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 Section 240.14a-11(c) or
Section 240.14a-12
Super 8 Motels, Ltd., a California limited partnership
(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):
[ ] 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:
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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 (Set forth the
amount on which the filing fee is calculated and state how it
was determined):
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4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
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[X] Fee paid previously with preliminary materials.
[X] 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:
$2,420
2) Form, Schedule or Registration Statement No.:
Schedule 14A
3) Filing Party:
Registrant
4) Dated Filed:
May 15, 1998
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CONSENT SOLICITATION STATEMENT
PROPOSED ACTION BY WRITTEN CONSENT
OF LIMITED PARTNERS
OF
SUPER 8 MOTELS, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP
November 12, 1998
INTRODUCTION
The limited partners (the "Limited Partners") of SUPER 8 MOTELS, LTD., a
California limited partnership (the"Partnership"), are being asked by the
Partnership and Grotewohl Management Services, Inc. (the "General Partner") to
consider and approve by written consent the proposed sale of all of the
Partnership's interests in real property and related personal property (the
"Properties") for an aggregate purchase price of $12,100,000, and the
dissolution of the Partnership, which proposal is described hereinafter (the
"Proposal"). It is estimated that the sale of the Properties pursuant to the
Proposal would result in total additional distributions to the Limited Partners
in the approximate amount of $2,000 per each original $1,000 unit of limited
partnership interest. If the Proposal is approved and the proposed sale is
consummated, among other things, all of the Partnership's assets will be
liquidated and the Partnership will be dissolved. (See "Effects of Approval of
the Proposal" below.)
If the Proposal is approved, the Partnership will be authorized to sell the
Properties to Tiburon Capital Corporation, or a nominee thereof (the "Buyer").
It is expected that Tiburon Capital Corporation will form a limited liability
company for the purpose of buying and owning the Properties, and that Tiburon
Capital Corporation, as the managing member thereof, will have the power to
direct such Buyer's affairs and control all its major decisions. As discussed
below under "Purchase Agreement," Mark Grotewohl, a former employee of the
Partnership and the son of the two owners of the General Partner, or a limited
liability entity to be formed by him, will be a member of the Buyer. Mark
Grotewohl or his wholly-owned entity will enter into a contract to provide all
centralized property management services to the Buyer and pay all centralized
property management expenses in exchange for 4 1/2% of gross property revenues.
The management contract will provide for performance objectives which, if not
met, will entitle the Buyer to terminate the contract. As an additional
management incentive Mr. Grotewohl or his wholly-owned entity will receive on
account of his or its membership in the Buyer up to 50% of the profits from the
Properties after return of all capital to all equity investors, plus a return
thereon of at least 14% per annum. Neither Mark Grotewohl nor his wholly-owned
entity has or will have any interest in Tiburon Capital Corporation or any
voting rights in the Buyer with respect to major decisions (e.g., the sale of
refinancing of the Properties).
The Limited Partners are urged to consider the following risk factors:
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- Inasmuch as the Buyer is engaging in the transaction in order to make a
profit by operating the Properties, the Buyer's interests differ from those of
the Limited Partners. (See "Purchase Agreement" and "Special Factors.")
- The General Partner is subject to conflicts of interest, including
conflicts arising from the settlementof lawsuits (see "Legal Proceedings"),
which may have impacted its decision to sell the Properties, its conduct of
negotiations leading to the proposed sale of the Properties and its
recommendation with respect thereto. (See "Conflicts of Interest.")
- The General Partner did not list the Properties for sale with a broker to
obtain competitive bids. Instead, the General Partner based the purchase price
for the Properties on a formal appraisal of the Properties as of January 1,
1998. (See "Special Factors" and "Conflicts of Interest.") It is possible, then,
that the Partnership might have received a higher price for the Properties if it
had solicited offers by listing the Properties.
- The appraiser may be subject to conflicts of interest in that it has
prepared other appraisals for the General Partner. (See "Appraisal of the
Properties/Fairness Opinion.")
- The General Partner did not retain an unaffiliated representative to act
solely on behalf of the Limited Partners in negotiating the terms of the
proposed transaction. (See "Special Factors.")
- The Limited Partners will be allocated taxable gain if the Properties are
sold. (See "Effects of Approval of the Proposal - Federal Income Tax
Consequences.")
Specifically, the Limited Partners are being asked to approve the following
Proposal:
An amendment to the Partnership Agreement to grant to the General Partner
authority to sell the Properties and related personal property to the Buyer,
notwithstanding that Mark Grotewohl will be an Affiliate of the Buyer; to
dissolve and wind up the affairs of the Partnership; to distribute the proceeds
of the sale and any other cash held by the Partnership in accordance with the
Partnership Agreement; to terminate the Partnership; and to take any action
deemed necessary or appropriate by it to accomplish the foregoing. The exact
wording of such amendment is set forth under "Amendment to Partnership
Agreement."
If the Limited Partners approve the Proposal, closing of the sale will be
subject to certain terms and conditions, including the availability of
sufficient debt financing to the Buyer. (See "Purchase Agreement.") If the sale
is consummated, distributions will be made to the Limited Partners in accordance
with the terms of the Partnership's Certificate and Agreement of Limited
Partnership (the 'Partnership Agreement"). In an amendment to the settlement
agreement respecting the lawsuits discussed below (see "Legal Proceedings"), the
Partnership agreed to close the proposed transaction within a 30-day period
after approval thereof by the Limited Partners, so as to provide the Limited
Partners with the proceeds from the sale as quickly as possible.
The Proposal is subject to the approval of a majority-in-interest of the
Limited Partners. If the Limited Partners do not approve the Proposal, the
Partnership will not sell the Properties pursuant to the Proposal. Rather, the
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General Partner will entertain other offers to sell the Properties and will
submit one or more of such offers to the Limited Partners for approval, in the
discretion of the General Partner. Pending any sale of the Properties, the
Partnership will continue to operate the Properties as usual.
The purchase agreement was executed on April 30, 1998 by John F. Dixon and
William R. Dixon, Jr., on behalf of the Buyer, and Philip B. Grotewohl and David
P. Grotewohl, on behalf of the Partnership. The purchase agreement also covers
the proposed sale of the properties of four other California limited
partnerships as to which the General Partner serves as general partner. The term
of all such purchases are identical, except for the amount being offered for
each property. The Buyer has the right to rescind the purchase agreement if any
of the five partnerships fails to approve the sale of its property or properties
to the Buyer.
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE FAIRNESS OR MERITS OF
SUCH TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED
IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
This Consent Solicitation Statement and the enclosed form of Action By
Written Consent of Limited Partners (the "Consent") were first sent to the
Limited Partners on or about November 12, 1998.
Units of limited partnership interest in the Partnership (the "Units")
represented by Consents duly executed and returned to the Partnership on or
before December 31, 1998 (unless extended by the General Partner pursuant to
notice mailed to the Limited Partners) will be voted or not voted in accordance
with the instructions contained therein. If no instructions for the Proposal are
given on an executed and returned Consent, Units so represented will be voted in
favor of the Proposal. The General Partner will take no action with respect to
the Proposal except as specified in the duly executed and returned Consents.
The cost of this solicitation of Consents is being borne by the
Partnership. Such solicitation is being made by mail and, in addition, may be
made by officers and employees of the Partnership and the General Partner,
either in person or by telephone or telegram.
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TABLE OF CONTENTS
Page
Special Factors.........................................................1
Outstanding Voting Securities and Voting Rights.........................6
Consent Under Partnership Agreement.....................................8
The Properties and the Partnership's Business...........................8
Narrative Description of Business.....................................8
(a) Franchise Agreements............................................8
(b) Operation of the Motels.........................................9
(c) Competition.....................................................9
Properties............................................................9
(a) Sacramento County..............................................10
(b) South San Francisco............................................13
(c) Modesto........................................................14
Management.............................................................14
Purchase Agreement.....................................................15
Conflicts of Interest..................................................17
Effects of Approval of the Proposal....................................18
General..............................................................18
Determination and Use of Net Proceeds................................18
Federal Income Tax Consequences......................................19
(a) General.......................................................19
(b) Characterization of Gain......................................20
Dissolution of the Partnership.......................................21
Appraisal of the Properties/Fairness Opinion...........................21
Legal Proceedings......................................................24
Amendment to Partnership Agreement.....................................27
Financial Information..................................................28
Selected Partnership Financial Data..................................28
Management's Discussion and Analysis of Financial Condition and
Results of Operations..............................................28
I. Fiscal Year Financial Statements............................28
(a) Liquidity and Capital Resources........................28
(b) Results of Operations..................................29
II. Interim Financial Statements................................34
(a) Liquidity and Capital Resources........................34
(b) Results of Operations..................................34
Other Financial Information..........................................34
Financial Statements...................................................F-i
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SPECIAL FACTORS
A number of special factors apply to the Proposal. Some factors are
described more fully elsewhere in this Consent Solicitation Statement and should
be read in conjunction with the rest of this Consent Solicitation Statement.
Limited Partners are urged to read all of this Consent Solicitation Statement
carefully.
The primary purpose of the Proposal is to provide Limited Partners with an
opportunity to liquidate their investment in the Partnership. Based on (i)
comments and questions from Limited Partners with respect to a liquidation of
their investment, (ii) the lack of a public market for the Units, and (iii) the
original objective of the Partnership respecting the sale of the Properties, the
General Partner believes such liquidity is desired by the Limited Partners.
The Partnership was formed in 1978 and its three motel properties located
in South San Francisco, Sacramento County and Modesto, California opened for
business during the years 1979, 1980 and 1980, respectively.
This Consent Solicitation Statement has been prepared to ask the Limited
Partners to approve the sale of the Properties for cash in the amount of the
aggregate appraised fair market values of $12,100,000.
It has always been the intention of the Partnership to liquidate the
Properties when it became apparent that the best interests of the Limited
Partners would be served by doing so. The General Partner has received inquiries
from the Limited Partners over the years as to when the Properties were to be
sold and the Partnership liquidated. Its response, until recently, has been that
because of overbuilt and depressed motel market conditions, the time was not
right for a sale of the Properties. During 1997 and the early part of 1998
conditions changed, and the General Partner believes that the Properties should
be sold pursuant to the Proposal, which was executed on April 30, 1998, and the
Partnership liquidated.
During September and October 1997, Everest Properties II, LLC, a member of
an affiliated group of entities which is the second largest investor group in
the Partnership (the "Everest Group"), made an offer to purchase the Properties
and the motel properties of four other California limited partnerships as to
which the General Partner serves as general partner (the Partnership and the
four other partnerships are referred to herein as the "GMS Partnerships"). The
purchase price set forth in the October offer for the Properties was $8,351,230,
a price far below $12,100,000, the appraised value as of January 1, 1998 and the
price offered in the Proposal. The General Partner rejected the offer of the
Everest Group. Subsequent conflicts between the Everest Group and the
Partnership resulted in lawsuits. Inasmuch as the General Partner agreed with
the Everest Group in principle that the Properties should be sold, a settlement
was reached whereby, among other things, the General Partner agreed to take
steps to sell the Properties and the properties of the other GMS Partnerships,
and the lawsuits were dismissed. (See "Legal Proceedings.") In an amendment to
the settlement agreement, the Everest Group agreed to vote its Units in favor of
the Proposal. (See "Outstanding Voting Securities and Voting Rights.")
The General Partner considered seeking third party buyers for the
Properties (and expects to do so if the Proposal is disapproved) but believes
that it is unlikely that a sale materially more favorable to the Limited
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Partners could have been arranged last spring, or can be arranged now, because
(i) the proposed purchase price is equal to the appraised value determined as of
January 1, 1998, and (ii) in the opinion of the General Partner, the market is
now less favorable to sellers than it was at the time the contract with the
Buyer was negotiated. It is also possible that a delay in pursuing the Buyer's
offer by listing the Properties would have resulted in the loss of that offer.
In this regard, prior to negotiating the terms represented by the Proposal,
the General Partner received in writing from two real estate brokers who are not
affiliated with the Partnership or the General Partner suggested sale strategies
for the sale of the Properties and the properties of the other GMS Partnerships.
One broker suggested a sealed bid sales strategy with an emphasis of obtaining a
single purchaser or a minimum number of purchasers. This broker presented a
broker's value for the eight individual properties which, in the aggregate
($28,250,000), was slightly lower than the aggregate appraised value
($28,900,000) of the eight properties. However, the values assigned by this
broker to the properties were, in some instances, lower than the appraised
values and, in other instances, higher. (For example, the broker assigned values
to the South San Francisco, Sacramento, Modesto, Santa Rosa, San Bernardino,
Bakersfield, Pleasanton and Barstow properties of $7,500,000, $2,600,000,
$1,250,000, $1,700,000, $1,700,000, $1,800,000, $7,800,000, and $3,900,000,
respectively, as compared to the appraised values determined by PKF Consulting
of $7,600,000, $2,700,000, $1,800,000, $2,200,000, $1,600,000, $1,300,000,
$7,600,000 and $4,100,000, respectively.) The other broker suggested that the
eight properties would derive the highest value if sold as a portfolio,
particularly if the buyer were trying to break into the California lodging
industry. The aggregate list price determined by this broker ($29,000,000) was
substantially the same as the aggregate appraised values. As was the case with
the first broker, this broker assigned list prices to the eight properties which
were, in some instances, lower than those of the appraised values and, in other
instances, higher. (This broker assigned list prices, assuming the properties
were sold individually, to the South San Francisco, Sacramento, Modesto, Santa
Rosa, San Bernardino, Bakersfield, Pleasanton and Barstow properties of
$7,663,176, $2,562,833, $1,177,217, $1,600,182, $1,417,824, $1,634,820,
$7,947,436 and $3,558,296, respectively.) Limited Partners should be aware that
"list" prices and "values" assigned by brokers are prices to be used to position
properties for ultimate sale over a period of time. Such estimated prices are
not intended to be appraised values, are not the work product of recognized
experts, are not the result of the rigorous efforts entailed in producing
appraised values, may reflect marketing strategy more than an honest estimate of
the probable value and, therefore, may not accurately reflect the actual amount
of a sale price for any given property. Indeed, the General Partner is aware
that the competition between these two brokers to obtain the listings may have,
in some instances, resulted in an upward bias in the brokers' reports.
Accordingly, the General Partner does not believe that the prices and values
submitted by the brokers should be relied upon in connection with a Limited
Partner's determination of the manner in which the Limited Partner will vote on
the Proposal. The General Partner has included the information set forth in this
paragraph so that Limited Partners will have before them all third-party
information possessed by the General Partner at the time it negotiated the terms
of the Proposal.
It was not until after the General Partner's receipt of the PKF Consulting
appraisal, and the broker's reports discussed in the preceding paragraph that
Tiburon Capital Corporation (together with its nominees, the "Buyer") was
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introduced to the General Partner by Mark Grotewohl. Philip Grotewohl, on behalf
of the General Partner, conducted negotiations relative to the sale of the
Properties.
As discussed more fully below under "Appraisal of the Properties/Fairness
Opinion," the Properties have been appraised by PKF Consulting, a national
hospitality industry specialist. PKF Consulting is an international firm of
management consultants, industry specialists, and appraisers who provide a wide
range of services to the hospitality, real estate, and tourism industries.
Headquartered in San Francisco, PKF Consulting has offices in New York,
Philadelphia, Atlanta, Boston, Houston, Los Angeles, Washington, D.C., and
abroad. As a member of the Pannell Kerr Forster International Association, PKF
Consulting has access to the resources of one of the world's largest accounting
and consulting firms, with 300 offices in 90 countries. Its conclusion was that
the aggregate fair market value of the Properties as of January 1, 1998 was
$12,100,000, which is the purchase price of the Properties set forth in the
Proposal. The purchase price is to be paid in cash, and the net proceeds thereof
will be distributed in accordance with the Partnership Agreement upon the close
of the sales transactions and the concomitant dissolution of the Partnership.
The amended settlement agreement with the Everest Group and the contract of sale
between the Partnership and the Buyer provide for a closing of the sale within
30 days after approval of the sale by the Limited Partners, in order to provide
for a rapid distribution of sale proceeds to the Limited Partners. Termination
of the Partnership will occur as soon as the winding up process can be
completed.
The Partnership and the General Partner are recommending the approval of
the Proposal by the Limited Partners for the following reasons:
o The General Partner believes that the subject contracts were entered into
at the crest of a seller's market, which has now subsided. In this regard,
Limited Partners should note that economic journalists have reported adverse
changes in credit availability and consumer confidence since the terms of the
Proposal were negotiated, factors which could adversely affect the value of the
Properties. The General Partner believes that now is the time to sell the
Properties.
o Although the motels are in good condition, they are almost 20 years old
and have never been refurbished. If the Properties are to be retained, it would
be necessary for the Partnership to spend large sums for their refurbishment and
modernization. The General Partner believes that the funds for such expenditures
would not be available from cash flow without reducing future distributions.
o The Partnership's intention has always been to sell the Properties when
the market conditions warranted sale. It was never an investment objective of
the Partnership to hold the Properties permanently.
o The General Partner understands that the circumstances of many of the
Limited Partners have changed over the life of the Partnership and believes that
the Limited Partners should be presented with an opportunity to liquidate their
investments. In this regard, the General Partner believes that it is important
that the Limited Partners understand that no true market exists for the sale of
the Limited Partners' investment Units. Heretofore, to dispose of their Units,
Limited Partners have had to arrange private sales, or accept tender offers, at
prices well below the real value of the underlying assets.
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o The Properties are proposed to be sold to the Buyer for $12,100,000,
approximately $3,750,000 more than was offered for the Properties in October
1997 by the Everest Group. The sales price is equal to the appraised value of
the Properties as of January 1, 1998 as determined by PKF Consulting, an
independent real estate advisory firm specializing in the valuation of lodging
properties. The proposed sale will be for all cash. PKF Consulting has rendered
a fairness opinion, stating its opinion that the sales price is fair to the
Partnership.
o As of August 31, 1998, the Limited Partners had already received, over
the life of the Partnership, the sum of $2,223.64 per Unit (more than twice
their $1,000 per Unit original investment) in the form of quarterly
distributions. Upon the sale of the Properties as described herein, the Limited
Partners would receive an additional pre-tax distribution in the estimated
amount of approximately $2,000 per Unit. For a discussion of other effects of
the sale of the Properties, including Federal income tax consequences, see
"Effects of Approval of the Proposal" below.
Notwithstanding the preceding, Limited Partners should note that the Buyer
hopes to benefit from its acquisition of the Properties, and that the General
Partner has a conflict of interest (see "Conflicts of Interest") in proposing
the sale at this time. The fair market value and net cash flow of the Properties
may increase over time. Therefore, it is possible that Limited Partners would
receive a greater return on their investment if the Partnership continued to own
and operate the Properties and sold them at a later date, instead of
consummating a sale under the Proposal. The Limited Partners would likely fare
worse under a strategy of retaining the Properties if their value were to
decline.
The General Partner has faced substantial conflicts of interest in
proposing, negotiating and structuring the Proposal. See "Conflicts of
Interest." Although, as discussed above, the General Partner believes that the
Limited Partners are interested in a means of liquidating their investment, the
Proposal has not been initiated by the Limited Partners. The steps that have
been and are being taken to provide the Limited Partners with procedural
safeguards are: (i) the submission of the Proposal to the Limited Partners (all
of whom are unaffiliated with the Partnership, the General Partner and Mark
Grotewohl) for their approval; (ii) the commissioning of an independent
appraisal of the Properties upon which the Proposal is based; and (iii) the
commissioning of a fairness opinion respecting the Proposal. The factors are
listed in descending order of importance, i.e., the first factor listed was
given the most weight in the determination that the proposed transaction is
procedurally fair, although, as a practical matter, this process is an
approximation of the weight given to each factor because each factor is relevant
and the Partnership, the General Partner and Mark Grotewohl were not able to
weigh the relative importance of each factor precisely. Although the Partnership
has not retained an independent representative for the Limited Partners, the
Partnership, the General Partner and Mark Grotewohl believe that the steps taken
and to be taken constitute sufficient procedural safeguards for the Limited
Partners' interests and that the proposed transaction is procedurally fair. The
General Partner's determination was made by Philip Grotewohl, as the sole
director thereof.
Further, the Partnership, the General Partner and Mark Grotewohl believe
that the proposed transaction represented by the Proposal is substantively fair
to the Limited Partners. The Partnership, the General Partner and Mark Grotewohl
have considered a number of material factors in connection with developing such
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beliefs. The factors are listed below in descending order of importance, i.e.,
the first factor listed was given the most weight in the determination that the
proposed transaction is substantively fair, although, as a practical matter,
this process is an approximation of the weight given to each factor because each
factor is relevant and the Partnership, the General Partner and Mark Grotewohl
were not able to weigh the relative importance of each factor precisely:
(i) The purchase price of the Properties is equal to the appraised value of
the Properties as of January 1, 1998;
(ii) The Units are at present illiquid and the cash to be distributed to
the Limited Partners as a result of the proposed sale will provide Limited
Partners with liquidity and cash in an amount greater than the recent sales
prices for the Units and the net book value of the Units(as discussed below);
(iii) The purchase price will be paid entirely in cash;
(iv) The Partnership, the General Partner and Mark Grotewohl believe that
current appraisals of the Properties might reflect lower values than those
reflected in the January 1, 1998 appraisal;
(v) The Partnership has received an opinion from PKF Consulting that the
terms of the proposed sale are fair to the Limited Partners;
(vi) The purchase price for the Properties is substantially greater than
that proposed by the Everest Group, the only other firm offer made for the
Properties during the preceding 18 months; and
(vii) A sale of the Properties rather than the continued ownership thereof
will be consistent with the Partnership's investment objectives.
The appraisal prepared by PKF Consulting was received by the General
Partner prior to the time that negotiations with the Buyer were commenced. The
General Partner relied on the appraisal to determine the valuation of
$12,100,000 for the Properties. As further discussed in the appraisal (see
"Appraisal of the Properties/Fairness Opinion"), PKF Consulting relied on a
sales comparison analysis, a direct capitalization of income analysis, and a
discounted cash flow analysis. Inasmuch as the Properties consist of actively
operated businesses, the appraisal sets forth a single value for the "as is"
market value and the "going concern" value. Accordingly, in relying on the
appraisal, the Partnership, the General Partner and Mark Grotewohl considered
the "as is" market value and the "going concern" value, as well as current and
historical prices for other motels. They did not consider the current
liquidation value of the Properties because it is clear that the highest and
best use of the Properties is as operating motels. To sell the buildings and
personal property in a liquidation sale would be ill advised. Further, the
General Partner deemed the net book value of the Properties to be irrelevant,
given the holding period for the Properties. Based upon experience in the
lodging industry, as well as general familiarity with industry news as reported
by trade journals, the Partnership, the General Partner and Mark Grotewohl
reasonably believe that the appraised fair market value of the Properties as
determined by PKF Consulting as of January 1, 1998 was fair. PKF Consulting was
retained because of its reputation and expertise. The Partnership paid PKF
Consulting approximately $14,100 for its services in the proposed transaction
and the other GMS Partnerships paid PKF Consulting an aggregate of approximately
$35,400.
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With respect to item (ii) above, in the absence of an established public
market in which Units are being traded, the General Partner was not able to
determine accurately any market values for the Units. However, according to
Partnership Spectrum, an independent third party publication, and Schedules 13-D
filed by the Everest Group, from August 1996 to August 1998, there were sales of
Units (including sales made pursuant to tender offers) at rates ranging from
$700 per Unit to $850 per Unit. The proposed sale would result in distributions
of approximately $2,000 per Unit. During the past two years, neither the
Partnership, the General Partner nor Mark Grotewohl has purchased or sold any
Units. The net book value of the Partnership as of June 30, 1998 was $271.25 per
Unit. During the past two years no offers have been made by any unaffiliated
entity for a sale of Limited Partners' interests in the Partnership allowing the
purchaser thereof to exercise control over the Partnership.
Against the proposed transaction are the fact of an inside transaction, the
General Partner's decision not to solicit bids from independent third parties,
and the possibility that the continued ownership of the Properties could be more
economically beneficial than a sale at this time. The Partnership, the General
Partner and Mark Grotewohl believe the factors listed above in favor of the
transaction outweigh these negative considerations.
OUTSTANDING VOTING SECURITIES AND VOTING RIGHTS
The only outstanding class of voting securities of the Partnership is the
Units. Each Unit entitles its holder to one vote on the Proposal.
All Limited Partners as of the date action is taken on the Proposal (the
"Record Date") are entitled to notice of and to vote on the Proposal. As of
August 31, 1998 there were 5,000 Units outstanding and a total of 746 Limited
Partners entitled to vote such Units. With respect to the Proposal to be voted
upon, the favorable vote of Limited Partners holding in excess of 50% of the
Units outstanding as of the Record Date will be required for approval.
There are no rights of appraisal or similar rights of dissenters under
California law or otherwise with regard to the Proposal to be voted upon.
Dissenting Limited Partners are protected under California law by virtue of the
fiduciary duty of the General Partner to act with prudence in the business
affairs of the Partnership on behalf of the Partnership and the Limited
Partners.
As of August 31, 1998 no person or group of related persons was known by
the Partnership to be the beneficial owner of more than 5% of the Units, except
the following group of related Unit holders:
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Liquidity Fund 73 143 Units 2.86%
Liquidity Fund 74 127 Units 2.54%
Liquidity Fund 75 66 Units 1.32%
Liquidity Fund Tax Exempt Partners 116 Units 2.32%
Liquidity Fund Tax Exempt Partners II 153 Units 3.06%
Liquidity Fund 13 Units 0.26%
Liquidity Fund XIII 2 Units 0.04%
Liquidity Fund XIV 5 Units 0.10%
Liquidity Income/Growth Fund 1985 29 Units 0.58%
Liquidity Fund 65 17 Units 0.34%
Total 671 Units 13.42%
None of Grotewohl Management Services, Inc. (the General Partner), Philip
B. Grotewohl, David P. Grotewohl or Mark Grotewohl, or any of their affiliates,
are the beneficial owners of any Units.
The Everest Group owns 224 Units (4.48% of the total). In a written
agreement dated April 21, 1998 (a date prior to the date Mark Grotewohl
terminated his employment with the Partnership) entered into by the GMS
Partnerships, Mark Grotewohl, Everest Properties II, LLC, Everest Properties,
LLC, Everest Madison Investors, LLC, Everest Lodging Investors, LLC, KM
Investments, LLC and Everest Financial, Inc., which amended the settlement
agreement dated February 20, 1998 (discussed below under "Legal Proceedings"),
the Everest Group agreed to vote in favor of the Proposal upon satisfaction of
the following conditions: (i) execution by the GMS Partnerships of an exclusive
sales agency contract in favor of the Everest Group; (ii) execution by the GMS
Partnerships with an entity affiliated with Mark Grotewohl not later than April
30, 1998 of purchase agreements for the properties of the GMS Partnerships
providing for sale prices equal to the respective appraised values of the
properties and for full payment in cash at the time of the closing of escrow;
(iii) the grant to the Everest Group of the first opportunity to arrange
financing for the proposed transactions; and (iv) the diligent preparation and
dissemination by the Partnership of this Consent Solicitation Statement.
Condition (i) was satisfied on May 8, 1998 by the execution of an exclusive
sales agency contract granting the Everest Group an exclusive listing for the
sale of the Properties and the properties owned by the other GMS Partnerships
for a six-month period. For a discussion of the commissions payable pursuant to
such contract, see "Purchase Agreement" below.
No meeting will be held with regard to this solicitation of the Limited
Partners. Voting may be accomplished by completing and returning to the offices
of the Partnership, at 2030 J Street, Sacramento, California 95814, telephone:
(916) 442-9183, the form of Consent included herewith. Only Consents received
prior to the close of business on the date (the "Action Date") which is the
earlier of (i) the date on which the Partnership receives approval and/or
disapproval of the Proposal by a majority-in-interest of the Limited Partners,
or (ii) December 31, 1998 (unless extended by the General Partner pursuant to
notice mailed to the Limited Partners), will be counted toward the vote on the
Proposal. However, Limited Partners are urged to return their Consents at the
earliest practicable date.
If a Limited Partner has delivered an executed Consent to the Partnership,
the Limited Partner may revoke such Consent not later than the close of business
on the date immediately prior to the Action Date. As of the Action Date, the
action which is the subject of this solicitation will either be effective (if
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the requisite number of executed Consents have been received by the Partnership)
or the solicitation period will have expired without approval of the Proposal.
The only method for revoking a Consent once it has been delivered to the
Partnership is by the delivery to the Partnership prior to the Action Date of a
written instrument executed by the Limited Partner who executed the Consent
which states that the Consent previously executed and delivered is thereby
revoked. Other than the substance of the revocation described above, no specific
form is required for such revocation. An instrument of revocation will be
effective only upon its actual receipt prior to the Action Date by the
Partnership or its authorized agent at the Partnership's place of business as
set forth in the foregoing paragraph.
CONSENT UNDER PARTNERSHIP AGREEMENT
Pursuant to Section 6.3F of the Partnership Agreement, a
majority-in-interest of the Limited Partners must approve or disapprove the sale
at one time of all or substantially all of the Partnership's assets. Also, under
Section 6.3H of the Partnership Agreement, the Partnership is not permitted to
sell its property to "Affiliates" of the General Partner. (The Partnership
Agreement defines "Affiliate" as (i) any person directly or indirectly
controlling, controlled by, or under common control with another person, (ii) a
person owning or controlling 10% or more of the outstanding voting securities of
another person, (iii) any officer, director, partner or employee of any person,
and (iv) if a person classified as an affiliate by virtue of (i), (ii) or (iii)
above is an officer, director, partner or employee, any company for which such
person acts in any such capacity.) Although it might be contended that the Buyer
is an Affiliate of the General Partner, in the opinion of the General Partner
the Buyer does not come within such definition, because the General Partner does
not believe that Mark Grotewohl is an Affiliate of the General Partner. (See
"Purchase Agreement" below.) However, recognizing the possibility that
reasonable minds might differ in resolving that issue, and because the
Properties constitute substantially all of the Partnership's assets (as
discussed below under "The Properties and the Partnership's Business"), the
General Partner is seeking the approval of the proposed sale of the Properties
to the Buyer on the terms described herein by a majority-in-interest of the
Limited Partners.
THE PROPERTIES AND THE PARTNERSHIP'S BUSINESS
The Properties consists of three leasehold interests, the motel properties
constructed thereon, and the related personal property. The three motels are
managed and operated by the Partnership under the name "Super 8 Motel."
Narrative Description of Business
(a) Franchise Agreements
The Partnership operates each of its motel properties as a franchisee of
Super 8 Motels, Inc. through sub-franchises obtained from Super 8 Management
Corporation. In March 1988, Brown & Grotewohl, a California general partnership
that is an Affiliate of the General Partner, became sub-franchisor in the stead
of Super 8 Management Corporation, another Affiliate of the General Partner. As
of November 10, 1997, Super 8 Motels, Inc. had franchised a total of 1,619
motels having an aggregate of 98,000 guestrooms in operation. Super 8 Motels,
Inc. is a wholly-owned subsidiary of Hospitality Franchise Systems, Inc. Neither
the Partnership nor the General Partner has any interest in Hospitality
Franchise Systems, Inc.
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The objective of the Super 8 Motel chain is to maintain a competitive
position in the motel industry by offering to the public comfortable, no-frills
accommodations at a budget price. Each Super 8 Motel provides its guests with
attractively decorated rooms, free color television, direct dial telephone and
other basic amenities, but eliminates or modifies other items to provide
substantial cost reduction without seriously affecting comfort or convenience.
Some of these savings are accomplished by reductions in room size, elimination
of expensive lobbies, and by substantial economies in building construction.
By the terms of each franchise agreement with Super 8 Motels, Inc., the
Partnership pays monthly franchise fees equal to 4% of its gross room revenues
(half of which is paid to the sub-franchisor) and contributes an additional 1%
of its gross room revenues to a fund administered by Super 8 Motels, Inc. to
finance the national reservation and promotions program.
(b) Operation of the Motels
The General Partner manages and operates the Partnership's motels. The
General Partner's management responsibilities include, but are not limited to,
the supervision and direction of the Partnership's employees who operate the
motels, the establishment of room rates and the direction of the promotional
activities of the Partnership's employees. In addition, the General Partner
directs the purchase of replacement equipment and supplies, maintenance activity
and the engagement or selection of all vendors, suppliers and independent
contractors. The Partnership's financial accounting activities are performed by
the individual motel staffs and a centralized accounting staff, all of which
work under the direction of the General Partner. Together, these staffs perform
all bookkeeping duties in connection with each motel, including all collections
and all disbursements to be paid out of funds generated by motel operations or
otherwise supplied by the Partnership.
As of December 31, 1997, the Partnership employed a total of 59 persons,
either full or part-time, at its three motel properties, including 20 desk
clerks, 31 housekeeping and laundry personnel, three maintenance personnel, two
van drivers, and three motel managers. In addition, and as of the same date, the
Partnership employed 11 persons in administrative positions at its central
office in Sacramento, California, all of whom worked for the Partnership on a
part-time basis. They included accounting, investor service, sales and marketing
and motel supervisory personnel, secretarial personnel, and purchasing
personnel.
(c) Competition
As discussed in greater detail below, in the areas in which its motel
properties are located the Partnership faces intense competition from motels of
varying quality and size, including other budget motels which are part of
nationwide chains and which have access to nationwide reservation systems.
Super 8 Motels offer accommodations at the upper end, in terms of
facilities and prices, of the budget segment of the lodging industry.
Properties
The net proceeds of the Partnership's offering of Units were expended for
the acquisition (by lease) and development of three properties located in
Sacramento County, South San Francisco and Modesto, California. The aggregate
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acquisition and development cost of the properties was funded with such proceeds
and financing in the amount of $850,000 secured by deeds of trust to each of the
motels. This original loan was repaid in April 1988 with the proceeds of the San
Francisco Federal Savings & Loan Association (SFFSLA) loan described in Note 6
of the audited financial statements. The SFFSLA loan bears interest at the rate
of 3% over the Federal Home Loan Bank Board 11th District Cost of Funds (with a
minimum interest rate of 8.5%) and requires monthly payments of principal and
interest in the amount of $9,061. The SFFSLA loan, which is secured by a deed of
trust encumbering the South San Francisco motel, matures on May 1, 2003, at
which time a "balloon" payment of approximately $740,000 will be due and
payable. SFFSLA is now known as California Federal Bank.
(a) Sacramento County
Description of Motel. The Partnership is the lessee of approximately
241,000 square feet of land located at the northeast corner of Madison Avenue
and Hillsdale Boulevard, and adjacent to Interstate Highway 80, in Sacramento
County, California. The site is located to the east of the City of Sacramento.
The Partnership has constructed a 128-room motel on the site. Construction of
the motel was completed and the motel commenced operations in April 1980.
The property site consists of two leased parcels. The leases provide for
payment by the Partnership of all taxes, utilities and costs of maintenance in
addition to the monthly rent, and will expire on June 30, 2013. Pursuant to the
lease agreements, the Partnership has five consecutive 10-year renewal options.
The leases provide for adjustments to the monthly rent every two years according
to changes in the Consumer Price Index for all Urban Consumers for the San
Francisco-Oakland Area (the "CPI"). The total monthly rent was adjusted to
$9,719 ($116,630 annually) as of July 1, 1996.
The leases provide that the improvements constructed by the Partnership on
the leased premises will remain the property of the Partnership during the lease
term but that upon expiration of the leases, title to any such improvements will
pass to the lessor. The Partnership has subleased several unused portions of the
motel site as described below. As a result of the development discussed below,
the General Partner regards the Sacramento site as completely developed.
Madison Avenue Properties Sublease. During February 1983 the Partnership
entered into a sublease with Madison Avenue Properties (an unaffiliated
developer which is a general partnership of which Jim White, Norbert J. Havlick,
William J. Hughes, Jr. and Merle D. Gilliland are the partners) of an
undeveloped portion of the motel site comprising approximately 38,000 square
feet. Construction of a restaurant and cocktail lounge facility on the property
was completed and the facility opened for business in April 1984.
The sublease to Madison Avenue Properties extends through March 31, 2003,
and has five consecutive 10-year renewal options (but does not require the
Partnership to extend the term of its master leases for the property.) The cost
of improvements and all maintenance, taxes and utilities are the responsibility
of the sublessee. The Partnership and the fee owner of the property have agreed
to subordinate their interests therein to encumbrances securing permanent
financing for the restaurant and cocktail lounge facility.
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The annual rent payable to the Partnership is equal to the greater of 1.5%
of gross receipts generated by the restaurant and cocktail lounge facility, or a
fixed annual rent. The fixed annual rent is adjusted every two years according
to changes in the CPI. On April 1, 1998 the fixed annual rent was increased to
$38,073.
The total rent earned by the Partnership during the last three years is as
follows:
Year Rent
1995 $34,385
1996 $35,398
1997 $35,736
KMH Trinity Properties Sublease. During December 1986, the Partnership
entered into a sublease with KMH Trinity Properties ("KMH") of another
undeveloped portion of the motel site consisting of approximately 33,000 square
feet. KMH is an unaffiliated limited partnership of which Kenneth L. Mackey and
William J. Hughes, Jr. are the general partners.
The sublease to KMH is for a term expiring on June 30, 2013, with five
consecutive 10-year renewal options exercisable by KMH. Because the initial
terms of the Partnership's leases of the overall motel property end on June 30,
2013, the Partnership has agreed in this sublease to exercise up to two of its
10-year renewal options in the event that KMH elects to extend the basic term of
its sublease with the Partnership.
The sublease provides for a minimum annual rent that is adjusted every two
years for changes in the CPI. On December 1, 1996 the minimum annual rent was
adjusted to $31,092.
Pursuant to the sublease, KMH has developed and is operating a retail
shopping center on the subleased land. KMH is required to pay, in addition to
the minimum rent described above, 25% of all rent received each year from
tenants of the shopping center in excess of a sum which is equal to $1.05
multiplied by the rentable square footage of the shopping center (9,930 square
feet). The shopping center opened in September 1987. The total annual rent
(including the minimum rent) earned by the Partnership during the last three
years is as follows:
Year Rent
1995 $29,672
1996 $29,885
1997 $31,092
Sterling Equity Investments Sublease. During November 1987, the Partnership
entered into a sublease with Sterling Equity Investments ("Sterling") of an
undeveloped portion of the motel site consisting of approximately 27,000 square
feet. Sterling is an unaffiliated general partnership of which Kenneth L. Mackey
and William J. Hughes, Jr. are the partners.
The sublease is for a term expiring on June 30, 2013, with five consecutive
10-year renewal options exercisable by Sterling. Because the initial terms of
the Partnership's leases of the overall motel property end on June 30, 2013, the
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Partnership has agreed in this sublease to exercise up to two of its 10-year
renewal options in the event that Sterling elects to extend the basic term of
its sublease with the Partnership.
The sublease provides for a minimum annual rent that is adjusted every two
years for changes in the CPI. On November 12, 1997, the minimum annual rent was
adjusted to $20,868.
Pursuant to the sublease Sterling has developed and is operating a retail
shopping center on the subleased land. Sterling is required to pay, in addition
to the minimum rent described above, 25% of all rent received in each year from
tenants of the shopping center in excess of a sum which is equal to $1.10
multiplied by the rentable square footage of the shopping center (9,069 square
feet). The shopping center opened in July 1988. The total annual rent (including
the minimum rent) earned by the Partnership during the last three years is as
follows:
Year Rent
1995 $19,001
1996 $19,676
1997 $19,835
Motel Operations. The Sacramento motel achieved the following average
occupancy rates and average room rates for the years 1997, 1996 and 1995:
1997 1996 1995
Average Occupancy 58.4% 55.5% 53.8%
Average Room Rate $42.09 $40.37 $41.06
The following lodging facilities provide direct and indirect competition to
the Partnership's Sacramento County motel:
Approximate
Motel Number Distance From
Facility Of Rooms The Motel
Motel 6 82 Across Street
Holiday Inn 350 0.25 mile
La Quinta Motel 130 0.50 mile
Oxford Suites 131 5.00 miles
The Sacramento County motel's patronage consists primarily of leisure,
military and corporate sources. The motel has significant weekend patronage from
sports teams and vacation travelers. In 1997 the McCllelan Air Force Base, which
is in the process of closing, provided approximately 11% of the occupied rooms
and approximately 8% of the room revenue, in 1996 approximately 15% of the
occupied rooms and approximately 11% of the room revenue, and in 1995
approximately 19% of the occupied rooms and approximately 14% of the room
revenue. McCllelan Air Force Base is scheduled for complete closure in 2001. No
other customer supplies as much as 5% of the motel's patronage.
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(b) South San Francisco
Description of Motel. The Partnership is the lessee of two parcels of
approximately 81,330 square feet of land located at the corner of Mitchell and
West Harris Avenues in the City of South San Francisco, approximately two miles
north of the San Francisco International Airport. One of the two parcels leased
was pursuant to a sublease until the Partnership's landlord purchased the
subleased area in 1984 from an unrelated party. In 1984 the original lease was
modified to reflect the changed ownership, and has substantially the same terms
and conditions as the original lease. The Partnership has constructed a 117-room
motel on the site. Construction of the motel was completed and motel operations
commenced on December 5, 1979.
The leases provide for payment by the Partnership of all taxes, utilities
and costs of maintenance and expire, according to their terms, on December 31,
2007. Each lease provides for five consecutive five-year renewal options
exercisable by the Partnership. The monthly rent for each parcel is adjusted at
five-year intervals according to changes in the CPI. As of December 15, 1993 the
rent was adjusted to $7,547 per month ($90,564 per year).
Improvements constructed by the Partnership on the leased premises will
remain the property of the Partnership during the lease terms. However, upon the
expiration of the leases, title to any such improvements will pass to the
lessor.
Motel Operations. The South San Francisco motel achieved the following
average occupancy rates and average room rates for the years 1997, 1996 and
1995:
1997 1996 1995
Average Occupancy 83.7% 78.3% 69.4%
Average Room Rate $59.68 $53.83 $49.43
The following lodging facilities provide direct and indirect competition to
the Partnership's South San Francisco motel:
Approximate
Motel Number Distance From
Facility Of Rooms The Motel
Ramada Inn 250 Across Street
Econo Lodge 51 Adjacent
La Quinta Motor Inn 174 0.25 mile
TraveLodge 200 0.50 mile
Grosvenor Inn 210 0.50 mile
Comfort Suites 165 1.00 mile
Days Inn 200 2.00 miles
The major sources of patronage at the motel are leisure travelers and
business travelers. No single account supplies as much as 5% of the motel's
patronage.
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(c) Modesto
Description of Motel. The Partnership is the lessee of 2.188 acres of land
in the City of Modesto on Orangeburg Avenue near Evergreen Road, located
immediately east of U.S. Highway 99, upon which it has constructed an 80-room
motel. Construction of the motel was completed and operations commenced during
April 1980.
The lease term will expire on September 13, 2029. The lease may be extended
at the Partnership's option for three additional 10-year periods. The monthly
rent is adjusted at three-year intervals according to changes in the CPI. The
rent was adjusted effective September 15, 1996 to $5,913 per month ($70,954 per
year).
During the term of the lease, the Partnership is responsible for the
payment of all taxes, utilities and costs of maintenance. The lease provides
that the improvements on the premises are the property of the Partnership until
the termination of the lease, at which time they will become the property of the
lessor.
Motel Operations. The Modesto motel achieved the following average
occupancy rates and average room rates for the years 1997, 1996 and 1995:
1997 1996 1995
Average Occupancy 60.1% 66.8% 73.2%
Average Room Rate $44.70 $41.63 $41.06
The following lodging facilities provide direct and indirect competition to
the Partnership's Modesto motel:
Approximate
Motel Number Distance From
Facility Of Rooms The Motel
Ramada Inn 115 0.10 mile
Holiday Inn 188 0.25 mile
Mallard's Best Western 120 0.50 mile
Red Lion 285 2.00 miles
The major sources of patronage at the Modesto motel are business travelers,
leisure travelers and the many sports teams attending athletic events in the
area. No single account generates as much as 5% of the motel's total patronage.
MANAGEMENT
The Partnership is a California limited partnership which has no executive
officers or directors. The principal business address of the Partnership is 2030
J Street, Sacramento, CA 95814. The Partnership's general partner is Grotewohl
Management Services, Inc.
Grotewohl Management Services, Inc. is a California corporation owned
one-half by Philip B. Grotewohl and one-half by his former wife, who is not
involved in the day-to-day operations of Grotewohl Management Services, Inc.,
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and who does not serve as a director or executive officer thereof. The sole
director of Grotewohl Management Services, Inc. is Philip Grotewohl, and the
executive officer of Grotewohl Management Services, Inc. is Philip Grotewohl.
David Grotewohl has authority to sign documents on behalf of the General Partner
as its nominal President and Chief Financial Officer, but has no executive
duties. He does act as "inside" legal counsel to the General Partner, and his
principal occupation has been to head the operation and maintenance of the
Properties and the properties of the other GMS Partnerships. The principal
business address of Grotewohl Management Services, Inc. is 2030 J Street,
Sacramento, CA 95814. During the past five years Grotewohl Management Services,
Inc. and its affiliate, Brown & Grotewohl, a California general partnership
one-half owned by Philip Grotewohl and one-half owned by the Estate of Dennis A.
Brown, principally have been engaged in the business of managing various limited
partnerships which own and operate lodging facilities, and in the business of
managing such lodging facilities. During the past five years Philip Grotewohl's
business activities have been conducted solely through Grotewohl Management
Services, Inc. and Brown & Grotewohl. The principal business address of Philip
Grotewohl is 2030 J Street, Sacramento, CA 95814. In addition to the services
described above, during the past two and three-quarters years David Grotewohl
has been engaged part-time as a sole proprietor in the marketing of consumer
products and services under the business name "The Biscayne Group." The
principal business address of David P. Grotewohl is 2030 J Street, Sacramento,
CA 95814.
PURCHASE AGREEMENT
On April 30, 1998, the Partnership entered into an agreement to sell the
Properties to Tiburon Capital Corporation, San Francisco, California, or a
nominee of Tiburon Capital Corporation (the "Buyer"), for the sum of
$12,100,000, payable in cash at the close of escrow. Escrow was opened at
Chicago Title Company, San Francisco, California on June 10, 1998.
Except as otherwise indicated, the following paragraph is based on
information provided by the Buyer. Tiburon Capital Corporation is a California
corporation formed in 1992. All of its stock has been owned since its inception
equally by William R. Dixon, Jr., Herbert J. Jaffe, John L. Wright and John F.
Dixon. Management and control persons of Tiburon Capital Corporation consist of
its stockholders. Tiburon Capital Corporation and its related entities are and
have been involved in many business transactions, including the ownership and
asset or property management of real estate assets. (The owners, management and
the control persons of such related entities are two or more of the owners of
Tiburon Capital Corporation.) In many instances, the real estate assets were or
are owned by limited partnerships or limited liability companies formed and
syndicated by Tiburon Capital Corporation or its related entities for the
specific purpose of owning such assets. The form of an entity owning real estate
assets is typically dictated by investors and/or lenders. If the proposed sale
is consummated, a nominee of Tiburon Capital Corporation, which would be a
limited liability company, would actually purchase the Properties instead of
Tiburon Capital Corporation. The members of such limited liability company would
be Tiburon Capital Corporation, Mark Grotewohl or his wholly-owned entity, and,
perhaps, others. Mark Grotewohl's interest in the Buyer would be limited to 50%
of the profits remaining after return of all capital to all equity investors,
plus a return thereon of at least 14% per annum. Mark Grotewohl or his
wholly-owned entity also would provide centralized property management services
to the Buyer. The fee for this service would be 4 1/2% of gross property
revenues, from which Mark Grotewohl would be required to fund all centralized
property management expenses. The foregoing would be reflected in a written
agreement if
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the Proposal were approved. It is possible that some terms of the relationships
would vary from those as described, but in no event would Mark Grotewohl's
interest in the Buyer or the eight properties be greater than as indicated.
Mark Grotewohl is the son of Philip Grotewohl. During the last five years,
until April 30, 1998, Mark Grotewohl was employed as the manager of one of the
Partnership's motels and as the marketing and sales director for the five GMS
Partnerships. Since that time, Mark Grotewohl has been engaged in facilitating
the proposed transaction, and is operating from the offices of the General
Partner. It might be contended that Mark Grotewohl is, by virtue of his past
relationship with the Partnership and the other GMS Partnerships, an Affiliate
of the Partnership as defined in its Partnership Agreement. Under Section 6.3H
of the Partnership Agreement, the Partnership is not permitted to sell its real
property to "Affiliates" of the General Partner. (The Partnership Agreement
defines "Affiliate" as (i) any person directly or indirectly controlling,
controlled by, or under common control with another person, (ii) a person owning
or controlling 10% or more of the outstanding voting securities of another
person, (iii) any officer, director, partner or employee of any person, and (iv)
if a person classified as an affiliate by virtue of (i), (ii) or (iii) above is
an officer, director, partner or employee, any company for which such person
acts in any such capacity.) The General Partner believes that, based on the
facts and circumstances, Mark Grotewohl is not an Affiliate of the Partnership,
because Mark Grotewohl (i) does not control the Partnership or the General
Partner, (ii) owns no voting securities in the Partnership or the General
Partner, and (iii) is not an officer, director, partner or employee of the
General Partner or the Partnership. However, the General Partner recognizes that
reasonable minds could differ as to the resolution of this issue and has decided
to treat this transaction as an inside transaction.
The Buyer has made a contemporaneous offer to purchase the motel properties
of the four other GMS Partnerships. The offers made by the Buyer for the
properties of each of the GMS Partnerships have been evaluated independently by
the General Partner. Other than with respect to the purchase price of each
motel, the offers are on identical terms. If the limited partners of the other
Partnerships do not approve the sale of their respective properties to the
Buyer, however, the Buyer has the right and option not to proceed with the
proposed purchase of the Properties from the Partnership, even if the Limited
Partners approve this sale. In this regard, the Partnership has not solicited
any offers to purchase the Properties or the motel properties of the other GMS
Partnerships, has not listed the Properties or the motel properties of the other
GMS Partnerships for sale with independent brokers, and has not otherwise
actively sought competing offers for the Properties or the motel properties of
the other GMS Partnerships. Consequently, the offer presented by the Buyer is
the only offer that the General Partner has received for the Properties or the
motel properties of the other GMS Partnerships other than those presented by the
Everest Group.
There are a number of significant conditions to the consummation of the
proposed sale of the Properties to the Buyer; therefore, there can be no
assurance as to whether, or when, such transaction will be consummated. Among
these conditions are the Partnership's receipt of the approval of the Limited
Partners; the Buyer's receipt (at the Partnership's expense) and approval of an
ALTA Survey and preliminary title report for the Properties; the absence of any
damage or loss to the Properties prior to the closing date in excess of $50,000;
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the decision by the Buyer, in its unfettered discretion, to terminate the
proposed purchase prior to June 30, 1998; the Buyer's receipt prior to June 30,
1998 of a loan commitment for financing in an amount of not less than 90% of the
purchase price of the Properties (the Buyer has since waived but has not
satisfied this contingency); and receipt by the Partnership of any necessary
approvals of the sale by, among others, the franchisor, the landlords, and the
subtenants. The General Partner expects that such conditions will be satisfied;
however, there can be no assurances in this regard. No federal or state
regulatory requirements must be complied with, or approvals obtained, in
connection with the transaction.
The Buyer will deposit the sum of $63,000 into escrow on the date the
Partnership notifies the Buyer that the Limited Partners have approved the
proposed sale of the Properties to the Buyer. Should the Buyer default in the
performance of its obligations under the purchase agreement, the Partnership
will be entitled to retain said deposit as its only damages.
The Partnership and the Buyer will share closing costs. The General Partner
anticipates that the Partnership's share of aggregate closing costs, including
real estate brokerage commissions, will be approximately $453,750. Included
therein is a real estate brokerage commission payable to Everest Financial,
Inc., a member of the Everest Group, in an amount equal to 2.75% of the purchase
price. Everest Financial, Inc. has agreed to reallow 1.25% of the purchase price
to the Buyer's broker or, at the Buyer's option, the Buyer will be entitled to a
credit against the purchase price in the amount of 1.25% of the purchase price.
CONFLICTS OF INTEREST
The General Partner is subject to substantial conflicts of interest in
connection with the Proposal arising out of its relationship with the
Partnership, including the conflicts discussed below.
Philip B. Grotewohl, the co-owner and chief executive officer of the
General Partner, is the father of Mark Grotewohl, an affiliate of the Buyer.
Accordingly, the General Partner faced a significant conflict of interest in
determining the terms of the proposed transaction with the Buyer, in determining
not to solicit bids from independent third parties, and in rendering its
recommendation as to the fairness of the proposed transaction with the Buyer.
The General Partner also faced significant conflicts of interest in determining
to sell the Properties at this time in that it agreed to sell the Properties in
the agreement settling the lawsuits brought against and by the Everest Group.
(See "Legal Proceedings.") The state court action by the Everest Group brought
partly in response to the General Partner's federal court action brought against
the Everest Group alleged violations by the General Partner of the Partnership
Agreement and of its fiduciary duty to the Partnership. Accordingly, the General
Partner may have been motivated to agree to sell the Properties as a result of
the lawsuits rather than in pursuit of the best interests of the Limited
Partners. However, based upon its experience in the lodging industry, as well as
general familiarity with industry news as reported by trade journals, the
General Partner believes that the appraised market value of the Properties as
determined by PKF Consulting is fair and reasonable. The General Partner also
believes that the sale of the Properties in accordance with the terms and
conditions outlined in this Consent Solicitation Statement will assist the
Partnership in meeting its investment objectives. Nonetheless, there can be no
assurance that (i) the Limited Partners would not receive a greater amount of
sale proceeds if the General Partner were to solicit bids for the Properties
from third parties, or (ii) the continued retention and operation of the
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Properties by the Partnership coupled with a sale of the Properties at a later
date would not result in greater after-tax distributions to the Limited
Partners.
EFFECTS OF APPROVAL OF THE PROPOSAL
Set forth below is a discussion of the effects of the sale of the
Properties pursuant to the Proposal.
General
The consummation of the sale of the Properties pursuant to the Proposal and
the dissolution of the Partnership should result in the following consequences
for the Partnership, the Limited Partners and the General Partner:
(i) The Limited Partners and General Partner are expected to receive the
distributions of net cash proceeds from the sale of the Properties as described
below.
(ii) The Limited Partners and General Partner are expected to realize the
Federal income tax consequences as described below.
(iii) All of the Partnership's assets and liabilities will be liquidated,
the Partnership will be dissolved and terminated, and the registration of the
Units under the Securities Exchange Act of 1934 will be terminated.
The consequences stated above are discussed in more detail in the
subsections which follow. Those subsections, in part, include computations as to
the cash proceeds to be received and distributed by the Partnership, and the
taxable gain and allocations thereof to be made by the Partnership, in the event
the proposed sale is consummated. HOWEVER, THIS INFORMATION IS PRESENTED SOLELY
FOR THE PURPOSES OF EVALUATING THE PROPOSAL. ALL AMOUNTS ARE ESTIMATES ONLY. ALL
COMPUTATIONS ARE BASED ON ASSUMPTIONS (SUCH AS THE DATE OF SALE, THE EXPENSES OF
THE SALE, AND THE RESULTS OF PARTNERSHIP OPERATIONS THROUGH THE DATE OF SALE)
WHICH MAY OR MAY NOT PROVE TO BE ACCURATE AND SHOULD NOT BE RELIED UPON TO
INDICATE THE ACTUAL RESULTS WHICH MAY BE ATTAINED.
Determination and Use of Net Proceeds
The following is a summary of the projected amount of cash to be received
by the Partnership and the projected amount of cash to be distributed to the
Limited Partners and the General Partner, assuming the Properties are sold for a
gross sales price of $12,100,000. This summary has been prepared by the General
Partner.
If the proposed transaction with the Buyer is consummated on November 30,
1998, it is estimated that the Partnership would receive the following net
proceeds:
Gross sales price $ 12,100,000
Less: Real estate commission (332,750)
Retirement of debt (920,000)
Estimated escrow and closing costs (121,000)
Net proceeds of sale $ 10,726,250
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<PAGE>
Included in closing costs set forth above are, among other items, estimated
legal fees of $37,000, estimated fees in connection with the appraisals and
fairness opinion of $10,000, estimated accounting fees of $16,000 and estimated
fees in connection with solicitation activities of $4,000.
The Partnership's real property taxes are payable twice yearly on April 10
and December 10, partially in arrears, in the current amount of $48,334 each.
The Partnership's aggregate lease payment for its three leasehold interests are
$23,179 monthly, and its aggregate sublease receipts for the Sacramento County
motel are $7,448 monthly. Accordingly, if the proposed transaction with the
Buyer is consummated, the actual date of consummation will determine whether
there is a credit to the Partnership for prorated lease payments and/or a credit
to the Buyer for prorated real property taxes and sublease payments. Similarly,
the amount indicated below as the estimate of reserves available for
distribution immediately prior to the sale of the Properties and on dissolution
of the Partnership will vary depending on the actual date of consummation of the
proposed transaction.
Prior to the sale, the Partnership is expected to make its regular
quarterly distribution on November 15, 1998, in the anticipated amount of
$250,000 ($50.00 per Unit) to the Limited Partners and $27,778 to the General
Partner, and, if the proposed sale is approved, is also expected to make a
distribution from reserves in the amount of $450,000 ($90.00 per Unit) to the
Limited Partners and $50,000 to the General Partner. The net proceeds of
$10,726,250 estimated to be received by the Partnership from the proposed
transaction, based on a closing date of November 30, 1998, would be distributed
99% to the Limited Partners and 1% to the General Partner until the Limited
Partners had received $2,673,355, or $534.67 per Unit (i.e., the Limited
Partners' original investments plus a 10% return on their adjusted investments,
less all prior distributions from the Partnership) and the General Partner had
received $27,004, and the balance ($8,025,891) would be distributed 85% to the
Limited Partners ($6,822,007, or $1,364.40 per Unit) and 15% to the General
Partner ($1,203,884). The Partnership's remaining cash reserves would be
retained for the payment of accounts payable and other liabilities and expenses
incurred to that date or expected to be incurred in connection with the
operation of the Properties through the date of sale and the operation and
winding-up of the Partnership through its termination, including severance pay
to certain employees of the Partnership and the other GMS Partnerships, and the
balance, estimated to be $115,000, would be distributed 85% to the Limited
Partners ($97,750, or $19.55 per Unit) and 15% to the General Partner ($17,250).
Alternatively, if the Properties are not sold pursuant to the Proposal, the
Partnership would continue to operate the Properties for an indeterminate
period. The General Partner estimates that if the Properties are not sold the
Partnership will make average annual distributions to the Limited Partners of
from $500,000 ($100 per Unit) to $800,000 ($160 per Unit), and to the General
Partner of from $55,000 to $89,000 for the foreseeable future. However, there
can be no assurance that the General Partner's estimate in this regard will be
borne out.
Federal Income Tax Consequences
(a) General. The following is a summary of the Federal income tax
consequences expected to result from a sale of the Properties based on the
Internal Revenue Code of 1986, as amended (the "Code"), existing laws, judicial
decisions and administrative regulations, rulings and practices. This summary is
19
<PAGE>
general in content and does not include considerations which might affect
certain Limited Partners, such as Limited Partners which are trusts,
corporations or tax-exempt entities, or Limited Partners who must pay an
alternative minimum tax. Except as otherwise specifically indicated, this
summary does not address any state or local tax consequences.
Tax counsel to the Partnership, Derenthal & Dannhauser, has delivered an
opinion to the Partnership which states that the following summary has been
reviewed by it and, to the extent the summary involves matters of law,
represents its opinion, subject to the assumptions, qualifications, limitations
and uncertainties set forth therein.
(b) Characterization of Gain. Upon the sale of property, the owner thereof
measures his gain or loss by the difference between the amount of consideration
received in connection with the sale and the owner's adjusted basis in the
property. A gain will be recognized for Federal income tax purposes. This is so
because the depreciation used for Federal income tax purposes, which decreases
adjusted basis, was greater than that used for book purposes.
The Properties should constitute "Section 1231 property" (i.e., real
property and depreciable assets used in a trade or business which are held for
more than one year) rather than "dealer" property (i.e., property which is held
primarily for sale to customers in the ordinary course of business). While it is
possible that the Internal Revenue Service will argue that the Properties are
"dealer" property, gain upon the sale of which would be taxed entirely as
ordinary income, tax counsel to the Partnership is of the opinion that it is
more likely than not that such an assertion would not be sustained by a court.
A Limited Partner's allocable share of Section 1231 gain from the sale of
the Properties would be combined with any other Section 1231 gains or losses
incurred by him in the year of sale, and his net Section 1231 gains or losses
would be taxed as long-term capital gains or constitute ordinary losses, as the
case may be, except that a Limited Partner's net Section 1231 gains will be
treated as ordinary income to the extent of net Section 1231 losses for the five
most recent years which have not previously been offset against net Section 1231
gains.
Long-term gain on sale of Section 1231 property is taxed as follows: (i)
the excess of accelerated depreciation over straight-line depreciation is taxed
at ordinary income rates, (ii) to the extent that any other gain would be
treated as ordinary income if the property were depreciable personal property
rather than depreciable real property, at a maximum rate of 25%, and (iii) the
balance at a maximum rate of 20%.
Set forth below are the General Partner's estimates of the total taxable
gain for Federal income tax purposes, and the allocations thereof, which will
result if the proposed sale of the Properties to the Buyer is consummated, based
on an assumed closing date of November 30, 1998. These estimates do not include
any amounts relating to Partnership operations prior to the sale of the
Properties or relating to dissolution of the Partnership. These estimates are
not the subject of an opinion of counsel.
20
<PAGE>
Portion
Total Taxed As Portion Portion
Estimated Ordinary Taxed At Taxed At
Gain Income 25% Rate 20% Rate
Limited Partners $10,173,000 $50,000 $3,952,000 $6,171,000
General Partner 103,000 1,000 40,000 62,000
Total $10,276,000 $51,000 $3,992,000 $6,233,000
Per Unit $2,034.60 $10.00 $790.40 $1,234.20
The General Partner anticipates that consummation of the proposed
transaction would produce a gain for California income tax purposes in the
amount of approximately $10,275,000, of which approximately $103,000 and
$10,172,000 would be allocated to the General Partner and to the Limited
Partners, respectively.
Dissolution of the Partnership
Section 13.1B of Partnership Agreement provides that the Partnership shall
be dissolved upon the vote of a majority of the Limited Partners.
As set forth above, if the proposed sale of the Properties is consummated,
the net cash proceeds received by the Partnership upon close of escrow for the
transaction will be distributed in accordance with the provisions of the
Partnership Agreement. Thereupon the Partnership will be dissolved, the General
Partner will commence to wind up the business of the Partnership, and after
payment of all expenses of the Partnership (including the expense of a final
accounting for the Partnership) the remaining cash reserves of the Partnership
will be distributed in accordance with the provisions of the Partnership
Agreement. The General Partner will then take all necessary steps toward
termination of the Partnership's Certificate of Limited Partnership.
APPRAISAL OF THE PROPERTIES/FAIRNESS OPINION
The appraisals of the three motel properties and the fairness opinion
respecting the proposed transaction with the Buyer were prepared by PKF
Consulting, San Francisco, California. PKF Consulting was selected by the
General Partner based on the General Partner's belief as to the expertise of PKF
Consulting in appraising motel properties in the State of California and in
rendering fairness opinions with respect to the sale thereof. The General
Partner's belief is based on past experience with PKF Consulting, which rendered
appraisals of the Properties and the properties of the other GMS Partnerships in
1988, on its knowledge of the lodging industry, and on recommendations from
others in the lodging industry, including attorneys and accountants. PKF
Consulting also prepared appraisals of the motel properties of the other GMS
Partnerships. PKF Consulting was instructed to prepare its appraisals based on
the assumption that the Properties were to be sold on the open market to
knowledgeable buyers and that there would be no pressure to make a quick sale.
PKF Consulting was not advised that an affiliate of Mark Grotewohl would be a
potential buyer of the Properties. No limitations were imposed by the
Partnership on the appraiser's investigation. PKF Consulting delivered a written
report, dated February 20, 1998, which stated that the "as is" market value of
the Properties as of January 1, 1998 was an aggregate of $12,100,000, or
$7,600,000 for the South San Francisco motel, $2,700,000 for the Sacramento
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<PAGE>
County motel, and $1,800,000 for the Modesto motel. PKF Consulting also
delivered its written fairness opinion, dated May 19, 1998, to the effect that
the proposed transaction with the Buyer is fair and equitable from a financial
standpoint to the Limited Partners. The amount offered by the Buyer for the
Properties is based upon, and is equal to, the market value set forth in the
appraisals.
Other than with respect to the rendering of the appraisal reports and
fairness opinions referred to above, during the past two years there has been no
material relationship between PKF Consulting and the Partnership or its
affiliates. PKF Consulting received a total of approximately $49,000 from the
Partnership and the other GMS Partnerships in connection with the rendering of
such appraisal reports and fairness opinions.
PKF Consulting is an international firm of management consultants, industry
specialists, and appraisers who provide a wide range of services to the
hospitality, real estate, and tourism industries. Headquartered in San
Francisco, PKF Consulting has offices in New York, Philadelphia, Atlanta,
Boston, Houston, Los Angeles, Washington, D.C., and abroad. As a member of the
Pannell Kerr Forster International Association, PKF Consulting has access to the
resources of one of the world's largest accounting and consulting firms, with
300 offices in 90 countries.
The services offered by PKF Consulting include: market and feasibility
studies; real estate appraisals and business valuations; tourism and
recreational studies; strategic planning; operational reviews; asset management;
chain and management company selection; real estate consulting services;
financial consulting; and litigation support, expert witness and arbitration
services.
The following is excerpted from the appraisal reports:
"The scope of this appraisal included a detailed analysis of the
competitive market position of each of the eight properties. More specifically,
the market analysis for each property included the following work program.
1) In-depth analysis of the historical operating performance of each
property.
2) Detailed inspection of each property, focused on identifying areas of
deferred maintenance and/or functional obsolescence.
3) Evaluation of the economic environment of each property's local market,
focusing on economic factors which impact the demand for hotel rooms such as
changes in employment, office space absorption, airport utilization, attendance
at tourist attractions and convention facilities, etc.
4) Primary market research in each market area, including interviews with
key demand generators, inspection and evaluation of competitive hotels and
discussions with persons familiar with the development patterns of each local
market.
5) Analysis of each property's future market position. This analysis
included a projection of the current and future demand for hotel accommodations
in each market, including an assessment of existing and potential future
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<PAGE>
competitive supply, and the share of the market that each hotel could reasonably
be able to capture over the next five to ten years.
Based on the foregoing scope of work, it was concluded that the Highest and
Best Use of each property is as currently improved.
In developing a value conclusion for each hotel, two of the three
traditional approaches to valuation have been used: the Sales Comparison and
Income Capitalization Approaches. In the Sales Comparison Approach, the value of
the subject properties were estimated based on an analysis of the sales of other
similar facilities using a unit indicator of price per room or multiple of rooms
revenue. In the Income Capitalization Approach, the value of each property is
estimated based on an analysis of the historical and projected income and
expenses generated by each facility during a typical holding period. Both direct
capitalization and yield capitalization (discounted cash flow analysis) methods
were employed.
The earnings stream most commonly used as the basis for the Income
Capitalization method of valuation is the projected net operating income (NOI)
from operations after the deduction of real estate taxes and insurance, but
before the deduction of interest, depreciation, amortization and taxes on
income. Also deducted from the profit from operations is a reserve for capital
improvements for each property. The projected operating income for each property
was based on a review of local market conditions and the historical operating
results of each hotel, coupled with an analysis of the historical operating
results of comparable hotels as compiled in PKF Consulting's 1997 issue of
'Trends in the Hotel Industry.'
Under the direct capitalization method, the NOI for a typical or stabilized
year of operation is converted into a value estimate by dividing it by an
appropriate income capitalization rate. The capitalization rate represents the
relationship between income and value observed in the market and is derived
through an analysis of comparable sales as well as other analyses.
In yield capitalization, the value of a property is the present value of
the net operating income of each property in each year of a holding period
(typically ten years) plus the present value of the property as if sold at the
end of the holding period (the "reversion"). The present value of these elements
is obtained by applying a market-derived discount rate. The value of the
reversion is obtained through the capitalization of the adjusted income at the
end of the holding period, which should be a normalized or typical year, with a
deduction for the costs of sale.
In our analysis, the discount rates used to value the subject hotels ranged
from 13.0 to 14.5 percent; going-in capitalization rates ranged from 10.0 to
11.5 percent; and reversionary capitalization rates ranged from 10.5 to 12.0
percent. Differences in the discount and capitalization rates applied to
individual properties were based on a combination of factors, including the age
and condition of the hotels, local market conditions, durability of the
projected income stream, and the ownership rights appraised (fee simple interest
or leasehold interest).
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<PAGE>
The Cost Approach has not been included in the estimate of the value of the
subject properties. The Cost Approach is most applicable in the valuation of
special use properties, properties which are proposed or under construction, and
aged properties, in which the value of the improvements may be nominal and the
value of the property as a whole approaches land value. The subject properties
are all going concerns and the existing improvements contribute significant
value to the property. The costs to replace these facilities are of little more
than historical significance and are not used by the typical investor interested
in the purchase of an existing property."
Upon request the Partnership will furnish to a Limited Partner, without
charge, a copy of the appraisal report. In this regard Limited Partners are
cautioned to refer to the entire appraisal report, inasmuch as the opinions of
value stated therein are subject to the assumptions and limiting conditions
stated therein. Furthermore, Limited Partners should be aware that appraised
values are opinions and, as such, may not represent the realizable value of the
Properties. Upon request, the Partnership will also furnish to a Limited
Partner, without charge, a copy of the fairness opinion.
LEGAL PROCEEDINGS
On October 27, 1997 a complaint was filed in the United States District
Court, Eastern District of California by the Partnership, the other GMS
Partnerships, and the General Partner, as plaintiffs (the "GMS Plaintiffs"). The
complaint named as defendants Everest/Madison Investors, LLC, Everest Lodging
Investors, LLC, Everest Properties, LLC, Everest Partners, LLC, Everest
Properties II, LLC, Everest Properties, Inc., W. Robert Kohorst, David I.
Lesser, The Blackacre Capital Group, L.P., Blackacre Capital Management Corp.,
Jeffrey B. Citrin, Ronald J. Kravit, and Stephen P. Enquist (the "Federal
Defendants"). The factual basis underlying the GMS Plaintiffs' causes of action
pertained to tender offers directed by the Federal Defendants to limited
partners of the GMS Partnerships, and to indications of interest made by certain
of the Federal Defendants in purchasing the properties of the GMS Partnerships.
The complaint requested the following relief: (i) a declaration that each of the
Federal Defendants had violated Sections 13(d), 14(d) and 14(e) of the
Securities and Exchange Act of 1934 (the "Exchange Act"), and the rules and
regulations promulgated by the Securities and Exchange Commission thereunder;
(ii) a declaration that certain of the Federal Defendants had violated Section
15(a) of the Exchange Act and the rules and regulations thereunder; (iii) an
order permanently enjoining the Federal Defendants from (a) soliciting tenders
of or accepting for purchase securities of the GMS Partnerships, (b) exercising
any voting rights attendant to the securities already acquired, (c) soliciting
proxies from the limited partners of the GMS Partnerships, and (d) violating
Sections 13 or 14 of the Exchange Act or the rules and regulations promulgated
thereunder; (iv) an order enjoining certain of the Federal Defendants from
violating Section 15(a) of the Exchange Act and the rules and regulations
promulgated thereunder; (v) an order directing certain of the Federal Defendants
to offer to each person who sold securities in the GMS Partnerships to such
defendants the right to rescind such sale; (vi) a declaration that the GMS
Partnerships need not provide to the Federal Defendants a list of limited
partners in the GMS Plaintiffs or any other information respecting the GMS
Partnerships which is not publicly available; and (vii) awarding the GMS
Plaintiffs reasonable attorneys' fees, costs of suit incurred, and such other
and further relief as the Court may deem just and proper.
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<PAGE>
On October 28, 1997 a complaint was filed in the Superior Court of the
State of California, Sacramento County by Everest Lodging Investors, LLC and
Everest/Madison Investors, LLC, as plaintiffs (the "State Plaintiffs"), against
Philip B. Grotewohl, the General Partner, Kenneth M. Sanders, Robert J. Dana,
Borel Associates, and BWC Incorporated, as defendants (the "State Defendants"),
and the GMS Partnerships, as nominal defendants. On November 11, 1998 the
complaint was amended and Mark and David Grotewohl were added as defendants. The
State Plaintiffs alleged that the State Defendants received unauthorized rebates
of franchise fees paid to Super 8 Motels, Inc., that the General Partner caused
the GMS Partnerships to make unauthorized payments of salaries and expenses, and
reimbursements of expenses to the General Partner, that the General Partner
refused to cooperate with the State Plaintiffs' efforts to buy the properties of
the GMS Partnerships, and that the General Partner refused to provide
information required by the GMS Partnerships' governing documents and California
law. The General Partner believes that these allegations were unjustified. As
amended, the complaint requested the following relief: (i) a declaration that
the action was a proper derivative action; (ii) an order requiring the State
Defendants to discharge their fiduciary duties to the GMS Partnerships by
accepting no kickbacks, charging no unauthorized expenses, responding in good
faith to the offer made by an affiliate of the State Plaintiffs to purchase the
properties of the GMS Partnerships and disclosing such offers to the limited
partners of the GMS Partnerships, and delivering all information respecting the
GMS Partnerships requested by the State Plaintiffs; (iii) an order enjoining the
State Defendants from breaching their fiduciary duties; (iv) disgorgement of
profits in excess of the reasonable value of the services actually rendered; (v)
appointment of a receiver; and (vi) an award for compensatory and punitive
damages and, under RICO, treble damages, and costs, all in an amount to be
determined.
On February 20, 1998, the parties entered into a settlement agreement
pursuant to which both of the above complaints were dismissed. Pursuant to the
terms of the settlement agreement, the Federal Defendants (excluding The
Blackacre Capital Group, L.P., Blackacre Capital Management Corp., Jeffrey B.
Citrin, Ronald J. Kravit and Stephen P. Enquist) agreed not to generally solicit
the acquisition of any additional units of the GMS Partnerships without first
filing necessary documents with the Securities and Exchange Commission, and also
agreed to conduct any such solicitation in compliance with the provisions of
Section 14 of the Exchange Act and Regulation 14D, notwithstanding that any such
solicitation might otherwise be exempt from such requirements. It was also
agreed, among other things, that the General Partner would retain, on behalf of
the GMS Partnerships, a real estate broker to market for sale all of the
properties of the GMS Partnerships. The General Partner agreed to evaluate and
consider in good faith a designee of Everest Properties, Inc. to serve as the
real estate broker. Further, the General Partner agreed to include in any
listing agreement between the GMS Partnerships and their real estate broker a
provision requiring the broker to share one-half of the real estate commission
payable with Everest Properties, Inc. or its designee in the event that Everest
Properties, Inc. or its designee were the procuring broker for the property
generating the real estate commission. The General Partner also agreed to
proceed in a commercially reasonable manner with the marketing of all properties
of the GMS Partnerships, and agreed to entertain all bona fide offers, whether
made for all of the properties of the GMS Partnerships as a group, for all of
the properties of a particular GMS Partnership as a group, or for an individual
property. The General Partner agreed, by no later than June 30, 1998, to accept
for submission to the limited partners of any GMS Partnership either (i) any
bona fide offer (an "Acceptable Offer") to purchase one or more of the
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properties of a GMS Partnership if the offer were a cash offer at a price equal
to 75% or more of the appraised value of the property or properties, or (ii) any
offer for a property or properties of a GMS Partnership on terms deemed by the
General Partner to be more favorable to that GMS Partnership than the Acceptable
Offer. In addition, the General Partner agreed to submit the offer for approval
to the limited partners of the GMS Partnership and other procedures as required
by the GMS Partnership's Agreement of Limited Partnership and applicable law.
The General Partner retained the right to recommend to the limited partners of a
GMS Partnership rejection of any proposal if the proposed sales price were less
than the appraised value of the property or were not payable entirely in cash.
The General Partner also agreed that, upon the sale of a property of one of the
GMS Partnerships, the General Partner would distribute promptly the proceeds of
the sale after payment of payables and retention of reserves to pay anticipated
expenses. Under the terms of the settlement agreement, the GMS Partnerships
agreed to reimburse the Everest Defendants for certain costs, not to exceed
$60,000, to be allocated among the GMS Partnerships. Of this amount, the
Partnership paid $12,000.
For a discussion of the amendment to such settlement agreement, see
"Outstanding Voting Securities and Voting Rights."
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AMENDMENT TO PARTNERSHIP AGREEMENT
Set forth below is the proposed amendment to the Partnership Agreement
which is the subject of this Consent Solicitation Statement:
Section 17. SALE OF PROPERTIES
17.1 Sale and Disposition of Partnership Assets
Notwithstanding anything contained in this Partnership Agreement to the
contrary, including Section 6.3H hereof, the General Partner, for and on behalf
of the Partnership, is hereby authorized (i) to sell the Partnership's real
property interests, including its motels, and related personal property, to
Tiburon Capital Corporation or a nominee thereof, including a nominee as to
which Mark Grotewohl is an Affiliate, on the terms and conditions outlined in
the Consent Solicitation Statement of the Partnership dated November 12, 1998;
(ii) to dissolve and wind up the affairs of the Partnership; (iii) to distribute
the proceeds of the sale and any other cash held by the Partnership in
accordance with this Partnership Agreement; (iv) to terminate the Partnership;
and (v) to take any action deemed necessary or appropriate to accomplish the
foregoing.
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FINANCIAL INFORMATION
Selected Partnership Financial Data
The Partnership's book values per Unit as of December 31, 1997 and June 30,
1998 were $252.91 and $271.25, respectively.
Following are selected financial data of the Partnership for the period
from January 1, 1993 to December 31, 1997.
<TABLE>
Year Ended Year Ended Year Ended Year Ended Year Ended
December 31, December 31, December 31, December 31, December 31,
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
Guest room income $4,067,156 $3,668,873 $3,373,790 $3,236,373 $3,252,522
Net income $889,604 $807,895 $530,783 $471,069 $227,464
Per Partnership Unit:
Cash distributions(1) $260.00 $107.50 $100.00 $100.00 $100.00
Net income $176.14 $159.96 $105.10 $93.27 $45.04
December 31, December 31, December 31, December 31, December 31,
1997 1996 1995 1994 1993
Total assets $2,490,307 $2,878,579 $2,618,110 $2,628,782 $2,671,473
Long-term debt $901,925 $932,561 $960,709 $986,557 $1,010,318
_________
<FN>
(1) On an annual basis, to the extent cash distributions exceed net income,
Limited Partners receive a return of capital rather than a return on capital.
However, an annual analysis will be misleading if the Limited Partners do not
receive their investment back upon liquidation of the Partnership. For investors
who purchased their Units directly from the Partnership, the original investment
was $1,000 per Unit, cumulative allocations of income through December 31, 1997
were approximately $1,494 per Unit, and cumulative distributions through
December 31, 1997 were approximately $2,104 per Unit. Investors who did not
purchase Units directly from the Partnership must consult with their own
advisers in this regard.
</FN>
</TABLE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations
I. Fiscal Year Financial Statements
Liquidity and Capital Resources
The General Partner believes that the Partnership's liquidity, defined as
its ability to generate sufficient cash to meet its cash needs, is adequate. The
Partnership's primary source of internal liquidity is revenues from motel
operations, which, since commencement of motel operations, have been sufficient
to satisfy the Partnership's cash needs, including repayment of debt interest
and principal, capital improvements and distributions to the Limited Partners
and General Partner. The Partnership's current assets of $960,505 exceed its
current liabilities of $248,379 by $712,126. These net current assets provide a
reserve in excess of the General Partner's target, which is 5% of adjusted
capital contributions or $250,000.
The Partnership's properties are currently unencumbered except for the loan
described above (see "The Properties and the Partnership's Business"), the
principal balance of which was $932,561 at December 31, 1997. Although no
assurance can be had in this regard, the General Partner believes that the
Partnership's equity in its properties provides a potential source of external
liquidity (through financing) in the event the Partnership's internal liquidity
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<PAGE>
is impaired. Unless the properties are sold prior to that date, the General
Partner may use excess reserves to liquidate the loan when its becomes due in
2003.
The Partnership expended $177,451 on renovations and replacements during
1997. Included in the total (of which $111,960 was capitalized) were $51,522 in
replacement guest room and corridor carpets, $33,228 in replacement washing
machines, $12,890 in tub repairs, $11,831 in replacement bedspreads, $9,246 in
replacement guest room chairs, $8,523 for replacement air-conditioners, $8,494
in furniture repairs and $8,008 for replacement drapes.
The Partnership expended $112,233 on renovation and replacements during
1996. Included in the total (of which $63,372 was capitalized) were $43,534 for
guest room carpet, $17,743 for painting and exterior building repairs at the
South San Francisco property, $17,448 for computer system replacements, $6,394
for replacement air-conditioning units, $4,544 for replacement televisions and
$4,215 for bathtub repairs.
The Partnership currently has no material commitments for capital
expenditures. Its three motel properties are in full operation and no further
property acquisitions or extraordinary capital expenditures are planned. If the
properties are not sold the General Partner is aware of no material trends or
changes with respect to the mix or relative cost of the Partnership's capital
resources. If the properties are retained adequate working capital is expected
to be generated by motel operations.
(b) Results of Operations
(i) Combined Financial Results
The following tables summarize the Partnership's operating results for
1995, 1996 and 1997 on a combined basis. The results of the individual
properties follow in separate subsections. The income and expense numbers in the
following table are shown on an accrual basis and other payments on a cash
basis. Total expenditures and debt service include the operating expenses of the
motels, together with the cost of capital improvements and those Partnership
expenses properly allocable to such motels.
Average Average
Occupancy Room
Fiscal Year Ended: Rate Rate
- ---------------------------------------------------------------
December 31, 1995 64.2% $44.32
December 31, 1996 66.5% $46.39
December 31, 1997 67.9% $50.46
Total
Expenditures Partnership
Total and Cash Flow
Fiscal Year Ended: Revenues Debt Service (1)
- -------------------------------------------------------------------------------
December 31, 1995 $3,476,890 $2,836,242 $640,648
December 31, 1996 $3,818,298 $2,832,177 $986,121
December 31, 1997 $4,218479 $3,214,059 $1,004,420
29
<PAGE>
(1) While Partnership Cash Flow as it is used here is not an amount found
in the financial statements, the General Partner believes that it is the best
indicator of the annual change in the amount, if any, available for distribution
to the Limited Partners and the General Partner because it tracks the definition
of the term "Cash Flow" as it is used in the Partnership Agreement. This
calculation is reconciled to the financial statement in the following table.
Limited Partners should not interpret Partnership Cash Flow as an alternative to
net income or as a measure of performance.
Following is a reconciliation of Total Expenditures and Debt Service as
used above to Total Expenses as shown on the Statement of Operations (in the
audited financial statements):
<TABLE>
1997 1996 1995
---------------------------------------------------------
<S> <C> <C> <C>
Total Expenditures and Debt Service $3,214,059 $2,832,177 $2,836,242
Principal Payments on Financial Obligations (28,148) (25,862) (23,747)
Additions to Fixed Assets (111,960) (63,372) (128,748)
Depreciation and Amortization 254,260 255,459 261,488
Other Items 665 12,001 872
=========================================================
Total Expenses $3,328,876 $3,010,403 $2,946,107
=========================================================
</TABLE>
A reconciliation of Partnership Cash Flow (included in the chart above) to
Net Income as shown on the Statements of Operations (in the audited financial
statements) is as follows:
<TABLE>
1997 1996 1995
-------------------------------------------------------
<S> <C> <C> <C>
Partnership Cash Flow $1,004,420 $986,121 $640,648
Principal Payments on Financial Obligations 28,148 25,862 23,747
Additions to Fixed Assets 111,960 63,372 128,748
Depreciation and Amortization (254,260) (255,459) (261,488)
Other Items (664) (12,001) (872)
=======================================================
Net Income $889,604 $807,895 $530,783
=======================================================
</TABLE>
Following is a reconciliation of Partnership Cash Flow (shown above) to the
aggregate total of Cash Flow from Properties Operations for the Partnership's
three motels which are segregated in the tables following this subsection:
<TABLE>
1997 1996 1995
-------------------------------------------------------
<S> <C> <C> <C>
South San Francisco Motel Cash Flow $814,752 $637,439 $372,917
Sacramento Motel Cash Flow 240,429 284,759 195,669
Modesto Motel Cash Flow 52,294 93,876 108,118
-------------------------------------------------------
Aggregate Cash Flow from Properties Operations 1,107,475 1,016,074 676,704
Partnership Management Fees (144,444) (59,722) (55,556)
Interest on Cash Reserves 36,765 28,421 17,226
Other Income (Net of Other Expenses) Not
Allocated to the Individual Properties 4,624 1,348 2,274
=======================================================
Partnership Cash Flow $1,004,420 $986,121 $640,648
=======================================================
</TABLE>
30
<PAGE>
The Partnership's total revenues increased $400,181 or 10.5% during 1997 as
compared to 1996. As discussed below, the improved revenues were generated
primarily by improved occupancies and room rates at the South San Francisco
motel and to a lesser degree by improved performance at the Sacramento motel.
The Partnership's total revenue increased $341,408 or 9.8% during 1996 as
compared to 1995. As discussed below, the improved revenues were generated
primarily by improved occupancies and room rates at the South San Francisco
motel.
The Partnership's total expenditures and debt service increased $381,882 or
13.5% during 1997 as compared to 1996. The increased expenses are associated
with the increased room revenue and occupancy.
The Partnership's total expenditures and debt service were essentially
unchanged from 1995 to 1996.
(ii) South San Francisco Motel
Average Average
Occupancy Room
Fiscal Year Ended: Rate Rate
- ----------------------------------------------------------------
December 31, 1995 69.4% $49.43
December 31, 1996 78.3% $53.83
December 31, 1997 83.7% $59.68
Total Cash Flow
Expenditures From
Total And Properties
Fiscal Year Ended: Revenues Debt Service Operations
- --------------------------------------------------------------------------------
December 31, 1995 $1,501,439 $1,128,522 $372,917
December 31, 1996 $1,857,629 $1,220,190 $637,439
December 31, 1997 $2,187,188 $1,372,436 $814,752
The Partnership's South San Francisco motel achieved a $329,559 or 17.7%
increase in total revenues during 1997 as compared to 1996. Guestroom revenues
increased $328,285 or 18.2% due to the increases in occupancy and in the average
room rate. The motel achieved significant increases in the leisure market
segment while it experienced a downturn in the number of corporate, group and
discount rooms sold. The improvement in the average daily rate is related to the
increased strength of the lodging market in the San Francisco airport area.
The Partnership's South San Francisco motel achieved a $356,190 or 23.7%
increase in total revenues during 1996 as compared to 1995. Guestroom revenues
increased $339,825 or 23.2% due to the increases in occupancy and in the average
room rate. The motel achieved significant increases in the leisure market
segment while it experienced a slight downturn in the number of corporate rooms
sold. The improvement in the average daily rate is related to the strength of
the San Francisco airport market.
The Partnership's South San Francisco motel experienced a $152,246 or 12.5%
increase in total expenditures and debt service during 1997 as compared to 1996
31
<PAGE>
due primarily to the increase in room sales. Included in the increase were
increased front desk wages of $15,231, increased housekeeping wages of $8,642,
increased credit card discounts of $7,152, increased security service of $10,745
and increased franchise and management fees of $29,602. Bad debt expense
increased $10,556 due primarily to the write-off of some bankrupt direct bill
acco
unts.
The Partnership's South San Francisco motel experienced a $91,668 or 8.1%
increase in total expenditures and debt service during 1996 as compared to 1995
due primarily to the increase in room sales. Increased housekeeping wages of
$17,200, increased guest transportation cost of $9,802, increased costs of guest
services of $6,045, increased appraisal fees of $7,250, increased workers'
compensation costs of $6,934 and increased franchise and management fees of
$34,798 were partially offset by reductions of $6,478 in maintenance wages and
$19,207 in renovations.
(iii) Sacramento Motel
Average Average
Occupancy Room
Fiscal Year Ended: Rate Rate
- ------------------------------------------------------------------------------
December 31, 1995 53.8% $41.06
December 31, 1996 55.5% $40.37
December 31, 1997 58.4% $42.09
Total Cash Flow
Expenditures From
Total and Properties
Fiscal Year Ended: Revenues Debt Service Operations
- --------------------------------------------------------------------------------
December 31, 1995 $1,061,119 $865,450 $195,669
December 31, 1996 $1,092,057 $807,298 $284,759
December 31, 1997 $1,187,852 $947,423 $240,429
The Partnership's Sacramento motel achieved a $95,795 or 8.8% increase in
total revenues during 1997 as compared to 1996. This increase was due primarily
to the $99,778 increase in guestroom revenue, which was achieved by increases in
both the average room rate and the average occupancy rate. Revenue from
McCllelan Air Force Base decreased from 11% of total room revenue to
approximately 8% of total room revenue. Future business from the McCllelan Air
Force Base is uncertain as the base will take some time to completely close. The
termination functions should provide additional room nights for transient
personnel and the final alternate use of the facility is not yet determined.
The Partnership's Sacramento motel achieved a $30,938 or 2.9% increase in
total revenues during 1996 as compared to 1995. The property's 3.2% increase in
occupancy was partially offset by the 1.7% decrease in average room rate. The
motel experienced growth in the corporate and discount rooms market segments.
Revenue from McCllelan Air Force Base decreased from 14% of total room revenue
to approximately 11% of total room revenue.
The Partnership's Sacramento motel experienced a $140,125 or 17.4% increase
in expenditures during 1997 as compared to 1996. Decreased expenditures for
maintenance employees of $11,495 were offset by increased front desk wages of
$8,908 and increased housekeeping expenses of $16,202. The uncertain collection
32
<PAGE>
of receivables aged more than three years led to the write-off of $21,227 in bad
debts. The age of the property and the location required increased expenditures
of $49,575 for renovations and replacements and for increased security of
$19,180.
The Partnership's Sacramento motel achieved a $58,152 or 6.7% decrease in
expenditures during 1996 as compared to 1995. Total expenditure increases of
$5,830 for workers' compensation insurance and $7,250 for appraisal fees were
offset by reduced expenditures of $54,978 for renovations and replacements,
$6,606 in security services, $6,035 in housekeeping wages and $5,271 in
air-conditioning repairs and replacements.
(iv) Modesto Motel
Average Average
Occupancy Room
Fiscal Year Ended: Rate Rate
- ---------------------------------------------------------------------
December 31, 1995 73.2% $41.06
December 31, 1996 66.8% $41.63
December 31, 1997 60.1% $44.70
Total Cash Flow
Expenditures from
Total And Properties
Fiscal Year Ended: Revenues Debt Service Operations
- --------------------------------------------------------------------------------
December 31, 1995 $896,780 $788,662 $108,118
December 31, 1996 $838,579 $744,703 $93,876
December 31, 1997 $806,674 $754,380 $52,294
The Partnership's Modesto motel experienced a $31,905 or 3.8% decrease in
total revenue during 1997 as compared to 1996. The decrease in revenue was due
to a 10.0% reduction in guestroom occupancy, which was slightly offset by a 7.4%
increase in average room rate. The occupancy reduction was experienced in all
market segments, except the corporate market segment, which was essentially
unchanged.
The Partnership's Modesto motel experienced a $58,201 or 6.5% decrease in
total revenue during 1996 as compared to 1995. The decrease in revenue was due
to an 8.7% reduction in guestroom occupancy, which was slightly offset by a 1.4%
increase in average room rate. The occupancy reduction was experienced in all
market segments.
The Partnership's Modesto motel experienced a $9,677 or 1.3% increase in
total expenditures during 1997 as compared 1996. The condition of the property
required increased expenditures of $11,710 for renovation and replacements and
of $6,938 for landscaping.
The Partnership's Modesto motel achieved a $43,959 or 5.6% decrease in
total expenditures during 1996 as compared to 1995. The reduced expenditures of
$42,788 for renovations and replacements and of $8,391 for landscaping were
partially offset by increased expenditures of $5,148 for workers' compensation
and of $7,250 for appraisal fees.
33
<PAGE>
II. Interim Financial Statements
(a) Liquidity and Capital Resources
As of June 30, 1998, the Partnership's current assets of $1,109,906
exceeded its current liabilities of $271,126, providing an operating reserve of
$838,780. The General Partner's reserves target is 5% of adjusted capital
contributions, or $250,000.
The Partnership expended $101,564 on renovations and replacements during
the six months ended June 30, 1998, of which $81,380 was capitalized. The
expenditures included $70,964 for guest room and hallway carpets and $8,076 for
replacement guest room lamps.
(b) Results of Operations
Total Partnership income decreased $30,372 or 1.5% for the first six months
of 1998 as compared to the first six months of 1997. Guest room revenue
decreased $5,336 or 0.3% due to a decrease in the average occupancy rate from
71.2% in 1997 to 60.8% in 1998. Such decrease was partially offset by an
increase in the average room rate from $47.65 in 1997 to $55.66 in 1998. All
three motels had higher room rates and lower occupancies. Overall, the South San
Francisco motel had an increase in guest room revenues and the other motels had
a decrease in guest room revenues.
Total Partnership expenses increased $18,921 or 1.2%, primarily due to
increases in the minimum wage, management fees and legal, appraisal and other
costs associated with the proposed sale of the properties and the liquidation of
the Partnership and in fees to the General Partner which are calculated as a
percentage of distributions to Limited Partners.
Other Financial Information
In 1996 the computers used by the Partnership at the General Partner's
offices in Sacramento were updated. In the process of updating its hardware and
software, the General Partner eliminated any potential Year 2000 problem with
respect to such computers. Similarly, the General Partner does not anticipate
any material Year 2000 problem with the computers in use at the individual
motels. The General Partner has not investigated and does not know whether any
Year 2000 problems may arise from its third party vendors. Because the motels
are "budget" motels, the Partnership's most significant vendors are its utility
providers and banks. To the extent banking services, utility services and other
goods and services are unavailable as a result of Year 2000 problems with the
computer systems of such vendors or otherwise, the ability of the Partnership to
conduct business at its motels would be compromised. No contingency plans have
been developed in this regard.
Items 304 and 305 of Regulation S-K promulgated by the Securities and
Exchange Commission are not applicable to the Partnership.
34
<PAGE>
FINANCIAL STATEMENTS
for
CONSENT SOLICITATION STATEMENT
of
SUPER 8 MOTELS, LTD.
November 12, 1998
F-i
<PAGE>
INDEX TO FINANCIAL STATEMENTS
SUPER 8 MOTELS, LTD. Page
INDEPENDENT AUDITORS' REPORT ..............................................F-1
FINANCIAL STATEMENTS:
Balance Sheets, December 31, 1997 and 1996.................................F-2
Statements of Operations for the Years Ended
December 31, 1997, 1996 and 1995......................................F-3
Statements of Partners' Equity for the Years
Ended December 31, 1997, 1996 and 1995................................F-4
Statements of Cash Flows for the Years Ended
December 31, 1997, 1996 and 1995......................................F-5
Notes to Financial Statements..............................................F-7
Balance Sheets, June 30 1998 and December 31, 1997 (Unaudited).............F-13
Statements of Operations for the Three and Six Months
Ended June 30, 1998 and 1997 (Unaudited)..............................F-14
Statements of Partners' Equity for the Six Months
Ended June 30, 1998 and 1997 (Unaudited)..............................F-15
Statement of Cash Flows for the Six Months
Ended June 30, 1998 and 1997 (Unaudited)..............................F-16
Notes to Financial Statements..............................................F-17
F-ii
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Partners
Super 8 Motels, Ltd.
We have audited the accompanying balance sheets of Super 8 Motels, Ltd., a
California limited partnership, as of December 31, 1997 and 1996, and the
related statements of operations, partners' equity and cash flows for each of
the years in the three year period ended December 31, 1997. These financial
statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Super 8 Motels, Ltd. as of
December 31, 1997 and 1996, and the results of its operations and its cash flows
for each of the years in the three year period ended December 31, 1997 in
conformity with generally accepted accounting principles.
VOCKER KRISTOFFERSON AND CO.
February 26, 1998
San Mateo, California
e-super8\s8197fs.wp8.wpd F-1
<PAGE>
<TABLE>
SUPER 8 MOTELS, LTD.
(A California Limited Partnership)
BALANCE SHEETS
December 31, 1997 and 1996
ASSETS
1997 1996
----------- ---------
Current Assets:
<S> <C> <C>
Cash and temporary investments (Notes 3, 8 and 9) $ 812,763 $1,058,309
Accounts receivable 126,154 122,841
Prepaid expenses 21,588 24,463
----------- -----------
Total Current Assets 960,505 1,205,613
---------- ----------
Property and Equipment (Note 2):
Buildings 5,223,252 5,223,252
Furniture and equipment 1,147,274 1,049,769
--------- ----------
6,370,526 6,273,021
Accumulated depreciation (4,858,036) (4,620,543)
---------- ----------
Property and Equipment, Net 1,512,490 1,652,478
--------- ----------
Other Assets 17,312 20,488
------------- -----------
Total Assets $2,490,307 $2,878,579
========== ==========
LIABILITIES AND PARTNERS' EQUITY
Current Liabilities:
Current portion of note payable (Notes 6 and 9) $ 30,636 $ 28,148
Accounts payable and accrued liabilities 193,805 157,712
Due to related parties 23,938 9,759
----------- ------------
Total Current Liabilities 248,379 195,619
---------- -----------
Long-term Liabilities, Net of Current Portion:
Note payable (Notes 6 and 9) 901,925 932,561
---------- -----------
Total Liabilities 1,150,304 1,128,180
--------- ----------
Lease Commitments (Note 5)
Partners' Equity:
General Partner 75,455 66,559
Limited Partners: 5,000 units authorized,
issued and outstanding 1,264,548 1,683,840
--------- ----------
Total Partners' Equity 1,340,003 1,750,399
--------- ----------
Total Liabilities and Partners' Equity $2,490,307 $2,878,579
========== ==========
</TABLE>
See accompanying notes to financial statements.
F-2
<PAGE>
<TABLE>
SUPER 8 MOTELS, LTD.
(A California Limited Partnership)
STATEMENTS OF OPERATIONS
Years Ended December 31:
1997 1996 1995
---------- ---------- ----------
Income:
<S> <C> <C> <C>
Guest room $4,067,156 $3,668,873 $3,373,790
Telephone and vending 82,035 90,377 75,815
Interest 36,765 28,421 17,226
Other 32,524 30,627 10,059
---------- ----------- -----------
Total Income 4,218,480 3,818,298 3,476,890
---------- ---------- ----------
Expenses:
Motel operations (Notes 4, 5 and 7) 2,497,568 2,318,534 2,293,289
General and administrative (Note 4) 143,137 104,592 77,993
Depreciation and amortization (Note 2) 254,260 255,459 261,488
Interest 80,381 82,683 84,812
Property management fees (Note 4) 209,086 189,413 172,969
Partnership management fees (Note 4) 144,444 59,722 55,556
---------- ----------- -----------
Total Expenses 3,328,876 3,010,403 2,946,107
--------- ---------- ----------
Net Income $889,604 $807,895 $530,783
======== ======== ========
Net Income Allocable to General Partner $8,896 $8,079 $5,308
====== ====== ======
Net Income Allocable to Limited Partners $880,708 $799,816 $525,475
======== ======== ========
Net Income Per Partnership Unit (Note 1) $176.14 $159.96 $105.10
======= ======= =======
Distributions to Limited Partners Per
Partnership Unit (Note 1) $260.00 $107.50 $100.00
======= ======= =======
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
SUPER 8 MOTELS, LTD.
(A California Limited Partnership)
STATEMENTS OF PARTNERS' EQUITY
Years Ended December 31:
1997 1996 1995
---------- ---------- -----------
General Partner:
Balance, beginning of year $ 66,559 $ 58,480 $ 53,172
Net income 8,896 8,079 5,308
---------- ------------ ------------
Balance, End of Year 75,455 66,559 58,480
---------- ----------- -----------
Limited Partners:
Balance, beginning of year 1,683,840 1,421,524 1,396,049
Net income 880,708 799,816 525,475
Less: Cash distributions to
limited partners (1,300,000) (537,500) (500,000)
---------- ----------- -----------
Balance, End of Year 1,264,548 1,683,840 1,421,524
---------- ---------- ----------
Total Partners' Equity $1,340,003 $1,750,399 $1,480,004
========== ========== ==========
See accompanying notes to financial statements.
F-4
<PAGE>
<TABLE>
SUPER 8 MOTELS, LTD.
(A California Limited Partnership)
STATEMENTS OF CASH FLOWS
Years Ended December 31:
1997 1996 1995
---------- ---------- -------
Cash Flows From Operating Activities:
<S> <C> <C> <C>
Received from motel operations $4,178,483 $3,776,765 $3,455,302
Expended for motel operations and
general and administrative expenses (2,940,025) (2,671,907) (2,617,626)
Interest received 36,684 28,351 16,576
Interest paid (80,580) (82,866) (84,980)
----------- ----------- -----------
Net Cash Provided by Operating Activities 1,194,562 1,050,343 769,272
---------- ---------- -----------
Cash Flows From Investing Activities:
Purchases of property and equipment (111,960) (63,372) (128,748)
Proceeds from sales of property and equipment - 3,500 12,285
-------------- ------------ -----------
Net Cash Used by Investing Activities (111,960) (59,872) (116,463)
---------- ----------- -----------
Cash Flows From Financing Activities:
Payments on notes payable (28,148) (25,862) (23,747)
Distributions paid to limited partners (1,300,000) (537,500) (500,000)
---------- ----------- -----------
Net Cash Used by Financing Activities (1,328,148) (563,362) (523,747)
---------- ----------- -----------
Net Increase (Decrease) in Cash and
Temporary Investments (245,546) 427,109 129,062
Cash and Temporary Investments:
Beginning of year 1,058,309 631,200 502,138
--------- ----------- -----------
End of Year $812,763 $1,058,309 $ 631,200
======== ========== ===========
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
<TABLE>
SUPER 8 MOTELS, LTD.
(A California Limited Partnership)
STATEMENTS OF CASH FLOWS (Continued)
Years Ended December 31:
1997 1996 1995
---------- ---------- ---------
Reconciliation of Net Income to Net Cash
Provided by Operating Activities:
<S> <C> <C> <C>
Net income $889,604 $ 807,895 $530,783
-------- ---------- --------
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization 254,260 255,459 261,488
Loss on disposition of property
and equipment 863 1,036 1,040
Increase in accounts receivable (3,313) (28,182) (5,012)
(Increase) decrease in prepaid expenses 2,875 (1,801) (1,319)
Increase (decrease) in accounts payable and
accrued liabilities 36,093 6,177 (1,784)
Increase (decrease) in due to related parties 14,180 9,759 (15,924)
------------ ------------ ---------
Total Adjustments 304,958 242,448 238,489
----------- ----------- --------
Net Cash Provided By Operating Activities $1,194,562 $1,050,343 $769,272
========== ========== ========
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE>
SUPER 8 MOTELS, LTD.
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - THE PARTNERSHIP
Super 8 Motels, Ltd. is a limited partnership organized under California law on
August 25, 1978, to acquire and operate motel properties in South San Francisco,
Sacramento and Modesto, California. The term of the Partnership expires December
31, 2027, and may be dissolved earlier under certain circumstances. The
Partnership grants credit to customers, substantially all of which are local
businesses in South San Francisco, Sacramento or Modesto.
The general partner is Grotewohl Management Services, Inc., the fifty
percent stockholder and officer of which is Philip B. Grotewohl.
The net income or net loss of the Partnership is allocated 1% to the General
Partner and 99% to the Limited Partners. Net income and distributions per
partnership unit are based upon 5,000 units outstanding. All partnership units
are owned by the Limited Partners.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Items of Partnership income are passed through to the individual partners for
income tax purposes, along with any income tax credits. Therefore, no federal or
California income taxes are provided for in the financial statements of the
Partnership.
Property and equipment are recorded at cost. Depreciation and amortization are
computed using the following estimated useful lives and methods:
Description Methods Useful Lives
Buildings 200% and 150% declining 7-31.5 years
balance and straight-line
Furniture and equipment Straight-line and 200% 3-7 years
declining balance
Costs incurred in connection with maintenance and repair are charged to expense.
Major renewals and betterments that materially prolong the lives of assets are
capitalized.
Long-lived assets are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount may not be recoverable. If the
sum of the expected future undiscounted cash flows is less than the carrying
amount of the asset, a loss is recognized for the difference betwen the fair
value and the carrying value of the asset.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain reported amounts and disclosures. Accordingly,
actual results could differ from those estimates.
F-7
<PAGE>
NOTE 3 - CASH AND TEMPORARY INVESTMENTS
Cash and temporary investments as of December 31, 1997 and 1996 consists of the
following:
1997 1996
---------- ----------
Cash in bank $ 100,529 $ 79,142
Money market accounts 612,234 879,167
Certificate of deposit 100,000 100,000
---------- -----------
Total Cash and Temporary Investments $ 812,763 $1,058,309
========= ==========
Temporary investments are recorded at cost, which approximates market value. The
Partnership considers temporary investments and all highly liquid marketable
securities with original maturities of three months or less to be cash
equivalents for purposes of the statement of cash flows.
NOTE 4 - RELATED PARTY TRANSACTIONS
Franchise Fees
Super 8 Motels, Inc., now a wholly-owned subsidiary of Hospitality Franchise
Systems, Inc., is franchisor of all Super 8 Motels. The Partnership pays to the
franchisor monthly fees equal to 4% of the gross room revenues of each motel and
contributes an additional 1% of its gross room revenues to an advertising fund
administered by the franchisor. In return, the franchisor provides the right to
use the name "Super 8", a national institutional advertising program, an advance
room reservation system, and inspection services. These costs, $203,358 in 1997,
$183,444 in 1996 and $168,690 in 1995 are included in motel operations expense
in the accompanying statements of operations. The Partnership operates its motel
properties as a franchisee of Super 8 Motels, Inc., through a sub-franchise
agreement with Brown & Grotewohl, a California general partnership, of which
Grotewohl Management Services, Inc. (see Note 1) is a 50% owner. Under the
sub-franchise agreement, Brown & Grotewohl earned 40% of the above franchise
fees, which amounted to $81,343, $73,377 and $67,476 in 1997, 1996 and 1995,
respectively.
Property Management Fees
The General Partner, or its affiliates, handles the management of the motel
properties of the Partnership. The fee for this service is 5% of the gross
revenues from Partnership operations, as defined in the Partnership agreement,
not including income from the sale, exchange or refinancing of such properties.
This fee is payable only out of the Operational Cash Flow of the Partnership,
defined as the total cash receipts from Partnership operations during a given
period of time less cash operating disbursements during the same period. It is
subordinated to prior receipt by the Limited Partners of a cumulative 10% per
annum pre-tax return on their adjusted capital contributions for each year of
the Partnership's existence. During the years ended December 31, 1997, 1996 and
1995 the General Partner received property management fees of $209,086, $189,413
and $172,969, respectively.
F-8
<PAGE>
NOTE 4 - RELATED PARTY TRANSACTIONS (Continued)
Subordinated Partnership Management Fees
During the Partnership's operational stage, the General Partner is to receive a
fee for partnership management services equal to one-ninth of the amounts which
have been distributed to the Limited Partners subordinated, however, to receipt
by the Limited Partners of a cumulative 10% per annum pre-tax return on their
adjusted capital contributions and to payment of the property management fees
referred to above. This fee is payable only from cash funds provided from
operations of the Partnership, and may not be paid from the proceeds of sale or
refinancing. During the years December 31, 1997, 1996 and 1995 the General
Partner received partnership management fees of $144,444, $59,722 and $55,556,
respectively.
Subordinated Incentive Distributions
Under the terms of the Partnership agreement, the General Partner is to receive
15% of distributions of net proceeds from the sale or refinancing of Partnership
properties remaining after distribution to the Limited Partners of any portion
thereof required to cause distributions to the Limited Partners from all sources
to be equal to their capital contributions plus a cumulative 10% per annum
pre-tax return on their adjusted capital contributions. Through December 31,
1997, no such proceeds had been distributed.
Administrative Expenses Shared by the Partnership and Its Affiliates There
are certain administrative expenses allocated between the Partnership and other
partnerships managed by the General Partner and its affiliates. These expenses,
which are allocated based on usage, are telephone, data processing, rent of the
administrative office and administrative salaries. Management believes that the
methods used to allocate shared administrative expenses are reasonable. The
administrative expenses allocated to the Partnership were approximately $344,000
in 1997, $338,000 in 1996 and $334,000 in 1995 and are included in general and
administrative expenses and motel operations expenses in the accompanying
statements of operations. Included in administrative salaries are allocated
amounts paid to two employees who are related to Philip B. Grotewohl, the fifty
percent stockholder of Grotewohl Management Services, Inc., the General Partner.
NOTE 5 - LEASE COMMITMENTS
The Partnership has long-term lease commitments on land in Modesto, Sacramento,
and South San Francisco, California for original terms of 50, 35, and 29 years,
respectively. The Partnership has the right to extend the Modesto lease for
three consecutive periods of ten years each, the Sacramento lease for five
consecutive periods of ten years each, and the South San Francisco lease for
five consecutive periods of five years each. The base monthly rent is subject to
adjustment at three, two and five year intervals, respectively, to reflect
changes in the Consumer Price Index. The Partnership pays all property taxes,
assessments and utilities.
The Partnership has entered into three sublease agreements which cover
unimproved portions of the Sacramento property and expire on various dates from
March, 2003 through June, 2013, with the sublessees' options to renew the
subleases of all three parcels of land for five consecutive periods of ten years
each.
Rental expense under long-term lease commitments incurred by the Partnership
amounted to $278,148 in 1997, $272,438 in 1996 and $268,526 in 1995, less
$86,662 , $84,959 and $83,058 in sub-lease rentals in 1997, 1996 and 1995,
respectively. Such amounts are included in motel operations expense in the
accompanying statements of operations.
The future lease commitments at December 31, 1997 using the minimum monthly
amounts, are as follows:
F-9
<PAGE>
NOTE 5 - LEASE COMMITMENTS (Continued)
Years Ending South San
December 31: Modesto Sacramento Francisco Total
------------ ----------- ------------ ----------- --------
1998 $ 70,954 $ 116,630 $ 90,564 $ 278,148
1999 70,954 116,630 90,564 278,148
2000 70,954 116,630 90,564 278,148
2001 70,954 116,630 90,564 278,148
2002 70,954 116,630 90,564 278,148
Thereafter 1,892,099 1,341,243 543,384 3,776,726
Less subleases - (992,990) - (992,990)
-------------- ----------- ----------- -----------
Total $2,246,869 $ 931,403 $996,204 $4,174,476
========== ========== ======== ==========
NOTE 6 - NOTE PAYABLE
The note payable is due to a federal savings bank, with monthly interest and
principal payments of $9,061. The interest rate is adjusted monthly and the
payment is adjusted annually. The interest rate was equal to 8.5% as of December
31, 1997 and is the lesser of 3% over the cost of funds index of the Federal
Home Loan Bank of San Francisco or 14.5% but not less than 8.5%. A balloon
payment of approximately $740,000 for the balance of the principal is due in May
2003. The note is collateralized by a first deed of trust on the leasehold
interests in real property in South San Francisco.
Note payable maturities are as follows:
Years Ending December 31:
1998 $ 30,636
1999 33,344
2000 36,291
2001 39,499
2002 42,990
2003 749,801
---------
Total $932,561
F-10
<PAGE>
NOTE 7 - MOTEL OPERATING EXPENSES
The following table summarizes the major components of motel operating expenses
for the following years:
1997 1996 1995
--------- --------- -------
Salaries and related costs $ 824,819 $ 790,722 $ 764,251
Rent 193,120 187,479 185,468
Franchise and advertising fees 203,358 183,444 168,690
Utilities 179,184 166,900 168,641
Allocated costs, mainly indirect salaries 279,007 276,096 272,411
Replacement and renovations 65,491 48,861 100,459
Maintenance expenses 127,481 123,854 123,711
Property taxes 86,669 98,586 93,583
Property insurance 68,606 61,104 63,474
Other operating expenses 469,833 381,488 352,601
----------- ----------- ----------
Total motel operating expenses $2,497,568 $2,318,534 $2,293,289
========== ========== ==========
NOTE 8 - CONCENTRATION OF CREDIT RISK
The Partnership maintains its cash accounts in seven commercial banks located in
California. Accounts at each bank are guaranteed by the Federal Deposit
Insurance Corporation (FDIC) up to $100,000 per bank. A summary of the total
insured and uninsured cash balances (not reduced by outstanding checks) as of
December 31, 1997 follows:
Total cash in all California banks $866,080
Portion insured by FDIC (696,729)
Uninsured cash balances $169,351
F-11
<PAGE>
NOTE 9 - FAIR VALUE OF FINANCIAL INSTRUMENTS
Cash and cash equivalents - The carrying amount approximates fair value because
of the short-term maturity of these instruments.
Long-term debt - The carrying amount of the Partnership's notes payable
approximate fair value.
NOTE 10 - LEGAL PROCEEDINGS AND SUBSEQUENT EVENT
On October 27, 1997, a complaint was filed in the United States District
Court by the General Partner naming as defendants Everest/Madison Investors,
LLC, Everest Lodging Investors, LLC, Everest Properties II, LLC, Everest
Properties, Inc., W. Robert Kohorst, David I. Lesser, The Blackacre Capital
Group, L.P., Blackacre Capital Management Corp., Jeffrey B. Citron, Ronald J.
Kravit, and Stephen P. Enquist. The complaint alleged that the defendants
violated certain provisions of the Security and Exchange Act of 1934 and sought
injunctive and declarative relief
On October 28, 1997, a complaint was filed in the Superior Court of the State of
California, Sacramento County by Everest Lodging Investors, LLC and
Everest/Madison Investors, LLC as plaintiffs against the General Partners of the
Partnership and four other partnerships which have common general partners as
nominal defendants. The complaint pertained to the receipt by the defendants of
franchise fees and reimbursement of expenses, the indications of interest made
by the plaintiffs in purchasing the properties of the nominal defendants, and
the alleged refusal of the defendants to provide information required by the
terms of the Partnership's partnership agreement and California law.
On February 20, 1998, the parties entered into a settlement agreement and both
of the above complaints were dismissed. Pursuant to the terms of the settlement
agreement, the General Partner has agreed to proceed with the marketing for sale
of the properties of the Partnerships, among other things, if by June 30, 1998,
it receives an offer to purchase one or more properties for a cash price equal
to 75% or more of the appraised value. In addition, the General Partner has
agreed to submit the offer for approval to the limited partners and other
procedures as required by the partnership agreements and applicable law. The
General Partner has also agreed that upon the sale of one or more properties, to
distribute promptly the proceeds of the sale after payment of payables and
retention of reserves to pay anticipated expenses. The Everest Defendants agreed
not to generally solicit the acquisition of any additional units of the
Partnerships without first filing necessary documents with the SEC. Under the
terms of the settlement agreement, the Partnerships have agreed to reimburse the
Everest Defendants for certain costs not to exceed $60,000, to be allocated
among the Partnerships. Of this amount, the Partnership will pay approximately
$12,000 during the year ended December 31, 1998.
F-12
<PAGE>
Super 8 Motels, Ltd.
(A California Limited Partnership)
Balance Sheet
June 30, 1998 and December 31, 1997
6/30/98 12/31/97
----------- -----------
ASSETS
Current Assets:
Cash and temporary investments $ 887,007 $ 812,763
Accounts receivable 198,620 126,154
Prepaid expenses 24,279 21,588
----------- -----------
Total current assets 1,109,906 960,505
----------- -----------
Property and Equipment:
Buildings 5,223,252 5,223,252
Furniture and equipment 1,225,555 1,147,274
----------- -----------
6,448,807 6,370,526
Accumulated depreciation (4,981,043) (4,858,036)
----------- -----------
Property and equipment, net 1,467,764 1,512,490
----------- -----------
Other Assets: 15,725 17,312
----------- -----------
Total Assets $ 2,593,395 $ 2,490,307
=========== ===========
LIABILITIES AND PARTNERS' EQUITY
Current Liabilities:
Current portion of note payable $ 31,961 $ 30,636
Accounts payable and accrued liabilities 239,165 217,743
----------- -----------
Total current liabilities 271,126 248,379
Long - Term Liabilities:
Note payable 885,606 901,925
----------- -----------
Total liabilities 1,156,732 1,150,304
----------- -----------
Contingent Liabilities (See Note 1)
Partners' Equity:
General Partners 80,422 75,455
Limited Partners (5,000 units authorized,
issued and outstanding) 1,356,241 1,264,548
----------- -----------
Total partners' equity 1,436,663 1,340,003
----------- -----------
Total Liabilities and Partners' Equity $ 2,593,395 $ 2,490,307
=========== ===========
UNAUDITED
The accompanying notes are an integral part of the financial statements.
F-13
<PAGE>
Super 8 Motels, Ltd.
(A California Limited Partnership)
Statement of Operations
For the Six Months Ending June 30, 1998 and 1997
Three Months Six Months Three Months Six Months
Ended Ended Ended Ended
6/30/98 6/30/98 6/30/97 6/30/97
----------- ----------- ----------- -----------
Income:
Guest room $ 1,074,670 $ 1,990,369 $ 1,083,984 $ 1,995,705
Telephone and vending 16,276 31,412 21,648 43,350
Interest 6,355 13,942 10,293 20,360
Other 7,193 15,027 12,863 21,707
---------- ---------- ---------- ----------
Total Income 1,104,494 2,050,750 1,128,788 2,081,122
---------- ---------- ---------- ----------
Expenses:
Motel operating expenses
(Note 2) 613,410 1,207,578 612,479 1,188,866
General and administrative (21,862) 33,368 15,915 44,549
Depreciation and amortization 64,852 127,694 62,873 124,364
Interest 19,552 39,264 20,172 40,491
Property management fees 54,785 101,742 55,655 102,807
Partnership management fees 22,222 44,444 18,056 34,722
---------- ---------- ---------- ----------
Total Expenses 752,959 1,554,090 785,150 1,535,799
---------- ---------- ---------- ----------
Net Income (Loss) $ 351,535 $ 496,660 $ 343,638 $ 545,323
========== ========== ========== ==========
Net Income (Loss) Allocable
to General Partners $3,515 $4,967 $3,436 $5,453
========== ========== ========== ==========
Net Income (Loss) Allocable
to Limited Partners $348,020 $491,693 $340,202 $539,870
========== ========== ========== ==========
Net Income (Loss)
per Partnership Unit $69.60 $98.34 $68.04 $107.97
========== ========== ========== ==========
Distribution to Limited Partners
per Partnership Unit $40.00 $80.00 $152.50 $182.50
========== ========== ========== ==========
UNAUDITED
The accompanying notes are an integral part of the financial statements.
F-14
<PAGE>
Super 8 Motels, Ltd.
(A California Limited Partnership)
Statement of Changes in Partners' Equity
For the Six Months Ending June 30, 1998 and 1997
1998 1997
----------- -----------
General Partners:
Balance at beginning of year $ 75,455 $ 66,559
Net income (loss) 4,967 5,453
----------- -----------
Balance at end of period 80,422 72,012
----------- -----------
Limited Partners:
Balance at beginning of year 1,264,548 1,683,840
Net income (loss) 491,693 539,870
Distributions to limited partners (400,000) (912,500)
----------- -----------
Balance at end of period 1,356,241 1,311,210
----------- -----------
Total balance at end of period $ 1,436,663 $ 1,383,222
=========== ===========
UNAUDITED
The accompanying notes are an integral part of the financial statements.
F-15
<PAGE>
Super 8 Motels, Ltd.
(A California Limited Partnership)
Statement of Cash Flows
For the Six Months Ending June 30, 1998 and 1997
1998 1997
----------- ----------
Cash flows from operating activities:
Received from motel revenues $ 1,964,328 $ 2,046,551
Expended for motel operations and
general and administrative expenses (1,368,295) (1,323,900)
Interest received 13,956 20,319
Interest paid (39,371) (40,589)
----------- ----------
Net cash provided by operating activities 570,618 702,381
----------- ----------
Cash flows from investing activities:
Purchases of property and equipment (81,380) (55,511)
----------- ----------
Net cash provided (used) by investing activities (81,380) (55,511)
----------- ----------
Cash flows from financing activities:
Principal payments on notes payable (14,994) (13,776)
Distributions paid to limited partners (400,000) (912,500)
----------- ----------
Net cash provided (used) by financing activities (414,994) (926,276)
----------- ----------
Net increase (decrease) in cash
and temporary investments 74,244 (279,406)
Cash and Temporary Investments:
Beginning of period 812,763 1,058,309
----------- ----------
End of period $ 887,007 $ 778,903
=========== ==========
Reconciliation of net income to net cash provided by operating activities:
Net income (loss) $ 496,660 $ 545,323
----------- ----------
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 127,694 124,364
(Increase) decrease in accounts receivable (72,466) (14,252)
(Increase) decrease in prepaid expenses (2,691) (4,935)
Increase (decrease) in accounts payable
and accrued liabilities 21,421 51,881
----------- ----------
Total adjustments 73,958 157,058
----------- ----------
Net cash provided by
operating activities $ 570,618 $ 702,381
=========== ==========
UNAUDITED
The accompanying notes are an integral part of the financial statements.
F-16
<PAGE>
Super 8 Motels, Ltd.
(A California Limited Partnership)
Notes to Financial Statements
For the Six Months Ending June 30, 1998 and 1997
Note 1:
The attached interim financial statements include all adjustments which are, in
the opinion of management, necessary to a fair statement of the results for the
period presented.
Users of these interim financial statements should refer to the audited
financial statements for the year ended December 31, 1997 for a complete
disclosure of significant accounting policies and practices and other detail
necessary for a fair presentation of the financial statements.
In accordance with the partnership agreement, the following information is
presented related to fees paid or accrued to the General Partner or affiliates
for the period.
Property Management Fees $101,742
Franchise Fees $39,811
Partnership Management Fees $44,444
Note 2:
The following table summarizes the major components of motel operating expenses
for the periods reported:
Three Months Six Months Three Months Six Months
Ended Ended Ended Ended
6/30/98 6/30/98 6/30/97 6/30/97
---------- ---------- ---------- ----------
Salaries and related costs $ 202,151 $ 412,082 $ 209,029 $ 408,523
Rent 47,755 96,047 48,125 96,036
Franchise and advertising 53,711 99,527 54,142 99,785
Utilities 43,491 81,217 44,565 86,152
Allocated costs,
mainly indirect salaries 71,632 146,274 66,470 132,635
Maintenance, repairs and
replacements 61,878 111,302 37,801 74,299
Property taxes 26,416 53,230 24,541 49,370
Property insurance 17,696 34,226 19,615 36,357
Other operating expenses 88,680 173,673 108,191 205,709
---------- ---------- ---------- ----------
Total motel operating
expenses $ 613,410 $ 1,207,578 $ 612,479 $ 1,188,866
========== ========== ========== ==========
The following additional material contingencies are required to be restated in
interim reports under federal securities law: None.
F-17
<PAGE>
APPENDIX 1
PLEASE MARK, SIGN, DATE AND RETURN IN THE ENCLOSED STAMPED ENVELOPE
ACTION BY WRITTEN CONSENT OF LIMITED PARTNERS
SUPER 8 MOTELS, LTD.,
a California limited partnership
2030 J Street
Sacramento, California 95814
(916) 442-9183
THIS CONSENT IS SOLICITED ON BEHALF OF THE PARTNERSHIP AND THE GENERAL PARTNER.
The undersigned hereby acknowledges receipt of the Consent Solicitation
Statement dated November 12, 1998 and hereby votes all the units of limited
partnership interest of Super 8 Motels, Ltd., a California limited partnership
(the "Partnership"), held of record by the undersigned as follows:
The Proposal. The Partnership's Certificate and Agreement of Limited
Partnership will be amended to grant to the General Partner authority to sell
all the Partnership's motels and related personal property to Tiburon Capital
Corporation, or a nominee thereof, as specifically set forth under "Amendment to
the Partnership Agreement" on page 27 in the accompanying Consent Solicitation
Statement.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
This Consent, when properly executed and returned to the Partnership, will
be voted in the manner directed herein by the undersigned limited partner. IF NO
DIRECTION IS MADE FOR THE PROPOSAL, THIS CONSENT, IF SO EXECUTED AND RETURNED,
WILL BE VOTED FOR THE PROPOSAL.
Please sign exactly If signing as attorney, executor,
as name appears below: administrator, trustee or guardian, please give
full title as such. If a corporation, please sign in
full corporate name by president or other
authorized officer. If a partnership, please sign
in partnership name by authorized person. If held
by co-owners, both should sign.
DATED: , 1998
___________________________________
Signature
___________________________________
Additional signature, if held jointly
PLEASE MARK, SIGN, DATE AND
RETURN THIS
POSTPAID CONSENT CARD.
<PAGE>
APPENDIX 2
To all Limited Partners of Super 8 Motels, Ltd.
We are pleased to submit to you the enclosed materials for use in our
solicitation of the Limited Partners' approval of the proposed sale of the
Partnership's motel assets to Tiburon Capital Corporation.
All of our Limited Partners should carefully read the enclosed materials
and then vote for or against the proposed sale by marking, signing and returning
the enclosed ballot form in the enclosed stamped, addressed envelope.
It must be understood that the proposed sale cannot be considered approved
without the affirmative vote of the owners of more than 50% of the units of
limited partnership interest. Therefore, if a Limited Partner does not return
his signed ballot, that Limited Partner will have effectively voted against the
sale.
The General Partner believes that this proposed sale at an all-cash price
equal to the full amount of the recent appraisal of the Partnership's motels
would be favorable to the Limited Partners and should be approved. It believes
that this is particularly true in light of the national and world-wide economic
uncertainties that have developed since the contract of sale was made on April
30, 1998.
The Limited Partners should be aware that Mark Grotewohl, a son of the
owners of the General Partner, and a former employee of the Partnership, will be
employed by the buyer as the property manager and will have a profits (but not a
capital) interest in the buyer.
We estimate that after we have received the required affirmative vote, the
sale and distribution of proceeds should be completed within 45 days.
Please mark the enclosed ballot and return it to us in the enclosed
envelope. And please call us if you have any questions.
Sincerely yours,
