
By: /s/ JOHN F. ROTHMAN
----------------------------------
Name: John R. Rothman
Title: General Partner
Tax I.D.No.: 95-3235634
Key Principals:
/s/ RONALD A. YOUNG
- --------------------------------------
Name: Ronald A. Young
S.S.No.: ###-##-####
/s/ JOHN F. ROTHMAN
- --------------------------------------
Name: John F. Rothman
S.S.No.: ###-##-####
NOTE: BORROWER'S TITLE COMPANY SELECTION IS IMMEDIATELY FOLLOWING, AND IF
BORROWER FAILS TO MAKE SUCH SELECTION, LENDER IS AUTHORIZED TO DO SO.
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<PAGE> 30
TITLE COMPANY SELECTION
Pursuant to Paragraph 16 of the Summary of Standard Terms and Conditions,
Borrower selects the following approved title company agent to issue the
commitment for mortgagee title insurance on behalf of the following designated
underwriter:
<TABLE>
<CAPTION>
(CHECK (CHECK
ONE) APPROVED TITLE COMPANY AGENT: FOR APPROVED UNDERWRITER: ONE)
<S> <C> <C> <C>
American Title Company Chicago Title Ins. Co. Commonwealth
6029 Belt Line Road, Suite 250 Land Title Ins. Co.
Dallas, Texas 75204 Fidelity National Title Ins. Co.
(972) 789-8400 Lawyers Title Ins. Co.
Contact: Carole Badgett Old Republic Nat. Title Ins. Co.
Stewart Title Ins. Co.
TICOR Title Ins. Co.
TransAmerica Title Ins. Co.
Commercial Title Group, Ltd. Chicago Title Ins. Co.
8605 Westwood Center Drive Commonwealth Land Title Ins. Co.
Suite 401 First American Title Ins. Co.
Vienna, Virginia 22182 Lawyers Title Ins. Co.
(703) 506-1520 Stewart Title Ins. Co.
Contact: Barbara Blitz TICOR Title Ins. Co.
Fidelity Nat. Title Agency, Inc. Fidelity National Title Ins. Co.
(See address and contact below) Lawyers Title Ins. Co.
Or:
TICOR Land Title Company Chicago Title Ins. Co.
1717 Main Street, Suite 4250 TICOR Title Ins. Co.
Dallas, Texas 75201
(214) 761-4716
Contact: Thomas Hillsman, Esq.
Partners Title Company Chicago Title Ins. Co.
712 Main Street, Suite 4250 Commonwealth Land Title Ins. Co.
Texas Commerce Bank Bldg. Fidelity National Title Ins. Co.
Houston, Texas 77002-3218 Security Union Title Ins. Co.
(713) 229-8484 TICOR Title Ins. Co.
Contact: Mari Maher TransAmerica Title Ins. Co.
[X] Republic Title of Texas, Inc. Chicago Title Ins. Co. [X]
300 Crescent Court, Suite 100 Commonwealth Land Title Ins. Co.
Dallas, Texas 75201 First American Title Ins. Co.
(214) 855-8888 Lawyers Title Ins. Co.
Contact: Janie Barber (Texas) Old Republic Nat. Title Ins. Co.
Janell Davidson (all other states) TICOR Title Ins. Co.
</TABLE>
If a local agent for the Approved Underwriter designated above has
previously obtained the underlaying title information on the Property in
connection either with a prior financing for Borrower or with Borrower's
acquisition of the Property, Borrower requests that the Approved Title Company
Agent (herein so called) first indicated above cooperate with such local agent
indicated as follows (whom Borrower represents is an authorized agent for such
Approved Underwriter) in obtaining such title work in order for the Approved
Title Company Agent designated above to issue the title commitment and policy:
<TABLE>
<S> <C>
Name: ---------------------------------------------------
Address:
---------------------------------------------------
City, State, ZIP:
---------------------------------------------------
Phone/Fax:
---------------------------------------------------
</TABLE>
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<PAGE> 31
Borrower understands that the Approved Title Company Agent first designated
above (rather than the local agent) will handle all funds, escrow functions and
related aspects of closing the Loan for the full portion of the title insurance
premium as the Approved Title Company Agent may receive in accordance with
applicable law, provided that the Approved Title Company Agent's compensation to
be paid by Borrower shall in no event be less than its customary escrow fee and
reimbursement of out-of-pocket expenses.
ACKNOWLEDGMENT OF RECEIPT
Lender acknowledges receipt of a Deposit, subject to the terms of the
foregoing Commitment, in the amount of $ , on , 1998.
Lender: AMRESCO CAPITAL, L.P.
a Delaware limited partnership
By: AMRESCO Mortgage Capital, Inc.,
a Delaware corporation, its sole General Partner
By:
Name:
Title:
Attachments: Special Conditions Supplement
ECOA Notice and Disclosure
Borrower Documentation List
Environmental Questionnaire and Certificate
Summary of Standard Terms and Conditions
SPECIAL CONDITIONS SUPPLEMENT
Prior to closing the Loan, the following conditions must have been
fulfilled to Lender's satisfaction:
1. Borrower must be a domestic entity acceptable to Lender, typically a
special-purpose, bankruptcy-remote entity such as a limited partnership with its
general partner being a single-purpose corporation. Some of the requirements in
such connection are described in paragraph 10 of the Summary. If Lender, in its
discretion, waives any of such requirements it will require additional
information to assess Borrower' potential for a bankruptcy filing as a result of
activities other than the ownership and operation of the Property, and Lender
must in any event by fully satisfied that such potential is negligible;
provided, however, that if the amount of the Loan (together with any loans which
are made to any related entities and which may be included in the same
securitization pool as this Loan) is $15,000,000 or more, then in addition to
the typical special-purpose, bankruptcy-remote entity requirements described
above Lender will also require that the board of Borrower's general partner (or
of Borrower itself, if a corporation) have an independent director and that
Borrower furnish a non-consolidation opinion of counsel acceptable to Lender.
Borrower should submit its financial statements and existing or proposed
organizational and governing documents to Lender as soon as possible. Following
Lender's review of such documents, Lender will advise Borrower what changes, if
any, will be required. In addition, Lender must review and be satisfied with the
identity and financial condition of the Key Principals.
2. Borrower acknowledges that both the Correspondent and its individual
broker who is sponsoring this Loan are real estate brokers licensed by the State
of California. Correspondent and its sponsoring broker have reviewed this
Commitment and made all required disclosures to Borrower, and have participated
and will participate on behalf of Borrower in the negotiation and preparation of
the terms reflected in this Commitment and to be reflected in the Loan
Documents, as well as the negotiation, preparation and, if the Loan is approved
by Lender, consummation of the Loan, including without limitation the
structuring of the principal terms of the Loan and the Loan Documents, the term
of the Loan provisions relating to the prepayment of the Loan
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<PAGE> 32
and the Interest Rate provisions. Borrower acknowledges that this transaction is
being entered into in express reliance upon the Borrower's representations set
forth above and with the parties' intent and expectation that the Loan will be
exempt from the restrictions on interest rates contained in Article XV, Section
1 of the California Constitution as a Loan "made or arranged by" a real estate
broker duly licensed in the State of California. Borrower acknowledges that the
Loan would not have been consummated but for this certification and the Lender's
reliance on the Loan being exempt as a loan "made or arranged by" a real estate
broker duly licensed by the State of California. In addition to Lender, any
subsequent holder of the note evidencing the Loan is entitled to rely on the
foregoing warranty, representation and certification.
3. The third-party reports referred to above will include a collapsibility
study and a seismic assessment of the Property meeting the Lender's requirements
and rendering an opinion of the aggregate probable maximum loss ("PML") as a
percentage of the replacement cost of each building now situated on the property
as a result of an earthquake, together with a description of the anticipated
damage to each such building. The results of such assessment must be acceptable
to lender, and if the PML is more than 20.0%, such report must include
recommendations for mitigating structural deficiencies and cost estimates for
the recommended work, and earthquake insurance will be required by Lender until
the PML is reduced to not more than 20.0%. The premium cost for such insurance
will be among the expense items used in calculating cash flow available for debt
service.
4. The Loan Documents will provide for a lockbox arrangement, as described
in this paragraph and also referred to in paragraph 24 of the Summary of
Standard Terms and Conditions, TO TAKE EFFECT IF, AND ONLY IF, THE LOAN IS NOT
PAID IN FULL ON THE DATE OF EXPIRATION OF THE TERM FIRST STATED ABOVE IN THIS
COMMITMENT. It is understood that such non-payment will be an Event of Default
under the Loan Documents, that the Loan will be fully matured on such date
("Maturity Date"), and that Lender may at any time thereafter foreclose on the
Property and/or exercise any of its other rights and remedies under the Loan
Documents and applicable law. In order to institute such arrangement, Lender or
its servicer may at any time within 12 months prior to the Maturity Date require
Borrower to execute documentation (including without limitation a tolling or
similar agreement if recommended by Lender's legal counsel) and furnish an
operating budget acceptable to Lender for the property. The lockbox arrangement
will be in effect during a period ("Lockbox Period") beginning on the Maturity
Date if the Loan is not paid in full at such time and will continue until the
Loan is paid in full, including Additional Interest (herein so called), being
interest accrued on the Loan at a rate at least 2.0% per annum higher than the
interest rate ("Initial Interest Rate") in effect during the Term of the Loan;
provided, however, that the entire Loan and all accrued but unpaid Additional
Interest thereon shall be payable in full upon the earlier of (i) the expiration
of two years (or such other maximum Lockbox period as may be determined by
Lender, but in no event beyond the original amortization period) or (ii) demand
by lender at any time on or after the Maturity Date. Upon such expiration or
demand or in the event that Borrower fails to comply with any of its other
obligations under the lockbox arrangement, interest shall accrue on the entire
Loan at the Default Interest Rate (herein so called) as provided in the Note,
being at least 5.0% per annum high than the Initial Interest Rate. During the
Lockbox Period all rental and other income from the Property will be paid
directly into a Lockbox Account (herein so called) under the control of lender
(or its designee), and applied as follows:
(a) first by Lender, in the priority determined by Lender or as
provided in the Loan Documents, to the payment of all amounts required to
be paid thereunder, including the continued payment of installments of
principal and interest (based on the Initial Interest Rate and amortization
schedule or, at Lender's option, as re-amortized based on the Additional
Interest Rate), the payment of taxes and insurance and funding of all other
escrows and reserves provided for in the Loan Documents (even if Lender had
agreed to suspend or otherwise modify Borrower's obligation to make
deposits with Lender for such purposes during the Term of the Loan), and
the payment of capital expenditures an other operating expenses to third
parities not affiliated with Borrower or Key Principals (all of which
expenditures which must be pursuant to a budget or otherwise approved by
Lender in writing), and
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<PAGE> 33
(b) then by Lender, in the priority determined by Lender or as
provided in the Loan Documents, to the payment of principal and Additional
Interest not previously paid and applied in accordance with (a) above.
All costs of maintaining the Lockbox Account will be borne by Borrower, and
if there are insufficient funds to pay all debt service, taxes, insurance,
escrows, expenses and other amounts described in item (a) above, then Borrower's
failure upon demand by Lender or its servicer to deposit the deficiency into the
Lockbox Account shall constitute an Event of Default and interest will accrue at
the Default Interest Rate. Lender may defer payments to third parties affiliated
with Borrower or Key Principals until all amounts described in (a) and (b) above
have been paid. In connection with the institution of the lockbox arrangement
Lender may also require Borrower and Key Principals to obtain at their expense
such (x) title policy endorsements as Lender or its legal counsel may deem
necessary to reflect any tolling or extension of the applicable statute of
limitations during the Lockbox Period described above or otherwise to effectuate
the arrangement described in this paragraph and (y) additional Engineering
Report as Lender may deem necessary to confirm the adequacy of the capital
expenditure budget during such period. Anything herein above to the contrary
notwithstanding, it is understood that the existence or continuation of such
lockbox arrangement shall constitute neither a waiver of any of Lender's rights
and remedies under the Loan Documents (including without limitation foreclosure
on the Property) and applicable law (including without limitation the
appointment of a receiver) nor a limitation on the exercise thereof by Lender or
its designee at any time on or after the Maturity Date first defined above.
5. A prior Phase I Environmental Site Assessment conducted on the Property
indicated the presence of certain asbestos-containing material ("ACM") in
certain locations throughout the Property. Such Phase I Report recommended the
removal and/or enclosure of the ACM and managing certain other asbestos related
materials under an operations and maintenance program. Such report estimated the
total costs for removal of all ACM to be between $50,000 and $60,000. As a
condition to closing, Lender will require that Borrower escrow 125% of the
estimated cost to remove the ACM (as identified in the Phase I Report), which
funds shall be maintained the Lender in an escrow account and pursuant to an
escrow agreement acceptable to Lender and its counsel. Such monies shall be
released to Borrower when Lender has received satisfactory evidence that the ACM
has been removed in accordance of the recommendations contained in the above-
described Phase I Report and otherwise in compliance with all applicable
environmental laws. In addition, Lender must be satisfied that an acceptable
operations and maintenance plan is instituted prior to closing in order to
address the spray-on material located on the Casa bar ceiling.
6. Subject to Lender's review of monthly operating statements from the
Property, Lender reserves the right to institute a debt service escrow mechanism
to ensure that adequate funds are available for debt service during those months
during the year when occupancy levels are historically at a level insufficient
to support the projected debt service on the Loan. Such debt service escrow
mechanism must be acceptable to Lender and shall be evidenced by an escrow
agreement satisfactory to Lender and its counsel.
NOTE: With respect to paragraph 5 herein above, it is understood and agreed that
Borrower will obtain three bids for the work and, subject to the approval
of Lender, will select one such bidder to complete the work. As a
condition to closing, provided Borrower does not complete the work prior
to closing, Lender will escrow 125% of the estimated cost of the work to
be released to Borrower when Lender has received satisfactory evidence the
work has been completed.
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<PAGE> 34
EXHIBIT B
THE PROPOSAL
PART I -- SPV AMENDMENTS
A. Article III is amended in its entirety to read as follows:
ARTICLE III
NATURE OF BUSINESS
The Partnership's business and purpose shall consist solely of the
acquisition, ownership, operation and management of the real estate project
known as Casa Munras Garden Hotel, located in Monterey, Monterey County,
California (the "Property") and such activities as are necessary, incidental or
appropriate in connection therewith.
B. The following paragraph (h) is added to ARTICLE IX:
(h) Power and Duties. Notwithstanding any other provision of this Agreement
and so long as any obligation secured by the Mortgage (as defined below) remains
outstanding and not discharged in full, the General Partner shall have no
authority to take any of the following actions (except, (a) if such action would
not result in a violation of, or default under, the Mortgage, with the vote or
written consent of the General Partner and the holders of a majority of the
Units of Participation then held by the Limited Partners entitled to vote, or
(b) otherwise, with the unanimous vote or written consent of the General Partner
and the holders of the Units of Participation):
(i) borrow money or incur indebtedness on behalf of the Partnership
other than normal trade accounts payable and lease obligations in the
normal course of business, or grant consensual liens on the Partnership's
property; except, however, that the General Partner is hereby authorized to
secure financing for the Partnership pursuant to the terms of the Deed of
Trust, Assignment of Leases and Rents, Security Agreement, and Fixture
Filing (if any), with AMRESCO CAPITAL, L.P., a Delaware limited partnership
(the "Mortgage") and other indebtedness expressly permitted therein or in
the documents related to the Mortgage, and to grant a mortgage, lien or
liens on the Partnership's Property to secure such Mortgage;
(ii) dissolve or liquidate the Partnership;
(iii) sell or lease, or otherwise dispose of all or substantially all
of the assets of the Partnership;
(iv) file a voluntary petition or otherwise initiate proceedings to
have the Partnership adjudicated bankrupt or insolvent, or consent to the
institution of bankruptcy or insolvency proceedings against the
Partnership, or file a petition seeking or consenting to reorganization or
relief of the Partnership as debtor under any applicable federal or state
law relating to bankruptcy, insolvency, or other relief for debtors with
respect to the Partnership; or seek or consent to the appointment of any
trustee, receiver, conservator, assignee, sequestrator, custodian,
liquidator (or other similar official) of the Partnership or of all or any
substantial part of the properties and assets of the Partnership, or make
any general assignment for the benefit of creditors of the Partnership, or
admit in writing the inability of the Partnership to pay its debts
generally as they become due or declare or effect a moratorium on the
Partnership debt or take any action in furtherance of any action;
(v) amend, modify or alter Article III, paragraph (h) of Article IX,
Article XIII, paragraph (d) of Article XXI, or paragraphs (h) and (i) of
Article XXII;
(vi) merge or consolidate with any other entity.
So long as any obligations secured by the Mortgage remain outstanding and
not discharged in full, the General Partner shall have no authority (1) to take
any action in items (i) through (vi) above unless such
B-1
<PAGE> 35
action has been approved by a unanimous vote of the General Partner's managing
members, or (2) to take any action in items (i) through (iii) and (v) and (vi)
without the written consent of the holder of the Mortgage.
So long as any obligation secured by the Mortgage remains outstanding and
not discharged in full, the Partnership shall have a limited liability company
general partner having articles of organization containing the restrictions and
terms set forth in Articles One, Two and Three of the Operating Agreement of
Casa Munras GP, LLC, as of the date hereof, and the Partnership shall have no
other general partners.
C. Article XIII is amended in its entirety to read as follows:
ARTICLE XIII
DEATH OF LIMITED PARTNERS
The bankruptcy, death, dissolution, liquidation, termination or
adjudication of incompetency of a Limited Partner shall not cause the
termination or dissolution of the Partnership and the business of the
Partnership shall continue. Upon any such occurrence, the trustee, receiver,
executor, administrator, committee, guardian or conservator of such Limited
Partner shall have all the rights of such Limited Partner for the purpose of
settling or managing its estate or property, subject to satisfying conditions
precedent to the admission of such assignee as a substitute Limited Partner. The
transfer by such trustee, receiver, executor, administrator, committee, guardian
or conservator of any Partnership Interest shall be subject to all of the
restrictions hereunder to which such transfer would have been subject if such
transfer had been made by such bankrupt, deceased, dissolved, liquidated,
terminated or incompetent Limited Partner.
D. The title of Article XXI is changed to "Covenants" and the following
paragraph (d) is added thereto:
(d) The Partnership shall:
(i) maintain books and records and bank accounts separate from
those of any other person;
(ii) maintain its assets in such a manner that it is not costly or
difficult to segregate, identify or ascertain such assets;
(iii) hold regular Partnership meetings, as appropriate, to conduct
the business of the Partnership, and observe all other Partnership
formalities;
(iv) hold itself out to creditors and the public as a legal entity
separate and distinct from any other entity;
(v) prepare separate tax returns and financial statements, or if
part of a consolidated group, then it will be shown as a separate member
of such group;
(vi) allocate and charge fairly and reasonably any common employee
or overhead shared with affiliates and maintain a sufficient number of
employees in light of its contemplated business operations;
(vii) transact all business with affiliates on an arm's-length
basis and pursuant to enforceable agreements;
(viii) conduct business in its own name, and use separate
stationery, invoices and checks;
(ix) not commingle its assets or funds with those of any other
person;
(x) not assume, guarantee or pay the debts or obligations of any
other person;
(xi) pay its own liabilities out of its own funds;
(xii) not acquire obligations or securities of its partners or
members;
(xiii) not pledge its assets for the benefit of any other entity or
make any loans or advances to any entity;
B-2
<PAGE> 36
(xiv) correct any known misunderstanding regarding its separate
identity;
(xv) maintain adequate capital in light of its contemplated
business operations; and
(xvi) maintain all required qualifications to do business in the
state in which the Property is located.
E. The following paragraphs (h) and (i) are added to ARTICLE XXII:
(h) Ownership of Partnership Property: Notwithstanding any other provision
of this Agreement and so long as any obligation secured by the Mortgage remains
outstanding and not discharged in full, all property owned by the Partnership
shall be owned by the Partnership as an entity and, insofar as permitted by
applicable law, no Partner shall have any ownership interest in any Partnership
property in its individual name or right, and each Partner's Partnership
Interest shall be personal property for all purposes.
(i) Conflicting Provisions: In the event any of the provisions of Article
III, paragraph (h) of Article IX, Article XIII, paragraph (d) of Article XXI,
paragraph (h) of Article XXII or this paragraph (i) of Article XXII of this
Agreement shall conflict with any of the other provisions of this Agreement, the
terms of Article III, paragraph (h) of Article IX, Article XIII, paragraph (d)
of Article XXI, paragraph (h) of Article XXII or this paragraph (i) of Article
XXII, as the case may be, shall control.
PART II -- REMOVAL OF INDIVIDUAL GENERAL PARTNERS AND AMENDMENT ALLOWING
ASSIGNMENT OF GENERAL PARTNER INTERESTS TO OTHER GENERAL PARTNERS
Article XIV is amended in its entirety to read as follows:
ARTICLE XIV
ASSIGNMENT OF GENERAL PARTNER'S INTEREST
The General Partners shall not assign, pledge, encumber, sell or otherwise
dispose of their interests as General Partners in the Partnership, except to
other or successor General Partners.
------------------------
In addition to such amendment, the Limited Partners consent to the removal
of Ronald A. Young and John F. Rothman, as General Partners of the Partnership
and the election of Casa Munras GP, LLC as the replacement General Partner.
PART III -- TAX RELATED AMENDMENTS
The following paragraphs (e), (f), (g), (h) and (i) are added to Article
VII:
(e) The defined terms in this Article VII shall have the following
meanings:
A. "Adjusted Capital Deficit" means, with respect to any Partner,
the deficit balance, if any, in such Partner's capital account as of the
end of the relevant fiscal year, after giving effect to the following
adjustments:
(i) Credit to such capital account any amounts which such
Partner is obligated to restore pursuant to any provision of this
Agreement or is deemed to be obligated to restore pursuant to the
penultimate sentences of Regulations Sections 1.704-2(g)(1) and
1.704-2(i)(5); and
(ii) Debit to such capital account the items described in
Sections 1.704-1(b)(2)(ii)(d)(5), and 1.704-1(b)(2)(ii)(d)(6) of the
Regulations.
The foregoing definition of Adjusted Capital Deficit is intended to
comply with the provisions of Section 1.704-1(b)(2)(ii)(d) of the
Regulations and shall be interpreted consistently therewith.
B. "Code" means the Internal Revenue Code of 1986, as amended from
time to time (or any corresponding provisions of succeeding law).
B-3
<PAGE> 37
C. "Excess Nonrecourse Liabilities" has the meaning set forth in
Section 1.752-3 of the Regulations.
D. "Nonrecourse Deductions" has the meaning set forth in Section
1.704-2(b)(1) of the Regulations.
E. "Nonrecourse Liability" has the meaning set forth in Section
1.704-2(b)(3) of the Regulations.
F. "Partner Nonrecourse Debt" has the meaning set forth in Section
1.704-2(b)(4) of the Regulations.
G. "Partner Nonrecourse Debt Minimum Gain" means an amount, with
respect to each Partner Nonrecourse Debt, equal to the Partnership
Minimum Gain that would result if such Partner Nonrecourse Debt were
treated as a Nonrecourse Liability, determined in accordance with
Section 1.704-2(i)(3) of the Regulations.
H. "Partner Nonrecourse Deductions" has the meaning set forth in
Sections 1.704-2(i)(1) and 1.704-2(i)(2) of the Regulations.
I. "Partnership Minimum Gain" has the meaning set forth in Sections
1.704-2(b)(2) and 1.704-2(d) of the Regulations.
J. "Regulations" means the Income Tax Regulations, including
Temporary Regulations, promulgated under the Code, as such regulations
may be amended from time to time (including corresponding provisions of
succeeding regulations).
(f) Capital Account Maintenance.
Capital accounts of the Partners shall at all times be determined
and maintained in accordance with the principles set forth in Section
1.704-1(b)(2)(iv) of the Regulations.
(g) Minimum Gain.
A. Minimum Gain Chargeback. Except as otherwise provided in Section
1.704-2(f) of the Regulations, notwithstanding any other provision
hereof, if there is a net decrease in Partnership Minimum Gain during
any fiscal year, each Partner shall be specially allocated items of
Partnership income and gain for such fiscal year (and, if necessary,
subsequent fiscal years) in an amount equal to such Partner's share of
the net decrease in Partnership Minimum Gain, determined in accordance
with Regulations Section 1.704-2(g). Allocations pursuant to the
previous sentence shall be made in proportion to the respective amounts
required to be allocated to each Partner and pursuant thereto. The items
to be so allocated shall be determined in accordance with Sections
1.704-2(f)(6) and 1.704(j)(2) of the Regulations. This Paragraph (g)(A)
is intended to comply with the minimum gain chargeback requirement in
Section 1.704-2(f) of the Regulations and shall be interpreted
consistently therewith.
B. Partner Minimum Gain Chargeback. Except as otherwise provided in
Section 1.704-2(i)(4) of the Regulations, notwithstanding any other
provision hereof, if there is a net decrease in Partner Nonrecourse Debt
Minimum Gain attributable to a Partner Nonrecourse Debt during any
Partnership fiscal year, each Partner who has a share of the Partner
Nonrecourse Debt Minimum Gain attributable to such Partner Nonrecourse
Debt, determined in accordance with Section 1.704-2(i)(5) of the
Regulations, shall be specially allocated items of Partnership income
and gain for such fiscal year (and, if necessary, subsequent fiscal
years) in an amount equal to such Partner's share of the net decrease in
Partner Nonrecourse Debt Minimum Gain attributable to such Partner
Nonrecourse Debt, determined in accordance with Regulations Section
1.704(2)(i)(4). Allocations pursuant to the previous sentence shall be
made in proportion to the respective amounts required to be allocated to
each Partner and pursuant thereto. The items to be so allocated shall be
determined in accordance with Sections 1.704-2(i)(4) and 1.704-2(j)(2)
of the Regulations. This
B-4
<PAGE> 38
of the Regulations. This Paragraph (g)(B) is intended to comply with
the minimum gain chargeback requirement in Section 1.704-2(i)(4) of
the Regulations and shall be interpreted consistently therewith.
(h) Qualified Income Offset.
In the event any Partner unexpectedly receives any adjustments,
allocations or distributions described in Sections
1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5) or
1.704-1(b)(2)(ii)(d)(6) of the Regulations, items of Partnership income
and gain shall be specially allocated to each such Partner in an amount
and manner sufficient to eliminate, to the extent required by the
Regulations, the Adjusted Capital Account Deficit of such Partner as
quickly as possible. This Paragraph (h) is intended to comply with the
qualified income offset provisions of Section 1.704-1(b) of the
Regulations and shall be interpreted consistently therewith.
(i) Allocation of Excess Nonrecourse Liabilities.
Pursuant to Section 1.752-3 of the Regulations, it is agreed that
any Excess Nonrecourse Liabilities incurred by this Limited Partnership
on or after the effective date of paragraphs (e), (f), (g), (h) and (i)
of Article VII of this Agreement shall be allocated among the Partners
in the same manner as Sales Profits are allocated under paragraph (c) of
Article VII.
B-5
<PAGE> 39
CASA MUNRAS HOTEL PARTNERS, L.P.
CONSENT FORM
The undersigned, a holder of limited partnership interests (the "Units")
in Casa Munras Hotel Partners, L.P., a California limited partnership (the
"Partnership"), does hereby vote, with respect to all Units owned by the
undersigned, as follows:
[ ] FOR [ ] AGAINST [ ] ABSTAIN
APPROVAL of the Proposal more particularly described in the Notice of
Solicitation of Consents of Limited Partners and the Consent Solicitation
Statement, dated May 15, 1998, accompanying this Consent.
THIS CONSENT IS SOLICITED BY CASA MUNRAS HOTEL PARTNERS, L.P. WHEN THIS
CONSENT FORM IS PROPERLY EXECUTED, THE UNITS REPRESENTED HEREBY WILL BE VOTED AS
SPECIFIED.
Dated: _______________________
-------------------------------
Signature
-------------------------------
Signature (if held jointly)
-------------------------------
Title
Please sign exactly as name appears on the address label.
PLEASE MARK, SIGN, DATE AND RETURN THIS SELF-ADDRESSED POSTAGE PREPAID CONSENT
FORM PROMPTLY.
