<PAGE> 1
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:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
SUPER 8 MOTELS NORTHWEST II
SEC File No. 2-76453
(Name of Registrant as Specified in Its Charter)
COPIES OF CORRESPONDENCE TO:
Marion V. Larson
William W. Barker
Graham & James LLP/Riddell Williams PS
1001 Fourth Avenue Plaza, 45th Floor
Seattle, Washington 98154-1065
Telephone: (206) 624-3600
Facsimile: (206) 389-1708
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[X] 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: Limited Partnership Units
2) Aggregate number of securities to which transaction applies:
4,052 Units
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): (4,052 units x $1,343 per unit merger
consideration = $5,441,836 (transaction value) x .000278
(fee))
4) Proposed maximum aggregate value of transaction: $5,441,836
5) Total fee paid: $1,515
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.: Schedule 14A
3) Filing Party: Registrant
4) Date Filed:
<PAGE> 2
[LETTERHEAD OF SUPER 8 MOTELS NORTHWEST II]
LETTER TO LIMITED PARTNERS
February [__], 1999
To Our Unitholders:
You are cordially invited to attend a special meeting (the "Meeting") of
limited partners ("Unitholders") of Super 8 Motels Northwest II, a Washington
limited partnership ("Northwest II"). The Meeting will be held at the offices of
Graham & James LLP/Riddell Williams P.S., 1001 Fourth Avenue Plaza, Suite 4500,
Seattle, Washington 98154 on February [ ], 1999 at 10:00 a.m.
Gerald L. Whitcomb and The Peninsula Group, Incorporated, a Washington
corporation ("PGI") which is 100% owned by Gerald L. Whitcomb and Maryanne
Whitcomb, husband and wife (collectively "Whitcomb"), the general partners of
Northwest II, on behalf of Northwest II, have entered into an Agreement and Plan
of Merger and Reorganization dated December 31, 1998 (the "Merger Agreement")
with Columbus Properties L.L.C., a Washington limited liability company
("Columbus"), beneficially owned by Gerald and Maryanne Whitcomb and family
members (collectively "Whitcomb"). At the Meeting, you will be asked to consider
and vote upon the proposed Merger Agreement which provides for the merger of
Northwest II with and into Columbus (the "Merger"), with Northwest II ceasing to
be a public company. If the Merger is approved, each outstanding limited
partnership unit ("Unit") of Northwest II held by Unitholders will be converted
into the right to receive $1,343 in cash (the "Merger Consideration").
The attached proxy statement provides a detailed description of the terms
of the Merger. The Merger Agreement is attached as Annex I to the proxy
statement. Please read these materials carefully. Approval of the Merger
requires the affirmative vote of 66% of the outstanding Units at the Meeting.
Because Whitcomb is both the proposed purchaser (through Columbus) and the
general partner of Northwest II, Ragen MacKenzie Incorporated, Investment
Bankers and Brokers, Seattle, Washington ("Ragen MacKenzie") has been retained
by Northwest II to render an opinion concerning the fairness of the Merger
Consideration offered to Unitholders in the Merger. In the opinion of Ragen
MacKenzie, the Merger Consideration to be paid per Unit to Unitholders in the
Merger is fair, from a financial point of view. The full text of the Ragen
MacKenzie opinion is attached as Annex II to the proxy statement.
In addition, McKee & Schalka ("McKee"), Seattle, Washington, independent
appraisers, have appraised the motel properties owned by Northwest II and have
issued their report dated December 31, 1998. The McKee appraisals are described
in greater detail in the proxy statement.
On the basis of the Ragen MacKenzie opinion and the McKee appraisals,
Whitcomb, on behalf of Northwest II, has approved the proposed Merger. Whitcomb
believes that the Merger and the Merger Consideration is fair to Unitholders.
Your vote is important. Even if you plan to attend the Meeting, please
date, sign and promptly return the proxy card in the enclosed envelope. If you
were a Unitholder as of
<PAGE> 3
January 6, 1999, and attend the Meeting, you may change your vote in person even
if you have previously mailed a proxy card. You may also change your vote by
sending us a later dated properly executed proxy card.
Northwest II Unitholders may exercise dissenters' rights of appraisal by
complying with the procedural requirements of the Revised Code of Washington,
including not voting in favor of the Merger Agreement.
Promptly after the Merger, a letter of transmittal, along with the required
transmittal forms required for the Unitholder to receive the Merger
Consideration, will be mailed by _________, the paying agent, to each Unitholder
as of January 6, 1999, of Northwest II Units. Upon receipt of the required
transmittal forms, the paying agent will mail the Merger Consideration to the
Unitholders.
We look forward to seeing as many of you as possible at the Meeting.
- --------------------
Gerald L. Whitcomb,
A General Partner
<PAGE> 4
SUPER 8 MOTELS NORTHWEST II
7515 Terminal Street, S.W.
Tumwater, Washington 98501
(360) 943-5000
NOTICE OF SPECIAL MEETING OF LIMITED PARTNERS
To be held February [__], 1999
A special meeting (the "Meeting") of limited partners (the "Unitholders")
of Super 8 Motels Northwest II ("Northwest II"), a Washington limited
partnership, will be held at the offices of Graham & James LLP/Riddell Williams
P.S., 1001 Fourth Avenue Plaza, Suite 4500, Seattle, Washington 98154 on
February [ ], 1999 at 10:00 A.M. for the following purposes:
1. To vote on the adoption of an Agreement and Plan of Reorganization and Merger
dated December 31, 1998 (the "Merger Agreement"), ("PGI") by and among Gerald L.
Whitcomb and the Peninsula Group Incorporated, a Washington corporation which is
100% owned by Gerald L. Whitcomb and Maryanne Whitcomb, husband and wife
("PGI"), the general partners of Northwest II (collectively "Whitcomb") on
behalf of Northwest II and Columbus Properties L.L.C., a Washington limited
liability company ("Columbus"), owned by Gerald and Maryanne Whitcomb, husband
and wife and family members (collectively "Whitcomb") as more fully described in
the attached proxy statement. If the transaction is approved, Northwest II will
be merged into Columbus (the "Merger") and you will receive cash in the amount
of $1,343 for each limited partnership unit ("Unit") you own.
2. To transact such other business as may properly be presented at the Meeting
or any adjournments thereof, none of which is currently anticipated.
The Merger Agreement is attached to the proxy statement as Annex I.
Unitholders as of the close of business on January 6, 1999 (the date of the
first public announcement of the proposed merger) are entitled to notice of and
to vote at the Meeting. As of January 6, 1999, there were 4,052 Units
outstanding. A list of Unitholders entitled to vote at the Meeting will be
available at the executive offices of Northwest II commencing February ___,
1999. You may inspect the list for purposes germane to the Meeting.
If the Merger is consummated, Unitholders who do not vote for approval and
adoption of the Merger Agreement and who otherwise comply with the requirements
of Article 14 of Chapter 25.10 of the Revised Code of Washington have statutory
dissenters' rights of appraisal. A complete copy of Article 14 is attached to
the proxy statement as Annex III. A description of the procedures to be followed
to perfect dissenters' appraisal rights is set forth in this proxy statement
beginning on page 32.
Units represented by valid unrevoked proxies will be voted as specified
therein. If no specification is made, Units covered by proxies will be voted (i)
"FOR" approval and adoption of the Merger Agreement and approval of the
transactions contemplated thereby; and (ii) in the discretion of the persons
named as proxies, on such other matters as may properly come before the Meeting.
<PAGE> 5
Pursuant to the authority granted to Whitcomb by the Northwest II
Certificate and Agreement of Limited Partnership, Whitcomb will not consent to
any assignee of Units becoming a substituted Unitholder in place of the assignor
between January 6, 1999 through the date of the Meeting, including any
adjournment or postponement thereof.
- ---------------------
Gerald L. Whitcomb,
A General Partner
<PAGE> 6
[PRELIMINARY COPY]
[LOGO]
PROXY STATEMENT
SUPER 8 MOTELS NORTHWEST II
7515 Terminal Street. S.W.
Tumwater, Washington
----------------------------------
SPECIAL MEETING OF UNITHOLDERS
TO BE HELD ON FEBRUARY [ ], 1999
----------------------------------
This proxy statement is being furnished to limited partners ("Unitholders")
of Super 8 Motels Northwest II, a Washington limited partnership ("Northwest
II"), in connection with the solicitation of proxies by Gerald L. Whitcomb, and
the Peninsula Group, Incorporated, a Washington corporation ("PGI") which is
100% owned by Gerald L. Whitcomb and Maryanne Whitcomb, husband and wife, the
general partner of Northwest II (collectively "Whitcomb"), from Unitholders for
use at the special meeting of Unitholders to be held at the offices of Graham &
James LLP/Riddell Williams P.S., 1001 Fourth Avenue Plaza, Suite 4500, Seattle,
Washington 98154 on February [ ], 1999 at 10:00 a.m. and at any and all
adjournments or postponements thereof ("Meeting").
At the Meeting, Unitholders as of January 5, 1999 will consider and vote
upon a proposal to approve and adopt an Agreement and Plan of Reorganization and
Merger, dated December 31, 1998 ("Merger Agreement"), pursuant to which
Northwest II will merge (the "Merger") with and into Columbus Properties L.L.C.,
a Washington limited liability company ("Columbus") beneficially owned by Gerald
and Maryanne Whitcomb, husband and wife, and family members (collectively
"Whitcomb"). If the Merger is approved, each outstanding unit ("Unit") held by
Unitholders will be converted into the right to receive $1,343 in cash ("Merger
Consideration"). Columbus will be the surviving company and Northwest II will
cease to be a public company.
Whitcomb deems it advisable to require approval of this affiliated
transaction by 66% of the outstanding Units, substantially all of which are
owned by unaffiliated Unitholders.
Your vote is important. Even if you plan to attend the Meeting, please
date, sign and promptly return the proxy card in the enclosed envelope. If you
are a Unitholder as of January 6, 1999, and attend the Meeting, you may change
your vote in person even if you have previously mailed a proxy card. You may
also change your vote by sending us a later dated properly executed proxy card.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROXY STATEMENT AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN GIVEN BY NORTHWEST II OR ITS AFFILIATES.
Whitcomb knows of no other additional matters that will be presented at the
Meeting.
THE DATE OF THIS PROXY STATEMENT IS [____________], 1999.
<PAGE> 7
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
SUMMARY ........................................................................................................2
The Seller -- Super 8 Motels Northwest II...............................................................2
The Buyer - Columbus Properties L.L.C...................................................................2
Affiliated Parties......................................................................................2
Offers by Columbus for Motel Properties Owned by Northwest I, Lacy, Anchorage
and Tongass......................................................................................3
Date, Time and Place of Meeting.........................................................................3
Purpose of the Meeting..................................................................................4
Merger Consideration....................................................................................4
Required Vote by Unitholders; Beneficial Ownership......................................................4
Persons Making the Solicitation; Expenses...............................................................4
Revocability of Proxy...................................................................................4
Effect of the Merger....................................................................................4
Effective Time of the Merger............................................................................5
Payment of Merger Consideration; Loan Commitment........................................................5
Opinion of Financial Advisor............................................................................5
Independent Appraisal of Motel Properties...............................................................5
Material Federal Income Tax Consequences................................................................5
Dissenters' Rights of Appraisal.........................................................................5
Market Information - Northwest II.......................................................................6
WHERE YOU CAN FIND MORE INFORMATION.............................................................................7
SPECIAL FACTORS.................................................................................................8
Conflicts of Interest; Procedural Safeguards............................................................8
Fairness of the Transaction.............................................................................9
An Independent Committee Did Not Review the Merger Proposal............................................11
Source and Amounts of Merger Consideration and Expenses................................................11
Plans or Proposals by Issuer or Affiliates Following Merger............................................11
Opinion of Financial Advisor...........................................................................11
</TABLE>
i
<PAGE> 8
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
<S> <C>
Interest of Affiliates in Matters to be Acted Upon; Past Contracts and Agreements......................12
Management and Operations of Northwest II Following Merger.............................................12
Business Valuation of Northwest II by Exvere...........................................................12
Appraisal of Bremerton, Yakima and Portland Properties by Mckee & Schalka..............................15
BACKGROUND OF THE TRANSACTION..................................................................................
Reasons for the Merger.................................................................................18
Background of the Merger; Alternatives Considered; Attempted Sale of Motel Properties
to Unaffiliated Third Party.....................................................................18
Acquisition of Motel Properties by Columbus............................................................19
Acquisition of Northwest II by Columbus; Approach to Determination of Merger Consideration.............20
OPINION OF FINANCIAL ADVISOR...................................................................................21
THE MERGER AGREEMENT...........................................................................................26
MATERIAL FEDERAL INCOME TAX CONSEQUENCES.......................................................................30
DISSENTERS' RIGHTS OF APPRAISAL................................................................................32
</TABLE>
ii
<PAGE> 9
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
<S> <C>
INDEX TO FINANCIAL STATEMENTS.................................................................................F-1
ANNEXES
MERGER AGREEMENT..........................................................................................ANNEX I
OPINION OF FINANCIAL ADVISOR.............................................................................ANNEX II
DISSENTERS' RIGHTS STATUTE..............................................................................ANNEX III
COMPARISON OF VALUES.....................................................................................ANNEX IV
</TABLE>
iii
<PAGE> 10
SUMMARY
The following is a summary of the proposed Merger of Northwest II with and
into Columbus, as described below, and contains information about the Meeting.
While complete in all material respects, this summary is qualified by reference
to the detailed information appearing elsewhere in this proxy statement and the
attached annexes. You should carefully read all of these materials.
THE SELLER -- SUPER 8 MOTELS NORTHWEST II
Northwest II is in the business of owning three Super 8 Motels located in
Bremerton, Washington ("Bremerton"), Yakima, Washington ("Yakima") and Portland,
Oregon ("Portland"). Gerald L. Whitcomb and PGI are the general partners of
Northwest II.
THE BUYER - COLUMBUS PROPERTIES L.L.C.
The proposed buyer is Columbus (formerly Whitcomb Family L.L.C.), a
privately-owned Washington limited liability company formed in 1995. Columbus is
100% owned by Whitcomb. Columbus currently owns and operates four Super 8
Motels: Ferndale Super 8 Motel, in Ferndale, Washington; Redmond Super 8 Motel,
in Redmond, Oregon; Roseburg Super 8 Motel in Roseburg, Oregon; and Woodburn
Super 8 Motel, in Woodburn, Oregon. The principal executive office of Columbus
is located at 7515 Terminal Street, S.W., Tumwater, Washington 98501. Its
telephone number (360) 943-8000.
AFFILIATED PARTIES
Whitcomb and The Peninsula Group, Incorporated ("PGI"), which is 100% owned
by Whitcomb, are also the general partners of five other limited partnerships
engaged in the business of owning and operating Super 8 Motels. PGI (formerly
Super 8 Motels Northwest, Inc.) was formed in 1976 to develop the Super 8 Motel
franchise system in the states of Washington, Oregon, and Alaska. Whitcomb
and/or PGI are the general partners of the following five additional limited
partnerships: Peninsula Motel Associates Northwest, a Washington limited
partnership ("Peninsula"); Super 8 Motels Northwest I, a Washington limited
partnership ("Northwest I"); Super 8 Motels of Lacey Associates, a Washington
limited partnership ("Lacey"); Anchorage Motel Associates, a Washington limited
partnership ("Anchorage"); and Juneau Motel Associates, a Washington limited
partnership ("Juneau'). Peninsula, which owns 13 Super 8 Motels, is 100% owned
by the Whitcombs. Lacey (1 Super 8 Motel), Anchorage (1 Super 8 Motel), and
Juneau (1 Super 8 Motel) are privately-owned and have unaffiliated limited
partners. Northwest II (3 Super 8 Motels) and Northwest I (2 Super 8 Motels) are
public companies with approximately 900 and 1,050 limited partners,
respectively. Whitcomb is also a partner in Tongass Motel Associates, an Alaska
general partnership ("Tongass"), which owns 1 Super 8 Motel and Peninsula
Properties Partnership, a Washington general partnership ("Peninsula
Properties"), which owns 1 Super 8 Motel. Whitcomb owns 1% of Northwest II in
his capacity as general partner and also owns 8 limited partner Units, or less
than 1%.
Whitcomb and PGI have served as general partners of Northwest II since
inception. Mr. Whitcomb, who leads the day-to-day operations of the various
partnerships, has 20 years of experience in the hospitality industry, owning and
operating motels and serving as general partner of limited partnerships that own
and operate motels.
PGI owns 100% of Peninsula Management Northwest Inc., a Washington
corporation ("Peninsula Management"), which was formed in 1979 to provide
administrative and motel management services for the 27 motels owned by the
various partnerships and by the Whitcombs.
2
<PAGE> 11
The services that Peninsula Management provides include business and marketing
services, accounting and payroll, maintenance, and human resources. Peninsula
Management does not own any real estate and does not own any interest in any of
the limited partnerships, including Northwest II.
PGI also owns 100% of Peninsula Development Services, Inc., a Washington
corporation ("Peninsula Development"), which is a general contractor formed in
1976 and licensed in Washington, Oregon and Alaska. Peninsula Development is
responsible for the development, new construction, and some renovations of
motels managed by Peninsula Management.
[FLOW CHART]
OFFERS BY COLUMBUS FOR MOTEL PROPERTIES OWNED BY NORTHWEST I, LACEY, ANCHORAGE
AND TONGASS
Contemporaneously with the proposed Merger, Columbus is making merger
proposals to the limited partners of Northwest I, Lacey, Anchorage and Tongass
for the acquisition of a total of 5 additional Super 8 Motels. Other than the
merger consideration per unit, the terms of the merger proposals for the
acquisition of the Super 8 Motels owned by these partnerships are substantially
the same.
DATE, TIME AND PLACE OF MEETING
The Meeting will be held at the offices of Graham & James LLP/Riddell
Williams P.S., 1001 Fourth Avenue Plaza, Suite 4500, Seattle, Washington 98154
on February [ ], 1999 at 10:00 A.M. Unitholders as of January 6, 1999 are
entitled to notice of and to vote at the Meeting. Unitholders are entitled to
one vote per Unit held by them on each matter properly presented at the Meeting.
3
<PAGE> 12
PURPOSE OF THE MEETING
The Whitcombs, through Columbus, propose to purchase Units owned by
Unitholders of Northwest II in exchange for the Merger Consideration. To
accomplish this, Unitholders are being asked to approve the proposed Merger.
MERGER CONSIDERATION
The Merger Consideration is $1,343 per Unit for each Unit exchanged in the
Merger.
REQUIRED VOTE BY UNITHOLDERS; BENEFICIAL OWNERSHIP
The limited partnership agreement of Northwest II does not specifically
address the vote required in the event of a merger. The Northwest II limited
partnership agreement does, however, require that transactions between Northwest
II and Whitcomb with respect to partnership property be approved by 66% of the
outstanding Units. Whitcomb therefore deems it advisable to require approval of
the Merger by 66% of outstanding Units at the Meeting. Each Unit counts as one
vote at the Meeting.
As of January 6, 1999, approximately 900 investors of record of Northwest
II with respect to the 4,052 outstanding Units. As of December 31, 1998 no
person or group of related persons was known by Northwest II to be the
beneficial owner of more than 5% of the Units. The Whitcombs beneficially own 8
Northwest II Units, or less than approximately 1% of the Northwest II Units, and
the remaining Northwest II Units are owned by unaffiliated Unitholders. The
Whitcombs intend to vote the Units they own "FOR" the Merger.
PERSONS MAKING THE SOLICITATION; EXPENSES
This solicitation is being made by Whitcomb. Employees of Northwest II and
Whitcomb may also solicit proxies. Solicitation may be made either in person, by
telephone, or by other electronic means. Solicitation may be made by paid
solicitors. Costs of solicitation, estimated to be less than $5,000, will be
borne by Columbus.
REVOCABILITY OF PROXY
If you are an Unitholder as of January 6, 1999, and attend the Meeting, you
may change your vote in person even if you have previously mailed a proxy card.
You may also change your vote by sending us a later dated properly executed
proxy card.
EFFECT OF THE MERGER
If 66% of the outstanding Units are voted to approve the Merger, and all
required conditions are satisfied or waived, the Merger will be consummated and
Northwest II will be merged into Columbus (sometimes hereinafter referred to as
the "Surviving Company"). Unitholders will receive the Merger Consideration in
exchange for their Units, which Units will then be cancelled. Northwest I's
status as a public company will terminate upon the filing of a Form 15 with the
Securities and Exchange Commission ("SEC"). The benefits of the Merger to
Unitholders are (1) that you will have an immediate exit strategy, whereas
previously there has been no public market for your Units, and (2) that you will
be paid a price for your Units in cash. The detriment of the transaction to
Unitholders is that you will forego the opportunity to continue to participate
as an investor in Northwest I, including the right to quarterly distributions
and potential appreciation of its assets over time.
4
<PAGE> 13
EFFECTIVE TIME OF THE MERGER
The Merger will become effective following the Meeting if all required
conditions have been satisfied or waived, upon filing the required documents
with the Secretary of State of the State of Washington. It is anticipated that
the required documents will be filed at the earliest on the first business day
following the Meeting and at the latest on the last business day of the month in
which the Meeting occurs.
PAYMENT OF MERGER CONSIDERATION; LOAN COMMITMENT
[ ] has been selected to act as paying agent to facilitate the exchange of
Units for cash. As soon as practicable after the effective date of the Merger, [
] will mail a letter of transmittal, along with any required forms, to you
requesting that you send in such completed forms. Upon receipt of the required
forms, [ ] will send you the Merger Consideration, without interest. The entire
process should take less than 30 days.
Columbus has obtained a commitment letter from U.S. Bank, subject to
customary conditions, to lend Columbus sufficient funds to consummate the Merger
and to pay the Merger Consideration to the Unitholders.
OPINION OF FINANCIAL ADVISOR
Ragen MacKenzie Incorporated ("Ragen MacKenzie"), has been retained by
Northwest II to act as its financial advisor. Ragen MacKenzie has delivered its
opinion to the effect that the Merger Consideration is fair to the Unitholders
from a financial point of view.
INDEPENDENT APPRAISAL OF MOTEL PROPERTIES
The appraisal firm of McKee & Schalka ("McKee"), Seattle, Washington, has
appraised the Northwest II motel properties and have issued their reports dated
December 31, 1998.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
This is a taxable transaction. The receipt of cash in exchange for Units
pursuant to the Merger will be a taxable transaction for federal income tax
purposes and may also be a taxable transaction under applicable state, local and
foreign tax laws. Accordingly, you will recognize a gain or loss on the
conversion of Units in the Merger to the extent of the difference between the
amount realized and your adjusted basis in the Units sold. See "Material Federal
Income Tax Consequences" beginning on page 30 of this proxy statement.
DISSENTERS' RIGHTS OF APPRAISAL
You have statutory dissenters' rights of appraisal with respect to your
Units. You may demand an appraisal of the fair value of your Units and payment
in cash according to the procedures as described in Article 14, Chapter 25.10 of
the Revised Code of Washington in lieu of accepting the Merger Consideration.
"Fair value" may be greater than, less than, or the same as the Merger
Consideration offered. If you desire to preserve your dissenter's rights, you
must either not vote, or if you execute a proxy you must vote "AGAINST" approval
of the Merger or "ABSTAIN" from voting. Voting "FOR" or delivering an unmarked
proxy will, unless revoked prior to the vote on approval of the Merger,
constitute a waiver of your dissenter's rights. See Annex III to this proxy
statement which contains the full text of Article 14.
5
<PAGE> 14
MARKET INFORMATION - NORTHWEST II
Northwest II went public in 1982 through a $7 million (7,000 units), best
efforts, offering that closed after the sale of 4,052 Units in 1984. The
Units are registered under Section 12(g) of the Securities and Exchange Act of
1934, pursuant to which Northwest II files reports with the SEC. Northwest II
did not apply to have the Units quoted on Nasdaq or on an exchange as it was
never intended that an active trading market for the Units would develop.
Accordingly, there has never been an active trading market in the Units and
there have been no significant transactions between private parties that would
establish an accurate market price for the Units. Over the past 18 months,
Whitcomb has repurchased two Units from one investor, on a voluntary basis, at
$1,711 per Unit.
The limited partnership agreement of Northwest II provides for an
agreed-upon rate of return of 10% per year which has been paid to the limited
partners including distributions of cash in the amount of $405,200, $616,281,
$1,174,026 per year in 1997, 1996, and 1995, respectively. The Merger Agreement
provides that Northwest II will make an additional distribution to Unitholders
of $101,300 for 1998 on or before January 31, 1999, with the aggregate
distributions to Unitholders relating to 1998 being $455,850. Since the
inception of the Northwest II, through December 31, 1998, Unitholders have
received in excess of $6.2 million in the form of quarterly distributions,
which is more than the required 10% per year return.
6
<PAGE> 15
WHERE YOU CAN FIND MORE INFORMATION
Northwest II files reports with the SEC on a regular basis. You may read or
copy any document that Northwest II files with the SEC at the SEC's Public
Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. You may obtain
information about the Public Reference Room by calling the SEC for further
information at 1-800-SEC-0330. Northwest II's SEC filings are also available
from the SEC's web site at www.sec.gov.
Whitcomb and Columbus, the proposed buyers in the Merger, are affiliates of
Northwest II. Accordingly, they have jointly filed with the SEC a Schedule 13E-3
with respect to the "going private transaction" described herein. This proxy
statement does not contain all of the information contained in the Schedule
13E-3, some of which is omitted as permitted by SEC rules. Statements made in
this proxy statement, while complete in all material respects, are qualified by
reference to documents filed as exhibits to the Schedule 13E-3. The Schedule
13E-3, including exhibits, is available for inspection and copying at the SEC as
described above.
Columbus is not a public company and is not otherwise required to file
reports of any type with the SEC.
7
<PAGE> 16
SPECIAL FACTORS
Unitholders are urged to consider a number of special factors that apply to
the Merger in addition to other information in this proxy statement.
CONFLICTS OF INTEREST; PROCEDURAL SAFEGUARDS
Whitcomb faced substantial conflicts of interest in proposing, negotiating
and structuring the Merger. On the one hand, as the general partner of Northwest
II, he owes unaffiliated Unitholders certain fiduciary duties. On the other
hand, Columbus, as the prospective acquiror of Northwest II, which is owned by
Whitcomb, has an interest in not paying more than is fair for the Units acquired
in the Merger. Whitcomb also selected McKee and Ragen MacKenzie. Limited
partners were not independently represented in the negotiation of the Merger
Agreement. While these conflicts can not be eliminated, to deal with and
mitigate the conflicts of interest, a number of procedural safeguards were
implemented:
- - Ragen MacKenzie was retained to act as financial advisor to Northwest II
and has rendered its opinion as to the fairness to the Unitholders, from a
financial point of view, of the Merger Consideration.
- - An independent appraisal by McKee of the three Super 8 Motels owned by
Northwest II was commissioned in November 1998. The McKee appraisal of
these three motels is part of a larger appraisal of 26 Super 8 Motels, and
will be relied upon by U.S. Bank to determine its loan to value ratio in
connection with Columbus' acquisition of the limited partnerships.
- - The law firm of Foster Pepper & Shefelman ("Foster Pepper"), 1111 Third
Avenue, Suite 3400, Seattle, Washington, 98101, (206) 447-4400, was
retained by Northwest II to act as independent counsel with respect to the
Merger and to advise Unitholders concerning the terms of the Merger
Agreement. Mr. David R. Wilson, a partner in Foster Pepper will be
available at the Meeting to answer questions by Unitholders and will also
be available on February __, 1999, from _____ to ______ p.m. to meet with
or to take phone calls from Unitholders having questions about the Merger.
Foster Pepper has not been retained to render any opinion or to otherwise
pass upon the fairness of the transactions contemplated by the Merger
Agreement.
- - Unitholders have statutory dissenters' rights of appraisal under Washington
law.
- - Northwest II, Whitcomb and Columbus deem it advisable to require that the
Merger be approved by 66% of the Unitholders.
The procedural safeguards described above are listed in descending order of
importance, i.e., the first safeguard 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
safeguard because each safeguard is relevant. While the conflicts of interest
cannot be eliminated, Northwest II, Whitcomb and Columbus believe that the steps
taken and to be taken constitute sufficient procedural safeguards for
Unitholders' interests and that the proposed transaction is procedurally fair.
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FAIRNESS OF THE TRANSACTION
Columbus and Whitcomb believe that the proposed Merger and the Merger
Consideration to be paid are substantively fair and in the best interests of
Unitholders. The material factors considered are generally 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.
As a practical matter, however, this process is an approximation of the weight
given to each factor because each factor is relevant, some factors are of nearly
equal importance, and it is impossible to weigh each factor precisely:
- There is no established trading market for Northwest II Units,
except as created through sale or merger of Northwest II, which
Whitcomb has been unsuccessful in arranging to date. The average
life of a limited partnership investment is 10-12 years.
Unitholders that have held their Units since the beginning, have
held their Units for over 16 years, with most Unitholders having
held their Units for 15+ years. Whitcomb believes that the
circumstances of many Unitholders have changed over the life of
Northwest II and believes that Unitholders want an opportunity
to liquidate their investments. Heretofore, since there is no
established trading market, to dispose of their Units,
Unitholders have had to arrange private sales. This factor was
considered important because, in considering the alternatives to
the Merger, it emphasizes that there are limited opportunities
available to create an exit strategy for Unitholders. While
Whitcomb has done so, he is not obligated to purchase Units on a
voluntary basis. The $1,343 per Unit Merger Consideration is
less than the price paid by Whitcomb for the purchase of two
units in the past 18 months.
- Through December 31, 1998, Unitholders have received in excess
of $6.2 million in the form of quarterly distributions. In
addition, Unitholders received an additional distribution from
Northwest II in the aggregate amount of $101,300 on January 31,
1999. Upon the sale of their Units as described herein,
Unitholders will receive the Merger Consideration amount of
$1,343 per Unit. Whitcomb considered this important because the
Merger Consideration is greater than the September 30, 1998
$159.72 net book value per Unit.
- The Merger Consideration offered to Unitholders is higher than
the $1,289 per Unit which Whitcomb estimates could be obtained,
after costs of sale and payment of Northwest II's liabilities,
if Northwest II were to individually sell the Bremerton, Yakima
and Portland motels to unaffiliated third parties at the McKee
appraised values.
- In his efforts in 1998 to sell all of the motel properties owned
by the various partnerships, including those owned by Northwest
II, to an unaffiliated third party, Whitcomb did not secure any
offers which he deemed sufficient. As described in "Background
of the Transaction," beginning on page 18 of this proxy
statement, the best proposal received by Exvere, Inc.
("Exvere"), on Whitcomb's behalf for all of the Super 8 Motels
was an aggregate cash amount of $80,000,000 ($84,000,000
including additional contingent purchase price based upon five
year future performance), which, if allocated on the basis of
the Exvere assigned values for the Northwest II motels set forth
in the Exvere valuation report described beginning on page 12 of
this proxy statement, would have resulted in a per Unit value,
after costs of sale and payment of Northwest II's liabilities,
of $1,421 ($1,514 if the contingent purchase price was earned)
for the Unitholders. Based upon this method of allocating the
best proposal received by Exvere, the Merger Consideration
offered is less than the amount that would have been received
from this
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prior proposal. In retrospect, it appears that the Exvere
valuation may not have completely addressed the fact that two of
the three Northwest II motel properties are on land leased from
third parties. Whitcomb believes that a purchaser of all of the
motel properties may have adjusted the Exvere assigned values
when negotiating the allocation of the purchase price, as a
result of various factors affecting individual properties. It
should be noted that the data for the Exvere valuations was as
of June 30, 1997. Whitcomb believes that the McKee appraisals,
dated December 31, 1998, which take into account subsequent
changes in market conditions in each motel locations and that
two of the motels are on leased land, represent a more current
assessment of the values of the respective motel properties.
- The Merger Consideration will be paid in cash;
- Northwest II has received a fairness opinion from Ragen
Mackenzie that the Merger Consideration is fair to the
Unitholders from a financial point of view;
- Liquidation of Unitholders' interests in Northwest II, rather
than the continued public ownership, is believed by Whitcomb to
be consistent with Northwest II's investment objectives;
- Unitholders have statutory dissenters' rights of appraisal under
Washington law.
- Although the motels are in good condition, they are now more
than 15 years old and will soon require additional refurbishing.
Whitcomb believes that the funds for such expenditures would not
be available from Northwest II's cash flow without reducing
future distributions to limited partners.
- Northwest II's intention has always been to sell the properties
when market conditions warranted sale. It was never an
investment objective of Northwest II to hold the properties
permanently.
Notwithstanding the foregoing, Unitholders should note that Whitcomb may
benefit from the Merger. This is most likely to occur if the value of the
properties increases beyond the appraised value or by improving cash flow from
the properties. Therefore, it is possible that Unitholders would receive a
greater return on their investment if Northwest II continued to own and operate
the properties and sold them at a later date, instead of consummating a sale
under the Merger proposal. It is also possible that Unitholders would fare worse
if they kept their Units and the value of the properties declined.
The lack of an independent committee to review the Merger Consideration
offered by Columbus, and the possibility that the continued ownership of the
Units could be more economically beneficial than a sale if the value of the
properties were to rise or cash flow from the properties were to increase.
Whitcomb believes that the Merger, even though it is an affiliated
transaction that was not initiated by the Unitholders, is consistent with
Unitholders' desire for a broad-based exit strategy. Therefore, Whitcomb and
Columbus believe that the factors listed above in favor of the transaction
outweigh negative considerations.
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AN INDEPENDENT COMMITTEE DID NOT REVIEW THE MERGER PROPOSAL
Northwest II does not have its own governing body, similar to a board of
directors, that manages its day-to-day business and operations. The business and
operations of Northwest II are managed by Peninsula Management, which is
indirectly wholly-owned by Whitcomb, who also owns Columbus, the proposed buyer.
Although there are approximately 900 investors of record, Northwest II does not
have any single Unitholder or groups of related Unitholders that own significant
amounts of Units from which to readily identify a suitable independent
committee. Therefore, an independent committee was not reasonably available and,
considering the size of the transaction, the prior offers, the valuation by
Exvere, the appraisals by McKee, the fairness opinion and the other procedural
safeguards described above, an independent committee was not considered
warranted in this case.
SOURCE AND AMOUNTS OF MERGER CONSIDERATION AND EXPENSES
The total amount necessary to pay the Unitholders the Merger Consideration
is approximately $5.4 million. As described above, Columbus is also making
similar merger proposals to acquire for cash the partnership interests in
Anchorage, Northwest I, Lacey, and Tongass, subject to any required approvals
under state law. Columbus expects to fund the Merger, and the other proposed
acquisitions, through secured bank loans from U.S. Bank. On behalf of Columbus,
Whitcomb has entered into a loan commitment letter, subject to customary terms
and conditions, and a rate lock agreement with U.S. Bank, which will provide the
necessary financing at a fixed rate of interest, provided the transaction closes
by April 2, 1999. The loan transaction covers 26 motels, 23 as part of a loan
package, with separate loans for Lacey, Bremerton and Yakima. The 23 motels in
the large loan package include eleven in Oregon, three in Alaska and nine in
Washington, owned by Peninsula (13), Columbus (4), Anchorage (1), Tongass (1),
Northwest I (2), Northwest II (2), and Peninsula Properties (1). The loans with
U.S. Bank will be based on real estate appraisals recently made by McKee. The
loans are expected to be repaid out of cash flows from the properties, unless a
sale or sales of the properties or businesses is consummated. Columbus will pay
the costs and expenses incident to the loans. The total amount of costs and
expenses incurred in connection with the Merger and the other mergers with the
other partnerships and the transactions contemplated thereby, including costs
and expenses incident to the U.S. Bank loans, is estimated to be an aggregate of
approximately $1.9 million. The U.S. Bank commitment is not conditioned on
completing all of the acquisitions contemplated by Columbus, but are expected to
be available to finance any acquisitions that are made.
PLANS OR PROPOSALS BY ISSUER OR AFFILIATES FOLLOWING MERGER
As general partner, Whitcomb unsuccessfully attempted in early 1998 to
arrange the sale of Northwest II's Super 8 Motels, along with those owned by the
other partnership, in an arm's length transaction with an unaffiliated buyer.
The primary purpose of the Merger is for Whitcomb to provide an exit strategy
for Unitholders by acquiring the outstanding Units of Northwest II. Neither
Columbus nor Whitcomb have any specific plans for the sale or disposition of the
assets or any material change in the business of Northwest II following the
Merger. Columbus will, however, continue to evaluate any proposals and may sell
or dispose of assets if attractive terms are offered. There are presently no
arrangements or proposals to do so, however.
OPINION OF FINANCIAL ADVISOR
Ragen MacKenzie was retained by Northwest II to act as its financial
advisor for Unitholders in connection with the Merger. Ragen MacKenzie delivered
its opinion to Northwest II dated December 31, 1998, to the effect that, as of
that date and based on the procedures followed, factors considered
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<PAGE> 20
and assumptions made by Ragen MacKenzie as set forth therein, the Merger
Consideration to be paid to Unitholders pursuant to the Merger Agreement is fair
from a financial point of view. See "Opinion of Financial Advisor" beginning on
page 21 of this proxy statement. The full text of the Ragen MacKenzie opinion is
attached as Annex II to this proxy statement. Read the opinion carefully.
INTEREST OF AFFILIATES IN MATTERS TO BE ACTED UPON; PAST CONTRACTS AND
AGREEMENTS
Beneficial Ownership
The Whitcombs beneficially own 8, or less than 1%, of the Units of
Northwest II.
General Partner Fee to Whitcomb
Under the limited partnership agreement, Northwest II agrees to pay fees
for Whitcomb's management services. In accordance with the agreement, the
obligation to provide management and to recoup management fees was assigned by
Whitcomb to Peninsula Management. Peninsula Management receives a fee equal to
5% of the partnership's gross revenues from motel operations in addition to
reimbursement of certain out-of-pocket cost incurred by Peninsula Management in
connection with management of the property. Payment of fees to Peninsula
Management is subordinated to receipt by investors of a cumulative, pre-tax
return on their adjusted capital investment of 10% per annum. Accordingly,
Northwest II did not begin paying monthly management fees until 1996 and all
management fees are paid to date. In fiscal years ended December 31, 1995, 1996
and 1997, and the nine-months ended September 30, 1998, the management fees paid
to Peninsula management were $168,112, $179,999, $162,328 and $127,736,
respectively. Peninsula Management also receives reimbursement for direct
operating expenses of motels under a pooling arrangement, whereby each motel is
billed directly for its pro rata share of operating expenses.
License Fee Rebate
PGI has a license agreement with Super 8 Motels, Inc. under which it
acquired the exclusive territorial rights to develop Super 8 Motels and
franchises in the states of Washington, Oregon, and in four cities in Alaska
through November 2006. Super 8 Motels developed within this three state area
enter into franchise agreements directly with Super 8 Motels, Inc. As owner of
this exclusive territorial license, PGI receives a franchise fee rebate from
Super 8 Motels, Inc. on each motel The franchise fee rebates paid on the
Bremerton, Yakima and Portland motels owned by Northwest II are equal to 1% of
room revenues. In fiscal years ended December 31, 1995, 1996 and 1997, and the
nine-months ended September 30, 1998, franchise fee rebates paid to PGI with
respect to these three motels was $32,772, $35,001, $31,329 and $24,745,
respectively.
MANAGEMENT AND OPERATIONS OF NORTHWEST II FOLLOWING MERGER
It is anticipated that the motels owned by Northwest II will continue to be
managed by Peninsula Management following the Merger unless Columbus determines
to engage an independent third party management company.
BUSINESS VALUATION OF NORTHWEST II BY EXVERE
The following is a summary of the material methodologies, conclusions, and
assumptions used by Exvere in its business valuation report on Northwest II
dated February 27, 1998. The information and conclusions in the report were as
of June 30, 1997. The Exvere valuation report was obtained for the purpose of
deciding whether or not to attempt to market the motel properties. As indicated
above, the
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<PAGE> 21
marketing effort to sell the motel properties to an unaffiliated third party did
not result in any offers that Whitcomb considered sufficient. Although the
Exvere business valuation was provided to Whitcomb in connection with the
marketing effort, it was not used by Columbus as the basis for determining the
Merger Consideration and Northwest II has not used such report in determining
whether or not the Merger Consideration is fair to Unitholders. Nevertheless,
because the Exvere valuation report was received by Whitcomb, under applicable
SEC rules the valuation report must be disclosed and described herein.
The appraisal was based on information obtained by Exvere during
conversations with key individuals, copies of financial statements, and
estimates of costs furnished by Northwest II. The appraisal also included
consideration of other information, such as that related to transactions in the
private and public markets.
Exvere's approach was to arrive at Total Invested Capital (TIC), and then
arrive at a "net equity value" by backing out of TIC cash and cash equivalents,
current liabilities and certain interest bearing indebtedness and preferred
stock. Under this approach, TIC is the sum of the market equity of the company
(determined through one of the methods described below) and the fair market
value of interest-bearing debt both short-term and long-term. If TIC is being
valued, it assumes that seller receives TIC value for the company and takes the
company's cash and cash equivalents, but is obligated to pay off all
interest-bearing debt and preferred stock, and buyer assumes the adjusted net
operating working capital position in non-current liabilities. Net operating
working capital is defined as "all current assets except cash, less all current
liabilities except interest-bearing debt."
Exvere initially considered eight valuation methods, which ranged in value
from $7.7 million to $12.4 million. Exvere considered the four most appropriate
methods to be: (i) Publicly Traded Comparatives Approach; (ii) Market Data
Approach; (iii) Capitalization of Earnings Approach; and (iv) Asset Accumulation
Approach.
Publicly Traded Comparatives Method
Under the Publicly Traded Comparatives Approach, a relationship was drawn
between a publicly traded company's stock price in the market place as it
relates to its revenue, earnings, cash flow and/or book value, and then the
compared figures of the comparable companies were applied against the figures of
Northwest II to arrive at a proportional estimation of value based upon the
comparable companies. Using the Publicly Traded Comparatives Approach, the
calculation of value on a debt-free basis resulted in a total pre-adjusted TIC
of $11,314,000. After deducting interest-bearing debt at market of $2,488,000
and normalized non-current liabilities of $627,000, this approach resulted in a
pre-adjusted net equity value of $8,200,000. Similar calculations using weighted
averages, a regression trend analysis, and a forecast yielded values of $9.7
million, $6.5 million, and $6.5 million, respectively.
Market Data Approach
Exvere compiled a list of 46 businesses with comparable statistics similar
to Northwest I. Equal weight was applied to the median, historic and expected
revenue, and the normalized EBIT multiples, as the weighting is fairly
consistent with the Publicly Traded Comparatives Approach described above.
Additionally, the multiples were chosen to conform with that derived from a
regression analysis of earnings and multiples derived from two alternate,
private transaction sources. Multiples of book were excluded, to deal with the
uncertainty of how many of the private transactions included the land component.
Under the Market Data Approach, the calculation of pre-adjusted net equity value
was determined by Exvere to be $11,980,000.
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Capitalization of Earnings Approach
The Capitalization of Earnings approach assumes that an equally desirable
substitute for the business being valued would be one that had similar
investment characteristics but not necessarily one that was similar from a
physical or operational standpoint.
Exvere followed the following sequence of steps: first, to determine the
appropriate earnings based capitalized, and then the amount of return
attributable to the business or property to be appraised; second, identify other
types of investments that are similar with regard to investment criteria,
including liquidity, expectation of growth or shrinkage of principal amount,
burden of management, and risk; and third, use the rate of return actually
provided by comparable investments to capitalize the amount of return from the
business to be appraised, thus arriving at an estimate of the value of the
business. Under the Capitalization of Earning Approach, and assuming a
capitalization rate of 15.6%, Exvere arrived at a pre-adjusted net equity value
of $5,878,000. This conclusion assumes that a reasonable long-term compound
annual growth rate (CAGR) for Northwest II over the next 20 years is 8.3%.
Asset Accumulation Approach
The Asset Accumulation Approach was used to arrive at an estimate of the
total value by estimating the cost of duplicating (replacing) the individual
elements of the business or other property being appraised, item by item, asset
by asset. In the case of Northwest II, however, premiums were derived from
market data provided by industry sources, which made an estimate of goodwill
possible. The average premium for the economy and budget class motels was
determined to be 23.5%. Considering replacement cost of an initial investment in
a 60-room new construction facility, Exvere arrived at a net equity value under
the Asset Accumulation Approach of $9,940,000.
Reconciliation and Conclusions of Exvere
The final step in the valuation process was to reconcile the various
valuation techniques and coming to conclusions on the fair market value of
Northwest II. Here, Exvere gave 25% weight to each of the Comparative Publicly
Traded Companies Approach, Market Data Approach, Capitalization of Earnings
Approach, and the Asset Accumulation Approach. Based upon Exvere's analysis, it
was determined that a gross fair market value of a 100% interest in Northwest
II, including cash on hand, was $10.5 million. After elimination of cash and
debt the net equity was approximately $7.8 million.
Qualifications of Appraiser and Availability of Report
Exvere is a financial advisory firm that was founded in 1992 to advise
Northwest businesses on capital transactions such as mergers, acquisitions, and
in areas of corporate finance. Exvere was selected to provide an independent
valuation in connection with a possible sale of the business to an unaffiliated
third party on the strength of its reputation in the Northwest in the field of
valuation analysis. During the past two years, Exvere and Northwest II have not
had any material relationship.
A copy of the Exvere valuation is available for inspection and copying at
the principal executive offices of Northwest II during regular business hours by
any interested unit holder or his designated representative. A copy of the
Exvere business valuation will be sent to you, at cost, upon your written
request for us to do so.
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APPRAISAL OF BREMERTON, YAKIMA AND PORTLAND PROPERTIES BY MCKEE & SCHALKA
In connection with extending credit for the acquisition of Northwest
II, U.S. Bank commissioned independent appraisals of 26 of the
Whitcomb/PGI-managed motel properties, including the Bremerton, Yakima and
Portland motel properties owned by Northwest II. U.S. Bank selected McKee, Real
Estate Appraisers & Consultants, Inc. of Seattle, Washington, to appraise the
23 properties located in Washington and Oregon. This appraisal firm was
selected based upon their expertise in the field of commercial real estate
appraisals, with specific experience in the appraisal of lodging properties.
The following is a summary of the material, methodologies, conclusions, and
assumptions used by McKee in its appraisal reports to U.S. Bank. No limitations
were placed on the McKee appraisals. The appraisals use both the Sale Comparison
Approach and Income Approaches to value. The Cost Approach was not employed in
the valuation process since it would not have significant bearing on the
reconciled market value of the properties. For existing established motel
properties of the size and age of the Bremerton, Yakima and Portland motel
properties, purchasers are primarily interested in the income characteristics
and market price for similar properties. For the Sale Comparison Approach, McKee
reviewed a wide variety of hotel transactions in Washington and Oregon, and used
at least four sale comparisons in each report for direct comparison to the motel
properties. The McKee appraisals considered the Income Approach compelling based
on a detailed income and expense history for each property over the past several
years, as well as a recent local and regional market analysis. The Income
Approach also considered income and expense comparisons, and market rent
comparisons in the estimate of net operating income. Emphasis was also placed on
the Income Approach because of the reliability of the data and the fact that
hotel properties are income properties.
In the course of conducting their appraisal, McKee conducted a physical
inspection of the motel properties. McKee also evaluated the local neighborhood
and surrounding areas; surveyed the competitive lodging facilities within the
markets; and reviewed historical data and income and expenses for other similar
properties. McKee spoke with the owner of the properties, managers and other
property managers, owners and government officials within this market. McKee
researched and evaluated the sales of other lodging facilities, both locally and
throughout the Pacific Northwest.
In comparison to the Exvere business valuation which focused on the
business of Northwest II as a whole without addressing the individual underlying
properties of the Bremerton, Yakima and Portland motel properties, the McKee
appraisal focused solely upon the individual properties of the Bremerton, Yakima
and Portland motels.
Sale Comparison Approach
The Sale Comparison Approach uses analysis and sales of comparable improved
properties to derive units of comparison that are then used to indicate a value
for the subject property. McKee conducted a broad search for sales of comparable
improved properties, including most major markets in Washington State. The
selection of comparisons included considerable emphasis and understanding of the
sales of properties McKee previously appraised. The primary units of comparison
used in this analysis were price per room, price per square foot and gross
income multiplier (GIM). In addition McKee analyzed the capitalization rates for
comparable transactions, which were also used in the subsequent Income Approach
Analysis.
The most comparable transactions (based on size and similar financial
characteristics) involving Washington State motel/hotel properties considered
comparable by McKee were then analyzed and
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<PAGE> 24
adjusted relative to the subject properties. The Bremerton sales indicated a
range of values on a price per room from approximately $28,000/room to
$38,000/room, price/sf from $45/sf to $103/sf, and GIM indications from 3.4 to
4.3. The Yakima sales indicated a range of values on a price per room from
approximately $28,000/room to $38,000/room, price/sf from $77/sf to $103/sf, and
GIM indications from 2.4 to 4.3. The Portland sales indicated a range of values
on a price per room from approximately $50,000/room to $88,000/room, price /sf
from $79/sf to $120/sf, and GIM indications from 2.4 to 4.3. The majority of
these transactions occurred in 1997 or 1998, and typically represented
transactions of limited service motels, or full service motels where applicable
within a specific market. The appraisal conclusions are consistent with the
ranges indicated by these comparisons.
Income Approach
The purpose of the Income Approach is to value an income property by
analyzing likely future income and expenses to the property. In this case, McKee
employed a Direct Capitalization Analysis by dividing an annual forecast Year 1
net operating income (NOI) by an appropriate capitalization rate, which McKee
believed to be 11% for the Yakima and Bremerton properties and 11.5% for the
Portland property. McKee relied on a variety of sources as the basis of the
forecast of NOI, including an analysis of each of Bremerton's, Yakima's and
Portland's historical income and expenses. McKee also used expense comparisons
for estimating individual expense items. Based upon an average room rate of $46
and 60% occupancy, the fee simple Income Approach value of the Bremerton motel
property is $2,360,000. Based upon an average room rate of $49.50 and 55%
occupancy, the fee simple Income Approach value of the Yakima motel property is
$3,330,000. Based upon an average room rate of $58 and 79% occupancy, the fee
simple Income Approach value of the Portland property is $5,330,000.
Leasehold Adjustments
The Bremerton and Yakima properties are located on leased land and required
leasehold adjustments, for value loss due to the presence of the land lease. The
leasehold adjustment has been applied to each of the two approaches for the
Yakima and Bremerton properties and the resulting values were then reconciled.
The leasehold adjustment considers the loss in value due to three
components. The first adjustment is based on the actual loss in net operating
income over the term of the lease due to the land lease payments. The second is
the loss of reversion at the end of the lease, including the value of the site
and remaining value of improvements at that time. The third component is the
negative impact on marketability of the property, which increases as the
remaining lease term decreases. In this case, the Bremerton property has just
over 20 years remaining, while the Yakima land lease has just over 35 years
remaining, including extension options. The total leasehold adjustment to the
Fee Simple value conclusion is $1,340,000 for Yakima, and $1,050,000 for
Bremerton.
Reconciliation and Conclusions of McKee Appraisals
The final step in the McKee appraisal process was to reconcile the Sale
Comparison Approach and the Income Approach values to arrive at a final value
conclusion. The primary
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consideration to reconcile the two approaches are the reliability of the data
used and the applicability of each method for valuing a particular property.
Here, after reconciling the various factors, McKee arrived at a final appraised
value for the Bremerton property of $1,400,000 and the Yakima property of
$2,080,000 and the Portland property of $5,300,000.
The value estimates are commensurate with a reasonable marketing and
exposure time of one year. The market values include furnishings, fixtures, and
equipment (F,F,&E), including both permanently affixed real estate, and personal
property. The contributory value of F,F,&E for the Bremerton property is
estimated to be $180,000, which includes personal property of $130,000. The
contributory value of F,F,&E for the Yakima property is estimated to be
$300,000, which includes personal property of $210,000. The contributory value
of F,F,&E for the Portland property is estimated to be $160,000, which includes
personal property of $110,000.
Qualifications of Appraiser and Availability of Report
McKee is a real estate appraisal and consulting firm specializing in
providing valuations for commercial real estate. This appraisal firm has a very
strong reputation in the appraisal of complex commercial real estate including
lodging facilities. McKee was selected by U.S. Bank to provide an independent
appraisal of all of the Whitcomb/PGI managed motels in Washington and Oregon in
connection with extending financing for the acquisitions. The McKee & Schalka
Appraisal firm has prepared a number of appraisals of Super 8 properties over
the last eight years. Almost all of these appraisals were conducted at the
request of various lending institutions. The total amount of this appraisal work
was a nominal percentage of the firm's work during this period and no one at the
appraisal firm has any financial interest in any of these properties.
Copies of the McKee Real Estate Appraisals for the Bremerton, Yakima
and Portland Motel Properties are available for inspection at the principal
executive offices of Northwest I during regular business hours by any
interested unitholder or his designated representative. A copy of the McKee
appraisal will be sent to you, at cost, upon your written request for us to do
so.
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BACKGROUND OF THE TRANSACTION
REASONS FOR THE MERGER
Northwest II was formed in 1982 and initiated a $7.0 million best efforts,
offering with the assistance of selected broker-dealers in the Northwest. The
offering commenced in 1982 and was completed in 1984 after the sale of 4,052
units. Since 1984, Northwest II has made distributions to Unitholders which, in
the aggregate, exceed the 10% return per year required by the partnership
agreement. Northwest II did not apply to have its Units quoted on Nasdaq, as it
was never intended that an active trading market would develop. At the same
time, the Units have been registered under the Securities and Exchange Act of
1934 and Northwest II bears the significant expenses of annually filing required
documents and financial statements with the SEC.
Whitcomb believes that the typical life of a limited partnership investment
in motels is 10-12 years. Most of Northwest II's Unitholders have held their
Units for more than 15 years. While Northwest II has met its objective of paying
investors a 10% annual return on their investment, other investment
opportunities may offer a rate of return that is as good or better than that
offered by Northwest II. Since the Units are not quoted on Nasdaq or listed on
an exchange, Unitholders are unable to sell their Units except under limited
circumstances. Accordingly, in response to unsolicited inquiries from
Unitholders seeking to liquidate their investment, Whitcomb has occasionally
purchased Units from Unitholders on a voluntary basis and, recently, Whitcomb
has been encouraged by some Unitholders to create an exit strategy for all
Unitholders. While Whitcomb believes that the Merger proposal responds to
Unitholders' desire for liquidity, the Merger proposal was not initiated by
Unitholders. The primary purpose of the Merger proposal is to provide all
Unitholders with an opportunity to liquidate their investment in Northwest II at
a price that is fair to Unitholders, yet still attractive to Columbus and
Whitcomb.
BACKGROUND OF THE MERGER; ALTERNATIVES CONSIDERED; ATTEMPTED SALE OF MOTEL
PROPERTIES TO UNAFFILIATED THIRD PARTY
To facilitate an exit strategy for all Unitholders, Whitcomb first
considered a sale of all the limited and general partnerships' properties to an
unaffiliated third-party in an arm's length transaction.
To that end, there being no public market to value the Units, Whitcomb
arranged for the valuation of all of the Whitcomb/PGI-managed partnerships,
including Northwest II, by Exvere in late 1997, which was completed in early
1998. Exvere concluded that a reasonable range of value for all 27 motels and
the other assets described below was between [ ] million and [ ] million. Exvere
also concluded that the Northwest II properties had a value within a range of
$6.7 million to $12.7 million with a selected gross value of $10.5 million. For
a description of the factors considered by Exvere in making its valuation, see
"Business Valuation of Northwest II by Exvere" beginning on page 12 of this
proxy statement.
Based upon the Exvere valuations, Whitcomb authorized Exvere to begin
marketing the portfolio of motels for sale. The assets offered for sale included
the 27 Super 8 Motels, as well as the stock of PGI and its subsidiary, Peninsula
Management, an Exclusive Territorial Agreement (aka "Master Franchise
Agreement") with Super 8 Motels and certain other assets. The terms of the
offering stipulated that any acquisition should be structured as a stock
purchase for PGI and its subsidiary, Peninsula Management, although the
acquisition of the partnership motels could be structured as an asset purchase.
Each bidder was asked to indicate what the bidder would pay for: (a) the motels
and the stock of PGI and its subsidiary, Peninsula Management, excluding the
Exclusive Territory
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Agreement or (b) the motels and the stock of PGI and its subsidiary, Peninsula
Management with the Exclusive Territory Agreement. Bidders were also told to
assume that all existing debt would be paid at closing, the sellers and
purchaser would have to agree on the allocation of purchase price, the sale
would require the consent of the various entities' partners, and that a
purchaser would either have to enter into a new franchise agreement with Super 8
Motels, Inc. or pay franchise termination fees.
Exvere prepared a confidential offering memorandum and sent it to
approximately 77 recipients. It received indications of interest from several of
the recipients, which led to receipt of two proposals that it considered to be
worthy of consideration. One of the proposals indicated an interest in buying
the motels and the PGI and the Peninsula Management stock and the Exclusive
Territory Agreement) for $80 million in cash at closing, plus the potential of
an additional $4 million in contingent payments based on future performance of
the motels over a five year period. If the proposed purchase price was allocated
on the basis of the Exvere assigned values for the Northwest II motels the
allocated proposed purchase price for the Northwest II motels would be $9.1
million (excluding the contingent purchase price). That bidder indicated that it
was also willing to pay $1 million in cash and $2 million in a promissory note
for the Exclusive Territory License owned by a Whitcomb affiliate. The second
proposal was from an entity which proposed $61 million in cash and $26 million
in securities to be issued by a REIT that was in the process of formation, for a
total price of $87 million for the motels and the Peninsula Management stock,
excluding the Exclusive Territory Agreement. Neither prospective buyer provided
any indication as to how it would propose to allocate the purchase price among
the various motel properties.
Whitcomb concluded that it was not in the best interests of the various
partnerships to sell their assets for less than an aggregate of $87 million in
cash, excluding the stock he owned in PGI and its subsidiaries (which own the
Exclusive Territory Agreement). He asked Exvere to try to get the offers
increased to $87 million cash for the motels only, but none of the interested
parties were willing to meet that price.
Accordingly, Whitcomb concluded that he should look for alternative ways to
achieve liquidity for the Unitholders. After reviewing the options, Whitcomb
concluded that the partnerships would receive the best net return if he could
obtain financing to purchase all of the interests held by the other investors in
the partnerships. He believes that, as the general partner, he could avoid
certain transaction costs that a third party buyer would incur, and that he
could achieve certain economies of scale by structuring the acquisitions in a
manner that would result in a single ownership entity that was privately held.
ACQUISITION OF MOTEL PROPERTIES BY COLUMBUS
Having concluded that the partnerships would receive the best net return if
he could obtain financing to purchase all of the interests held by the investors
in the partnerships, in a manner that would result in a single ownership entity
that was privately held, Whitcomb began working with bankers to secure financing
that would enable Whitcomb to purchase the unaffiliated partners' units in
Northwest I, Northwest II, Lacey, Tongass, and Anchorage, based on the appraised
price of the properties at the end of 1998.
Selling the various motel properties individually was not seriously
considered because it would be too expensive, too time consuming and Whitcomb
did not believe that it would yield the best results for investors in the
various partnerships.
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Accordingly, Whitcomb negotiated with U.S. Bank the terms of a loan
commitment dated November 18, 1998, under which U.S. Bank will provide a secured
loan to Whitcomb 75% of the appraised value of the motel properties.
The McKee appraisals, dated December 31, 1998, appraised various Super 8
Motels, including those owned by Northwest II, which they appraised at $8.68
million gross value ($1.3 million Bremerton, $2.08 million Yakima and $5.3
million Portland) before any reduction for liabilities or cost of sale. For a
description of the factors considered by McKee in making its appraisals, see
"Appraisal of Sea-Tac and Federal Way Properties by McKee & Schalka," beginning
on page 15 of this proxy statement.
ACQUISITION OF NORTHWEST II BY COLUMBUS; APPROACH TO DETERMINATION OF MERGER
CONSIDERATION
Whitcomb's attempts to sell the Super 8 Motels owned by the various
partnerships in a package sale to an unaffiliated third party were unsuccessful
because none of the expressions of interest or offers were sufficient to
generate a gross sales price of $87 million cash for the motel assets alone.
Accordingly, Whitcomb concluded that it would be in the best interest of the
various partnerships, including Northwest II, to structure a proposal whereby
Columbus would acquire the various motel properties pursuant to the proposed
mergers. Whitcomb believes that the proposed Merger will provide a higher net
value to Unitholder than could have been obtained for the Unitholders through a
sale of all of the motel properties as a package to an unaffiliated third party
or which could be obtained if each partnership were to undertake the sale of the
various motels on an individual basis based upon the McKee appraisals. In
formulating the offer by Columbus for the Northwest II properties, Whitcomb's
objective was to offer a higher Merger Consideration to the Unitholders of
Northwest II than that which likely would have been obtained based upon the best
offer received by Exvere or which could be obtained through individual motel
sales based on the McKee appraisals, after consideration of the transaction
expenses which would be incurred in either alternative, such as commissions,
title insurance, real estate excise taxes, appraisals, fairness opinions, legal
fees and partnership wind-up cost. However, as shown on Annex IV, the next
amount which would have been received by Northwest II Unitholders in connection
with the best proposal received by Exvere, if allocated based upon the Exvere
assigned values, would yield an amount in excess of the Merger Consideration. As
explained at pages 9-10, Whitcomb does not believe that the Exvere valuation
completely addressed the fact that two of Northwest II's motels are on leased
land and that the aggregate purchase price would have been reallocated in
negotiations. In addition, Whitcomb believes that the more recent McKee
appraisals represent a more current assessment of values.
Attached to this proxy statement as Annex IV is a schedule setting forth
Columbus' estimate of the net amount which would have been received per Unit,
after costs of sale, for both the best offer received by Exvere, based upon the
allocation of Exvere's assigned values, and if Northwest II were to sell the
three Super 8 Motels owned by it in individual sales. For purposes of
comparison, current assets and liabilities and long-term debt of Northwest II
are as of September 30, 1998. The estimates of transaction costs for the various
alternatives are based upon Columbus' best estimates after consultation with its
advisors.
As shown on Annex IV to this proxy statement, the best offer received by
Exvere, if allocated on the Exvere assigned values, would have yielded an
estimated per Unit value of $1,421 ($1,514 if the contingent purchase price was
earned) after transaction costs and payment of liabilities. A sale of the motels
on an individual basis by Northwest II at the values determined by the McKee
appraisals would yield an estimated per Unit value of $1,289, after transaction
costs and payment of liabilities as compared to the $1,343 per Unit Merger
Consideration.
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OPINION OF FINANCIAL ADVISOR
Whitcomb, on behalf of Northwest II and the Unitholders requested Ragen
MacKenzie to render its opinion as to whether the consideration to be paid by
Columbus pursuant to the Merger Agreement is fair, from a financial point of
view, to the Unitholders of Northwest II. Whitcomb retained Ragen MacKenzie
based upon its prominence as an investment banking and financial advisory firm
with experience in the valuation of businesses, their properties and their
securities in connection with mergers and acquisitions, negotiated
underwritings, secondary distributions of securities, private placements and
valuations for corporate purposes.
On December 31, 1998, Ragen MacKenzie delivered its written opinion to
Northwest II that, as of the date of the opinion, based on Ragen MacKenzie's
review and subject to the assumptions, limitations, procedures followed and
qualifications described below and set forth in the opinion, the consideration
to be received by the Unitholders from the Merger is fair to the Unitholders,
from a financial point of view. Ragen MacKenzie is not making, and the opinion
should not be construed as, a recommendation to any Unitholder as to whether or
not a Unitholder should approve the Merger. Additionally, the fairness opinion
does not compare the relative merits of the Merger with those of any other
transactions or business strategies available to Northwest II as alternatives to
the Merger, and Ragen MacKenzie was not requested to, and did not, solicit the
interest of any other party in acquiring the motel properties.
THE FULL TEXT OF THE FAIRNESS OPINION WHICH CONTAINS A DESCRIPTION OF THE
MATERIAL ASSUMPTIONS AND QUALIFICATIONS MADE, MATTERS CONSIDERED AND LIMITATIONS
IMPOSED ON THE REVIEW AND ANALYSIS IS SET FORTH IN ANNEX II AND SHOULD BE READ
IN ITS ENTIRETY. NORTHWEST II IMPOSED NO CONDITIONS OR LIMITATIONS ON THE SCOPE
OF RAGEN MACKENZIES' INVESTIGATION OR THE METHODS OR PROCEDURES TO BE FOLLOWED
IN RENDERING THE FAIRNESS OPINION.
In rendering the fairness opinion, Ragen MacKenzie, among other things: (i)
reviewed the Merger Agreement; (ii) reviewed and analyzed consolidated historic
and projected financial and operating data of Northwest II and the motel
properties, including audited and unaudited financial statements for Northwest
II and unaudited cash-basis estimates prepared by management for the motel
properties; (iii) reviewed and analyzed other internal information concerning
the business and operations of Northwest II and the motel properties furnished
to it by management; (iv) reviewed and analyzed publicly available information
concerning Northwest II and the motel properties; (v) reviewed and analyzed
publicly available information concerning the terms of selected merger and
acquisition transactions that Ragen MacKenzie deemed relevant to its inquiry
(based on size and similar financial characteristics); (vi) reviewed and
analyzed selected market purchase price data that Ragen MacKenzie considered
relevant to its inquiry; (vii) held meetings and discussions with Whitcomb and
employees of Northwest II concerning the operations, financial condition and
prospects of the motel properties; and (viii) conducted such other financial
studies, analyses and investigations, including visits to the Bremerton, Yakima
and Portland motels, and considered such other information as Ragen MacKenzie
deemed appropriate.
In arriving at its opinion, Ragen MacKenzie relied, without independent
verification, on the accuracy and completeness of all of the financial and other
information that was publicly available, supplied or otherwise communicated to
it by Northwest II. Ragen MacKenzie assumed that the financial estimates
(including the underlying assumptions and bases thereof) examined by it were
reasonably prepared and reflected the best currently available estimates and
good faith judgments of Northwest II as to the future performance of the motel
properties. Ragen MacKenzie expressed no opinion with respect to any forecasts
or the assumptions on which they were based. Ragen MacKenzie did not make an
independent evaluation or appraisal of the assets or liabilities (contingent
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or otherwise) of Northwest II (including the motel properties). However, Ragen
MacKenzie was furnished with independent appraisals on each property prepared by
McKee in conjunction with U.S. Bank's financing. The fairness opinion is based
upon financial, economic, market and other conditions and circumstances existing
and disclosed to it as of the date of its opinion. As background for its
analyses, Ragen MacKenzie held discussions with Whitcomb regarding the history,
current business operations, financial condition and future prospects of the
motel properties.
In conjunction with rendering its fairness opinion, Ragen MacKenzie
considered a variety of financial and comparative analyses, including:
- a discounted cash flow analysis;
- an analysis of certain transactions pursuant to which selected
public and private companies have acquired motel or hotel
properties similar to those in the partnerships;
- an analysis of selected publicly traded companies;
- an analysis of third party indications of interest obtained
during the marketing of Northwest II during the Spring and
Summer of 1998 (the "Market Test"); and
- an analysis of the appraisals conducted by McKee for the U.S.
Bank financing.
For purposes of its analysis, Ragen MacKenzie relied upon audited financial
statements for Northwest II for the year ended December 31, 1997, unaudited
financial statements for Northwest II for the nine months ended September 30,
1998 and unaudited cash basis estimates for the motel properties for the years
ending December 31, 1998 through 2003, inclusive, as provided by Northwest II.
Ragen MacKenzie's opinion is directed only to the fairness to Northwest II
and to the Unitholders, from a financial point of view, of the consideration to
be received by the Unitholders from the Merger, and does not address any other
aspect of the Merger. The summary set forth below does not purport to be a
complete description of the analyses used by Ragen MacKenzie rendering its
fairness opinion.
Discounted Cash Flow Analysis
Ragen MacKenzie analyzed the financial terms of the Merger using a
discounted cash flow analysis. The discounted cash flow approach assumes, as a
basic premise, that the intrinsic value of any business or property is the
current value of the future cash flow that the business or property will
generate for its owners. To establish a current implied value under this
approach, future cash flow must be estimated and an appropriate discount rate
determined. Ragen MacKenzie used estimates and other information provided by
Northwest II and Whitcomb to estimate the free cash flows, defined as total
projected cash revenue (including base rent and expense recoveries net of
certain free rent and vacancy allowances) minus total projected cash property
expenses (including utility expense, repair and maintenance expense, property
management fees, insurance, real estate taxes, tenant improvements, leasing
commissions and capital improvements ("Free Cash Flows")), for years ending
December 31, 1998 through the year ending December 31, 2003, inclusive. To
determine a perpetuity value, growth rates were applied to the year ending
December 31, 2003 ranging from 0.00% to 1.0%.
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The Free Cash Flows and perpetuity values were then discounted to the
present, using discount rates ranging from 12.0% to 16.0%. These discount rates
reflected Ragen MacKenzie's assessment of real estate investments in general,
and the specific risks of the motel properties, in particular. Ragen MacKenzie's
calculations resulted in a range of aggregate imputed values of the motel
properties of $6.6 million to $9.3 million.
Selected Comparable Acquisition Analysis
Ragen MacKenzie also analyzed selected comparable transactions, based on
size and other financial characteristics ("Comparable Motel/Hotel
Acquisitions"), in which certain public and private companies ("Acquiring
Motel/Hotel Companies") acquired a single or multiple motel and/or hotel
properties ("Target Motel/Hotel Portfolios"). Ragen MacKenzie compared the
purchase price paid in each Comparable Motel/Hotel Acquisitions with the latest
twelve months or reported period, on an annualized basis, as a multiple of
revenues and price per room. These calculations created the following range of
multiples: a range of purchase price to Target Motel/Hotel Portfolios revenues
of 2.5x to 4.1x, with a mean of 3.1x; a range of purchase price per Target
Motel/Hotel Portfolios room of $22,900 to $51,000, with a mean of $28,100.
Applying the applicable range of these acquisition multiples to the partnership
properties' revenues for the trailing twelve month period ended September 30,
1998, as adjusted to reflect management's pro forma adjustments and certain
additional adjustments that Ragen MacKenzie deemed appropriate, and to the
number of rooms yielded an implied aggregate range of values of the partnership
properties of approximately $5.8 million to $13.2 million.
Selected Comparable Company Analysis
Ragen MacKenzie also analyzed selected public companies ("Comparable
Companies"). Ragen MacKenzie compared the aggregate value of the Comparable
Companies with the latest twelve months or reported period, on an annualized
basis, as a multiple of revenues, EBITDA and EBIT. These calculations created
the following range of multiples: a range of revenue multiples of 1.1x to 4.3x,
with a mean of 2.3x; a range of EBITDA multiples of 3.7x to 10.4x, with a mean
of 7.0x; and a range of EBIT multiples of 5.3x to 9.1x, with a mean of 7.3x.
Applying the applicable range of these multiples to the partnership properties'
revenues, EBITDA and EBIT for the trailing twelve month period ended September
30, 1998, as adjusted to reflect management's pro forma adjustments and certain
additional adjustments that Ragen MacKenzie deemed appropriate, yielded an
implied aggregate range of values of the partnership properties of approximately
$7.4 million to $9.8 million.
Selected Comparable Market Purchase Price Analysis
Ragen MacKenzie also compared financial information relating to the motel
properties to publicly available information on recent purchase prices of the
limited-service sector of motel and hotels in particular markets in which the
motel properties are located.
Ragen MacKenzie analyzed the prevailing purchase capitalization rate
(calculated by dividing property net operating income for the applicable
trailing twelve month period by the purchase price paid) for the limited service
sector. Ragen MacKenzie believes that these markets closely resemble the
respective markets in which the motel properties are located and are an
appropriate basis for the comparison of values.
Applying this selected data to the applicable motel properties' net
operating income for the twelve months ended September, 30 1998, as adjusted to
reflect management's pro forma adjustments
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and additional adjustments that Ragen MacKenzie deemed appropriate, yielded an
aggregate range of values for the motel properties of $5.9 million to $7.3
million.
Market Test
Ragen MacKenzie also reviewed indications of interest received by Northwest
II and the affiliated partnerships during the attempt to sell Northwest II to an
unaffiliated third party ("Potential Acquirors"). Ragen MacKenzie analyzed a
pro-rata share of the proceeds to be received from such transaction by the
Unitholders. The pro-rata share was based on a percentage determined by
historical appraisals and a third-party valuation. Ragen MacKenzie did not
develop a separate pro-rata methodology for allocating the proceeds and relied
solely on the formula provided by Northwest II. The proceeds were then allocated
to the Unitholders in accordance with the partnership agreement. It should be
noted that these offers did not result in the consummation of a transaction and
should be viewed accordingly.
Based on the range of values received from the Potential Acquirors, Ragen
MacKenzie calculated an implied aggregate range of values of Northwest II's
properties of approximately $8.5 million to $9.7 million.
Appraisals
Ragen MacKenzie also reviewed the appraisals of Northwest II's properties
prepared by McKee. For this analysis Ragen MacKenzie relied without independent
verification, on the accuracy and completeness of all information in the
appraisals. Ragen MacKenzie did not conduct any independent appraisals. Based on
the McKee appraised values, the implied aggregate of value of the Northwest II
properties is $8.7 million.
The summary set forth above describes the material analyses made by Ragen
MacKenzie. The preparation of a fairness opinion involves various determinations
as to the most appropriate and relevant methods of financial analysis and the
application of these methods to the particular circumstances. Each of the
analyses was performed by Ragen MacKenzie to provide a different perspective on
the transaction and contribute to the total mix of information available to
Northwest II. Ragen MacKenzie did not form a conclusion as to whether any one of
the analyses, considered in isolation, supported or failed to support an opinion
as to the fairness from a financial point of view of the Merger Consideration.
Instead Ragen MacKenzie, in reaching its conclusion, considered the results of
the analyses taken as a whole. Ragen MacKenzie's conclusion involved significant
elements of judgement and qualitative analyses as well as a financial and
quantitative analyses. Ragen MacKenzie did not place particular emphasis or
weighting on any individual factor, but instead concluded that its analysis
taken as a whole supported its opinion. Accordingly, notwithstanding the
separate factors summarized above, Ragen MacKenzie believes that its analyses
must be considered as a whole and that selecting portions of its analysis and
the factors it considered without considering all analyses and factors, could
create an incomplete or misleading view of the evaluation process underlying its
opinion. Any estimates contained in these analyses are not necessarily
indicative of actual values or predictive of future results or values, which may
be significantly more or less favorable than as set forth therein. In addition,
analyses relating to the values of real estate properties are not appraisals and
may not reflect the prices at which such properties may actually be sold.
Accordingly, such analyses and estimates are inherently subject to substantial
uncertainty and Ragen MacKenzie does not assume responsibility for any future
variations from such analyses or estimates. The following paragraphs summarize
the significant quantitative and qualitative analyses performed by Ragen
MacKenzie in arriving at the fairness opinion. In performing these analyses,
Ragen MacKenzie noted that the partnership only represented ownership in
specific properties. This
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differentiates these properties from hotel operating companies that are managed
for growth. Consequently Ragen MacKenzie noted lower multiples of historic
earnings to individual properties. In performing its analyses, Ragen MacKenzie
made numerous assumptions with respect to industry performance, general
business, financial, economic, and market conditions and other matters, many of
which are beyond the control of Northwest II. Furthermore, events occurring
after the date of the Ragen MacKenzie fairness opinion may materially affect the
assumptions used in preparing the Ragen MacKenzie fairness opinion and
accordingly the Ragen MacKenzie fairness opinion is necessarily based upon
market, economic, and other conditions that exist and can be evaluated as of the
date of the opinion, and on information available to Ragen MacKenzie as of such
date. In addition, analyses relating to the value of the business or securities
do not purport to be appraisals, or to reflect the prices at which such
businesses or securities can actually be sold. Analyses based on future results
are not necessarily indicative of actual future results that may be
significantly more or less favorable that suggested by such analyses.
Pursuant to an engagement letter dated December 14, 1998, Ragen MacKenzie
will receive $125,000 for its services in rendering fairness opinions to
Northwest I, Northwest II, Anchorage and Lacey. Ragen MacKenzie will also be
reimbursed for certain of its expenses. Columbus has agreed to indemnify Ragen
MacKenzie, its affiliates and each of its directors, officers, employees,
agents, consultants and attorneys, and each person or form, if any, controlling
Ragen MacKenzie or any of the foregoing, against certain liabilities, including
liabilities under federal securities, law, that may arise out of Ragen
MacKenzie's engagement.
Ragen MacKenzie has, from time to time, provided securities brokerage
services to Whitcomb and affiliates, and may do so in the future, but the
compensation paid by Whitcomb and affiliates to Ragen MacKenzie is not material,
constituting less than 1% of Ragen MacKenzie's total 1998 commission revenue.
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THE MERGER AGREEMENT
The Merger Agreement is dated as of December 31, 1998, between Gerald L.
Whitcomb and PGI, the general partners of Northwest II, on behalf of Northwest
II, and Columbus. The material provisions of the Merger Agreement are summarized
below.
Pursuant to the Merger Agreement and the Articles of Merger attached
thereto, the Washington Uniform Limited Partnership Act and the Washington
Limited Liability Company Act, at the effective time, Northwest II will be
merged with and into Columbus, with Columbus continuing as the Surviving
Company.
CLOSING DATE; EFFECTIVE TIME OF THE MERGER
The Merger will become effective on the closing date when the Articles of
Merger are filed with the Secretary of State of the State of Washington. At the
earliest, this will take place on the first business day following the Meeting
and at the latest will take place on the last business day of the month in which
the Meeting occurs. The closing will take place at the administrative offices of
Northwest II located at 7515 Terminal Street S.W., Tumwater, Washington 98501,
unless otherwise agreed by the parties.
EFFECTS OF THE MERGER
At the effective time by virtue of the Merger, and without any further
action on the part of anyone, each Unitholder's Units outstanding immediately
prior to the effective time will be cancelled. Each Unit will be automatically
converted into a right to receive the Merger Consideration, without interest.
The Whitcombs' partnership interests (whether general or limited) will be
contributed to Columbus for additional interests therein.
PAYMENT
[ ] has been designated by Columbus as the payment agent responsible for
effecting the payment of the Merger Consideration in exchange for Units of
Unitholders. On or before the effective time, Columbus will deposit with the
payment agent the aggregate Merger Consideration necessary to effect exchange of
the Units pursuant to the Merger Agreement. Promptly after the effective time,
the payment agent will mail to each Unitholder as of January 6, 1999, a form of
transmittal letter, any other required forms, and instructions. Delivery will be
effected, and the risk of loss to Units will pass, only upon delivery of these
documents and receipt of the Merger Consideration for each Unit. Upon the
surrender of such transmittal documents and the payment by the payment agent of
the Merger Consideration in exchange for the Units, the Units owned by
Unitholders will then be immediately cancelled. Until surrendered and exchanged,
the Units owned by Unitholders represent only the right to receive the Merger
Consideration multiplied by the number of Units owned by such Unitholder. Upon
the surrender of Units, each Unitholder will receive the Merger Consideration,
without interest. If any cash is to be paid to a name other than the name in
which the Units are registered, it will be a condition to payment that the
Unitholder requesting payment will pay to the payment agent any transfer or
other taxes required by reason of payment to a person other than the registered
Unitholder. Notwithstanding the foregoing, neither the payment agent nor any
other party will be liable to any Unitholder for any Merger Consideration or
other payments made to a public official pursuant to applicable abandoned
property laws. Columbus and the payment agent will be entitled to deduct and
withhold from the Merger Consideration any taxes or other amounts required by
law, including Sections 3406 and 1445 of the Internal Revenue Code of 1986, as
amended. Pursuant to federal law, to the extent that amounts are withheld, these
amounts will be treated as
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having been paid to a Unitholder for purposes of the Merger Agreement. Six
months after the closing date, Columbus will be entitled to the return of all
unpaid amounts continuing to be held by the payment agent, whose duties will
then terminate. Thereafter, a Unitholder may only look to Columbus (subject to
applicable abandoned property, escheat and similar laws) as a general creditor
to receive the Merger Consideration in exchange for his or her Units. Beginning
at the effective time, there will be no further transfers of any Units on the
books of Northwest II. Each Unitholder that has converted Units will be deemed
to have withdrawn as a limited partner of Northwest II. Unitholders will then
have no further interest in Northwest II or Columbus, including any allocations
or distributions of income, property or otherwise, other than the right to
receive the Merger Consideration.
Following the effective time, Whitcomb, on behalf of Northwest II, will
deregister the Units and terminate Northwest II's reporting obligations under
Section 12 of the Exchange Act by filing a Form 15 with the SEC, in Washington,
D.C.
Unitholders will have dissenters' rights of appraisal in connection with
the Merger, as set forth in Article 14 of Chapter 25.10 of the Revised Code of
Washington. See "Dissenters' Rights of Appraisal" beginning on page 32 of this
proxy statement.
ACTIONS OF COLUMBUS NORTHWEST II AND WHITCOMB
Under the Merger Agreement, Columbus consents to the Merger, agrees in all
respects with the terms of the Merger Agreement and, subject to the terms and
conditions of the Merger Agreement, the consummation of the transactions
contemplated by the Merger Agreement. Pursuant to the Washington Limited
Partnership Act and Article VI of the limited partnership agreement, by
executing the Merger Agreement Whitcomb, as the general partner of Northwest II,
subject to the requisite approval of Unitholders at the Meeting, consents to and
approves the Merger Agreement and transactions contemplated thereby on behalf of
Northwest II.
REPRESENTATIONS AND WARRANTIES OF PARTIES
The Merger Agreement contains customary representations and warranties. In
addition, Columbus represents and warrants that it has obtained a commitment
letter from U.S. Bank, subject to customary conditions, that U.S. Bank will lend
Columbus sufficient funds to consummate the Merger and Northwest II represents
and warrants that it has received the fairness opinion from Ragen MacKenzie and
that it has not paid or agreed to pay any fee or commission to any broker,
finder or intermediary in connection with the Merger.
LEGAL CONDITIONS TO THE MERGER
Whitcomb (on behalf of Northwest II and Columbus) agrees to take all
reasonable steps necessary to promptly comply with all legal requirements with
respect to the Merger and to take all reasonable action necessary to promptly
furnish information to the other parties in connection with any such
requirements. Columbus will take all reasonable actions necessary (i) to obtain
any consent, authorization, order, approval, or exemption of any governmental or
administrative agencies or third parties; (ii) to lift, rescind or mitigate the
effect of any injunction or restraining order or other similar order adversely
affecting the Merger; (iii) to fulfill all conditions pursuant to the Merger
Agreement; and (iv) to prevent the entry of any temporary, preliminary or
permanent injunction or court order.
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EXPENSES
Columbus will bear all costs and expenses of each party in connection with
the Merger, including the real estate excise tax payable by the Unitholders with
respect to the transfer of their Units; such costs and expenses having been
taken into consideration by Columbus in determining the Merger Consideration.
CONDITIONS PRECEDENT
Completion of the Merger is subject to customary conditions precedent. It
will be a condition precedent that the loan commitment from U.S. Bank will
remain available to Columbus, such that Columbus may borrow sufficient funds on
or before the closing date in order to transfer the Merger Consideration to the
payment agent as provided in the Merger Agreement. The parties to the Merger
Agreement agree that in exercising its discretion to waive or require
fulfillment of conditions precedent, Columbus will not be required to consider
the interest of any person or entity that may be affected by the Merger, other
than Columbus. Columbus will have no obligation, fiduciary or otherwise, to the
limited partners of Northwest II in exercising such discretion.
The respective obligations of each party, generally, to effect the Merger
is subject to a number of customary conditions. It is a condition of each party
generally that the financial advisor will not have withdrawn or modified in any
material respect its opinion that the Merger Consideration is fair to the
Unitholders from a financial point of view.
TERMINATION
The Merger Agreement may be terminated by mutual consent of Columbus and
Northwest II. The Merger Agreement may also be terminated by Northwest II if
Columbus is in material breach of any term of the agreement. The Merger
Agreement may be terminated by Columbus if Northwest II is in material breach of
any term of the agreement. The Merger Agreement may be terminated by either
Columbus or Northwest II if the Merger has not been completed by March 31, 1999,
or a final order prohibiting the Merger has been entered by a court or
government agency. In the event of termination of the Merger Agreement, it will
become void and there will be no liability on the part of Columbus or Northwest
II for failure to complete the Merger or otherwise.
AMENDMENT
The Merger Agreement may be amended only in writing. No amendment may be
made without the approval of Unitholders holding at least 66% of the outstanding
Units, if the proposed amendment would either (a) change the type or reduce the
amount of the Merger Consideration, or (b) alter or change any other terms and
conditions of the Merger Agreement if any of such alterations or changes, alone
or in the aggregate, would materially adversely affect the Unitholders.
EXTENSION; WAIVER
At any time prior to the effective time of the Merger, whether before or
after this proxy statement is mailed, any party may (i) extend the time of the
performance of any of the obligations or other acts of any other party to the
Merger Agreement; (ii) waive any inaccuracies and representations and warranties
contained in the Merger Agreement; and (iii) waive compliance with any of the
agreements of the other parties or conditions to its own obligations contained
in this agreement. Any agreement with respect to extension or waiver must be in
writing. No consent or waiver of
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<PAGE> 37
compliance given by any of the parties to the Merger Agreement will operate as a
consent or waiver of compliance in respect to any subsequent default, breach, or
nonobservance.
NON-SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS
The respective representations and warranties of Northwest II and Columbus
will expire with, and will be terminated and extinguished upon, consummation of
the Merger. Thereafter, neither Northwest II nor Columbus, or any officer,
director or principal of such entities, will be under any liability whatsoever
with respect to any representation or warranty in the Merger Agreement.
29
<PAGE> 38
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the material federal income tax consequences
of the Merger. This discussion does not discuss all of the federal income tax
consequences that may be relevant to Unitholders that are subject to special
treatment under the federal income tax laws, including foreign persons,
tax-exempt entities, life insurance companies, or S corporations. The discussion
set forth below is based on the Internal Revenue Code of 1986, as amended
(hereinafter, the "Code"), Treasury Regulations, announcements promulgated
thereunder, published rulings and court decisions, all as in effect on the date
of this proxy statement and without giving effect to changes in the federal tax
laws, if any, enacted after the date of this proxy statement. Unitholders are
assumed to hold their Units as capital assets.
Gain or Loss Will Be Recognized
Unitholders will recognize gain or loss on the sale of Units in the Merger
to the extent of the difference between the amount realized and his or her
adjusted basis in the Units sold. The amount realized is the amount of cash
received plus the Unitholder's share of Northwest II's liabilities (determined
under Code Section 752 and the Treasury Regulations thereunder). The adjusted
tax basis of a Unitholder's Units is generally equal to the cost of the Units to
such Unitholder, decreased by the Unitholder's cumulative share of Northwest II
distributions and losses, and increased by the Unitholder's cumulative share of
Northwest II income and Northwest II liabilities, as determined under Code and
the Treasury Regulations thereunder. If a Unitholder's share of the Northwest
II's liabilities exceeds the adjusted tax basis of his or her Units, the
Unitholder's realized gain will include the excess.
The amount of cash received by Unitholders in exchange for their Units that
is attributable to unrealized receivables or inventory items ("Section 751
property") of Northwest II will be considered as an amount realized from the
sale or exchange of property other than a capital asset. The remainder of the
gain or loss realized by an Unitholder who has held the Units as capital assets
will be capital gains or loss, and will be long term capital gain or loss if the
Units have been held for more than one year.
Unitholders who have held their Units for more than one year may be
entitled to a lower long-term capital gains tax rate on that portion of their
gain, if any, that is not attributable to Section 751 property. Capital losses
generally are deductible only to the extent of capital gains plus, in the case
of non-corporate Unitholders, up to $3,000 of ordinary income. Capital losses
realized from the sale of Units may be utilized to offset capital gains from
other sources and may be carried forward, subject to applicable limitations.
Pursuant to Code Sections 708, 721, and 731(b), the Merger will not be a
taxable event to Northwest II.
Statement Required to Be Attached to Selling Unitholders' Federal Income
Tax Returns.
Selling Unitholders are required to submit with their income tax return for
the year in which the Units are sold a statement that sets forth, among possible
other things, the following information: (1) the date of the sale, the amount of
the selling Unitholder's adjusted basis in his or her Units, and the portion
thereof attributable to Code Section 751 property pursuant to Code Section 732;
and (2) the amount of any money and the fair market value of any other property
received or be received for the transferred Units in Northwest II, and the
portion thereof attributable to Section 751 property.
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<PAGE> 39
In general, the portion of the selling Unitholders' adjusted basis for his
Units to be allocated to Section 751 property is an amount equal to the basis
such property would have had under Code Section 732 if the selling Unitholder
had received his share of such properties in a current distribution made
immediately before the sale. The payment agent will provide selling Unitholders
with Northwest II's basis in Section 751 property. SELLING UNITHOLDERS ARE URGED
TO CONSULT THEIR OWN TAX ADVISORS FOR ASSISTANCE IN DETERMINING THE PORTION OF
THEIR ADJUSTED BASIS IN THEIR UNITS ATTRIBUTABLE TO SECTION 751 PROPERTY.
The Merger Agreement provides that the selling Unitholders' amount
realized is to be allocated between Northwest II's Section 751 property and
non-Section 751 property based on the relative fair market values of Northwest
II's Section 751 property and non-Section 751 property and that such relative
fair market values are agreed to be as determined by Columbus. The paying agent
will distribute this information to the selling Unitholders.
Foreign Investment in Real Property Tax Act Withholding
Units are considered United States real property interests for purposes of
Code Section 897, the Foreign Investment in Real Property Tax Act ("FIRPTA").
Consequently, pursuant to Code Section 1445, Columbus, as buyer of the Units,
must deduct and withhold a tax equal to 10% of the total consideration paid for
such Units unless it receives a nonforeign person affidavit. A suitable
nonforeign person affidavit will be included as part of the transaction
documents mailed to the Unitholders by the payment agent.
Washington State Real Estate Excise Tax
Washington State imposes an excise tax on sales of real property.
Acquisitions of controlling interests in partnerships are considered sales
subject to this real estate excise tax. This real estate excise tax is imposed
on the seller; in this case, the Unitholders. This real estate excise tax is
imposed at rates ranging from 1.28% to 2.78%. Columbus will act as the
Unitholders' agent in paying the real estate excise tax liability that arises as
a result of the Merger. In determining the Merger Consideration this liability
has been taken into account.
EACH UNITHOLDER IS URGED TO CONSULT HIS OR HER OWN TAX ADVISOR TO DETERMINE
THE SPECIFIC FEDERAL INCOME TAX CONSEQUENCES OF SELLING UNITS IN THE MERGER, AS
WELL AS THE EFFECTS OF STATE, LOCAL, FOREIGN, AND OTHER TAX LAWS.
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<PAGE> 40
DISSENTERS' RIGHTS OF APPRAISAL
You have dissenters' rights of appraisal under Article 14 of Chapter 25.10
of the Revised Code of Washington ("Article 14") with respect to your Units. The
following summary of the material dissenters' right procedures is qualified in
its entirety by reference to Article 14, a copy of which is attached as Annex
III to this proxy statement. Unitholders thinking about exercising their
dissenters' rights are urged to review the full text of Article 14. The
procedures set forth in such chapter must be followed exactly or dissenters'
rights may be lost.
A Unitholder who properly follows the procedures for dissenting and
demanding payment for his or her Units pursuant to Article 14 (as summarized
below) may be entitled to receive in cash the "fair value" of his or her Units
in lieu of the Merger Consideration provided in the Merger Agreement. The "fair
value" of a dissenter's Units will be the value of such Units immediately before
the effectuation of the Merger, excluding any appreciation or depreciation in
anticipation of the Merger, unless exclusion would be inequitable. The "fair
value" could be greater than, less than, or the same as the $1,343 per share
Unit Merger Consideration the Unitholder would have received if the Unitholder
had not dissented. In the event the dissenting Unitholder and the Surviving
Company cannot agree on the "fair value" of the dissenter's partnership
interest, a court in an appraisal proceeding may ultimately determine "fair
value."
To properly exercise dissenters' rights with respect to the Merger and to
be entitled to payment under Article 14, a Unitholder must (a) not challenge the
Merger unless the Merger fails to comply with the procedural requirements
imposed by Article 14, the partnership agreement, or is fraudulent with respect
to an investor or Northwest II; (b) not vote in favor of or approve the Merger;
and (c) demand payment by the date set in the dissenters' notice to be sent by
the Surviving Company (as described below). Thus, any Unitholder who wishes to
dissent must either vote "against" the merger or "abstain" from voting such
partnership interest. A vote "AGAINST" the Merger, without satisfying the
requirement of clause (c) above, is not a proper exercise of dissenters' rights.
The right of a dissenting Unit holder to obtain payment of the fair value
of the Unitholder's partnership interest shall terminate upon the occurrence of
any of the following events:
a. The Merger is abandoned or rescinded;
b. A court having jurisdiction permanently enjoins or sets aside the
Merger; or
c. The Unitholder's demand for payment is withdrawn with the written
consent of Northwest II.
Within 10 days after the approval of the Merger by the Unitholders, the
Surviving Company will deliver a written dissenters' rights notice to all
dissenting Unitholders who did not vote in favor of or the Merger. The
dissenters' rights notice will:
a. State where the payment demand must be sent;
b. Inform Unitholders as to the extent transfer of the Units will be
restricted as permitted by RCW 25.10.930 after the payment demand is
made;
c. Supply a form for demanding payment;
d. Set a date by which the Surviving Company must receive the payment
demand, which date may not be fewer than thirty (30) nor more than
sixty (60) days after the date the notice is delivered; and
e. Include a copy of Article 14.
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<PAGE> 41
A Unitholder who demands payment retains all other rights of a Unitholder
until the Merger becomes effective. A Unitholder sent a dissenters' notice who
does not demand payment by the date set in the dissenters' notice is not
entitled to payment for the Unitholder's Units under Article 14.
Northwest II may restrict the transfer of Units from the date the demand
for their payment is received until the Merger becomes effective or the
restriction is released under Article 14.
Within 30 days of the later of the date the Merger becomes effective, or
the payment demand is received, the Surviving Company will pay each dissenter
who properly demanded payment the amount that the Surviving Company estimates to
be the fair value of the Units, plus accrued interest. The payment will be
accompanied by, among other things,
a. Copies of Northwest II's financial statements for the most recent
fiscal year maintained as required by RCW 25.10.050;
b. An explanation of how the Surviving Company estimated the fair value
of the Units and how the accrued interest was calculated;
c. A statement of the dissenter's right to demand payment; and
d. A copy of Article 14.
If the Merger does not become effective within sixty days after the date
set for demanding payment, Northwest II shall release any transfer restrictions
imposed as permitted by RCW 25.10.930. If, after releasing transfer
restrictions, the Merger becomes effective, the Surviving Company must send a
new dissenters' notice as provided in RCW 25.10.910(2) and 25.10.920 and repeat
the payment demand procedure.
A dissenter may notify the Surviving Company in writing of the dissenter's
own estimate of the fair value of the dissenter's Units and the amount of
interest due and demand payment of the dissenter's estimate, less any payment
under RCW 25.10.935, if:
a. The dissenter believes that the amount paid is less than the fair
value of the dissenter's Units or that the interest due is incorrectly
calculated;
b. The Surviving Company fails to make payment within 60 days after the
date set for demanding payment; or
c. Northwest II, having failed to effectuate the Merger, does not release
the transfer restrictions imposed on Units as permitted by RCW
25.10.930 within sixty days after the date set for demanding payment.
A dissenter will be deemed to have waived the right to demand payment of
the dissenter's estimate of fair value unless the dissenter notifies the
Surviving Company of the dissenters' demand in writing within thirty (30) days
after the Surviving Company made payment for the dissenter's units.
If a demand for payment remains unsettled, the Surviving Company will
commence a proceeding in the Superior Court of Thurston County, Washington
within 60 days after receiving the payment demand and petition the court to
determine the fair value of the units and accrued interest. If the Surviving
Company does not commence such proceeding within the sixty-day period, it will
pay each dissenter whose demand remains unsettled the amount demanded by the
dissenter. The Surviving Company will make all dissenters whose demands remain
unsettled, whether or not residents of Washington State, parties to the
proceeding as in an action against their Units, and will serve all
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<PAGE> 42
parties with a copy of the petition. The Surviving Company will be able to serve
nonresidents by registered or certified mail or by publication as provided by
law. The Surviving Company may join as a party to the proceeding any Unitholder
who claims to be a dissenter but who has not, in the Surviving Company's
opinion, complied with the provisions of Article 14. If the court determines
that such Unitholder has not complied with the provisions of Article 14, the
court will dismiss the Unitholder as a party. The jurisdiction of the court in
which the proceeding is commenced will be plenary and exclusive. The court may
appoint one or more persons as appraisers to receive evidence and recommend
decisions on the question of fair value. The appraisers will have the powers
described in the order appointing them or in any amendment to it. Dissenters
will be entitled to the same discovery rights as parties in other civil
proceedings. Each dissenter made a party to the proceeding who is not dismissed
will be entitled to judgment for the amount, if any, by which the court finds
the fair value of the Units, plus interest, exceeds the amount paid by the
Surviving Company.
In a proceeding commenced to determine the fair value of Units, the court
shall determine all costs of the proceeding, including reasonable compensation
and expenses of appraisers appointed by the court. The court will assess the
costs against the Surviving Company, except that the court may assess the costs
against all or some of the dissenters, in amounts the court finds equitable, to
the extent the court finds the dissenters acted arbitrarily, vexatiously, or not
in good faith in demanding payment. The court may also assess the fees and
expenses of counsel and experts for the respective parties, in the amounts the
court finds equitable:
(1) Against the Surviving Company and in favor of any or all dissenters if
the court finds the Surviving Company did not substantially comply with the
requirements of Article 14; or
(2) Against either the Surviving Company or a dissenter, in favor of any
other party, if the court finds that the party against whom the fees and
expenses are assessed acted arbitrarily, vexatiously, or not in good faith with
respect to the rights provided by Article 14.
If the court finds that the services of counsel for any dissenter were of
substantial benefit to other dissenters similarly situated, and that the fees
for those services should not be assessed against the Surviving Company, the
court may award to these counsel reasonable fees to be paid out of amounts
awarded the dissenters who were benefited.
Failure to follow the steps required by Article 14 for perfecting
dissenters' rights may result in the loss of such rights.
IN VIEW OF THE COMPLEXITY OF THESE PROVISIONS OF WASHINGTON LAW, ANY
UNITHOLDER WHO IS CONSIDERING DISSENTING FROM THE MERGER SHOULD CONSULT A LEGAL
ADVISOR.
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<PAGE> 43
INFORMATION ABOUT THE SELLER - NORTHWEST II
BUSINESS
Northwest II is a Washington limited partnership formed to invest in and
operate three "economy" motels located in the states of Washington and Oregon.
Northwest II operates its motels as a franchise of Super 8 Motels, Inc., the
national franchiser of the "Super 8" trade name. Northwest II does not own any
interest in Super 8 Motels, Inc., or in PGI, the regional sub-franchiser and one
of the general partners of Northwest II. The other general partner is Whitcomb.
Northwest II was formed in March, 1982. Units of Northwest II were offered
and sold in an initial public offering by selected broker-dealers on a best
efforts basis in Washington, Oregon, Montana, Idaho, Alaska, Wisconsin,
Illinois, and Georgia. Sale of the Units began on May 8, 1982. Funds were
released from escrow on January 12, 1983, when gross sales of the Units reached
$950,000. The partnership agreement was amended in May 1983 to provide for a
gross offering of $6,602,000. At December 31, 1983, Northwest II had raised a
total of $2,710,000. On May 8, 1984, the offering was closed. In the period
January 1, 1984, through May 8, 1984, Northwest II raised $1,342,000 in
additional limited partnership subscriptions. The final result of the offering
was 4,052 Units sold yielding gross offering proceeds of $4,052,000. This was
$2,550,000 under the initially intended subscription amount.
To achieve Northwest II's objective of developing three Super 8 Motel
properties, long-term mortgage financing in the amount of $2,200,000 was
arranged through Sterling Savings and Association of Chehalis, Washington. This
debt is secured by the Portland property and assignment of the Yakima (Yakima)
land lease.
Northwest II operates in a single industry (motels) and within that
industry only in the economy motel category.
The motel properties were developed and are being operated as economy
motels in the locations described below. The economy motel concept provides for
a clean, comfortable average-size motel room that has all the basic amenities
required by the traveling public at a price lower than that of most surrounding
motel properties of equal quality.
The 77 room Bremerton, Washington property services the military-based city
of Bremerton, Washington.
The 80 room Portland, Oregon property's proximity to the Portland
International Airport allows it to provide free transportation to and from the
airport, courtesy telephone and long-term parking privileges. The property has
one mini-suite and a small conference room available.
The 95 room Yakima, Washington property features a year-round indoor
swimming pool, one mini-suite, a medium-sized conference room, guest laundry
facilities and special parking for commercial trucks.
Each of the properties historically experiences seasonal fluctuations in
the occupancy, the low point occurring in the winter months and peaking in the
late summer.
All guest rooms are equipped with direct-dial telephone, color television
and tub/shower combination, and are fully carpeted, sound proofed and insulated.
Guests are allowed to use major national credit cards and cash checks with our
proprietary VIP Club membership. Vending machines
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<PAGE> 44
are also available. Each property has interior hallways, a lobby with a
manager's office, an employee lounge, and in-house laundry. No restaurants are
located on any of the properties.
The motels provide full or part-time employment for approximately 54 people
(Bremerton 15, Portland 19, Yakima 20).
MOTEL PROPERTIES
In 1983, Northwest II leased the Bremerton 1.75 acre site located on State
Road 3 and Kitsap Way. The lease has a 37 year term. Adjacent to the site is a
24 hour family restaurant.
In 1983, Northwest II purchased the Portland site for a purchase price of
$720,000. This site is at the interchange of Interstate 205 and Airport Way,
approximately on mile east of the Portland International Airport. Significant
environmental contamination including ground water contamination, has been
discovered within the Airport Way Urban Renewal Area in Portland at the former
ICN site, a medical manufacturing firm. ICN, which is no longer in existence,
potentially discharged hazardous substances into wells which have contaminated
the ground water. POC has orally advised Northwest II that it believes it is
unlikely that Northwest II's property is contaminated.
In 1983, Northwest II leased the Yakima site located at the intersection of
I-82 and Rudkin Road just south of Yakima, Washington. The lease is for a term
of 30 years. At the time of the building of additional rooms in 1990, the
partnership entered into a second ground lease on adjacent property for a term
of [ ] years.
The Bremerton motel opened on October 23, 1983, the Portland motel on May
25, 1984 and the Yakima motel on September 14, 1984.
The motels are of frame construction with stucco exteriors and tile roofs
and have full fire alarm systems. In addition, the Portland motel is fully
equipped with a fire protection sprinkler system. Heating and cooling is by
individual room through wall heat pumps.
The Bremerton facility occupies approximately 29,740 square feet, the
Portland facility occupies approximately 31,900 square feet and the Yakima
facility occupies approximately 39,190 square feet.
A 33 room addition to the Yakima property opened for occupancy on January
15, 1991. Total cost of the addition (including furniture and fixtures) was
$875,000.
LEGAL PROCEEDINGS
Northwest II is not party to any material legal proceedings.
MARKET FOR THE REGISTRANT'S SECURITIES AND RELATED SECURITY HOLDER MATTERS
Units are owned of record by approximately 900 investors. There is no
established public trading market for the Units and no significant transactions
in Units have occurred since the original offering of Units. Because of this,
Northwest II is unable to determine a fair market value for the Units based on
market price.
Distributions of cash to the Unitholders totaled $405,200 in 1997, $616,281
in 1996, and $1,174,026 during 1995.
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SELECTED FINANCIAL DATA OF NORTHWEST II
For the years ended December 31, 1995, 1996, and 1997:
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Total Sales $3,277,174 $3,500,148 $3,132,920
Net Income (Loss) $ 705,904 $1,006,899 $ 692,709
Net Income per Unit $ 172.47 $ 211.22 $ 145.31
Total Assets** $4,391,793 $3,986,972 $3,641,686
Long-Term Debt $3,988,018 $3,181,870 $2,725,565
Cash Distribution Per Unit $ 289.74 $ 152.09 $ 100.00
</TABLE>
**Net of amortization and depreciation.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
At December 31, 1997, 1996, and 1995, Northwest II's current assets
exceeded its current liabilities by $161,512, $229,578, and $540,908
respectively resulting in the current ratios noted below. The variance in total
current assets is largely attributable to the relative cash position of
Northwest II at December 31. Cash balances have declined each year as accrued
property management fees have been paid.
The interest rate on Northwest II's long term debt is tied to a treasury
bill index plus 3.5%. The effective rate at December 31, 1997 was 9.00%, the
same as 1995 and lower than the 9.38% effective rate in 1996. The long term
interest rate on debt encumbering the Portland property is variable at 1% plus
the Lenders Prime Rate. The effective interest rate on this debt at December 31,
1997 is 9.06%, slightly lower than the 9.25% rate at December 31, 1996.
The interest rate on the long term loan funding the Yakima addition is
variable based on the treasury bill index plus 2.5% per annum, but was fixed
through December 31, 1997 at 10.25% per annum.
BALANCE SHEET DATA
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996, AND 1997:
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Current Assets..................................... $885,576 $641,740 $468,690
Current Liabilities................................ $344,668 $412,162 $307,178
Current Ratio...................................... 2.57:1 1.56:1 1.53:1
</TABLE>
At December 31, 1997, the Bremerton motel had completed its fourteenth full
year of operation.
Portland and Yakima completed their thirteenth full year of operations.
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<PAGE> 46
Comparative operational statistics follow:
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Bremerton
Occupancy..................................... 64% 84% 54%
Rented rooms.................................. 18,028 23,671 15,277
Gross room rate*.............................. $ 44.22 $ 42.00 $ 46.25
Portland
Occupancy..................................... 82% 86% 82%
Rented Rooms.................................. 23,649 25,055 24,282
Gross room rate*.............................. $ 55.66 $ 56.80 $ 59.34
Yakima
Occupancy..................................... 72% 64% 58%
Rented Rooms.................................. 24,860 22,115 20,264
Gross room rate*.............................. $ 46.81 $ 48.15 $ 48.41
Total
Occupancy..................................... 73% 77% 65%
Rented rooms.................................. 66,537 70,841 59,823
Gross room rate*.............................. $ 49.25 $ 49.41 $ 52.37
</TABLE>
*"Gross Room Rate" is defined as total room revenue divided by total rooms
sold.
Total 1997 room sales revenue decreased $367,228 to $3,132,920 from
$3,500,148 in 1996 and $3,277,174 in 1995. Total rented rooms mirrored the drop
in revenue and decreased from 70,841 in 1996 to 59,823 in 1997, a decrease of
11,018 rented rooms and 6,714 lower than 1995 levels. The majority of the
decrease is due to the lack of Navy contract business in Bremerton this year.
Total room revenues decreased by 10%, of which the lack of Navy contract in
Bremerton accounted for 80% of the decrease. Gross room rates increased 6% to
$52.37 per room in 1997 compared to $49.41 in 1996 and $49.25 in 1995.
Net income in 1997 decreased $314,190 to $692,709 down from a high of
$1,006,899 in 1996 but in line with 1995 net income of $705,904. The decrease is
consistent with the decrease in revenues.
Direct operating expenses in 1997 decreased $21,609 to $1,094,059 down from
$1,115,668 in 1996 and 6% lower than 1995 levels. The majority of the decrease
is due to decreased supplies and maintenance expenditures. Significant
renovations were completed at the Bremerton, Portland and Yakima motels which
resulted in increased supplies and maintenance expenses in 1998.
SELECTED QUARTERLY FINANCIAL DATA OF NORTHWEST II
For the quarters ended March 31, June 30, and September 30, 1998:
<TABLE>
<CAPTION>
MARCH 31, 1998 JUNE 30, 1998 SEPT. 30, 1998
-------------- ------------- --------------
<S> <C> <C> <C>
Total Sales $ 699,213 $ 874,112 $ 981,386
Net Income (Loss) $ (14,182) $ 257,001 $ 152,962
Net Income (Loss) per Unit $ (3.50) $ 63.43 $ 37.75
Total Assets** $3,490,002 $3,604,242 $3,445,392
Long-Term Debt $2,301,402 $2,390,168 $2,445,805
Cash Distribution Per Unit $ 25.00 $ 25.00 $ 37.50
</TABLE>
**Net of amortization and depreciation.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS FOR THE FIRST THREE QUARTERS OF 1998.
As in the past, Northwest II experienced lower occupancy levels in the
first three months of the year. In addition, the Bremerton motel underwent a
$90,000 renovation in the first quarter of 1998 resulting in increased supplies
and maintenance expenditures that flowed through to the bottom line.
Current ratios showed steady improvement throughout the year as current
assets exceeded current liabilities by $30,146, $140,284, and $161,512 in the
first, second, and third quarters of 1998 respectively. Accounts payable
decreased sharply from the first to third quarters as renovation expenses for
the Bremerton property were paid. In addition, accrued property management fees
totaling $350,000 in the first quarter have been paid in full at September 30,
1998.
The Bremerton property followed a strong second quarter with a strong month
of September helping to boost third quarter results. The Portland motel remains
steady while the Yakima motel retreated slightly in the third quarter.
QUARTERLY BALANCE SHEET DATA
For the quarters ended March 31, June 30, and September 30, 1998:
<TABLE>
<CAPTION>
MARCH 31, 1998 JUNE 30, 1998 SEPTEMBER 30, 1998
-------------- ------------- ------------------
<S> <C> <C> <C>
Current Assets $356,996 $511,226 $390,470
Current Liabilities $326,850 $370,942 $365,549
Current Ratio 1.09:1 1.38:1 1.07:1
</TABLE>
Total sales for the third quarter of 1998 were $981,386, an increase of
$107,274 from second quarter 1998 and $282,173 higher than the first three
months of the year.
As in the past, occupancy figures and, in turn, revenue figures are
significantly lower in the first quarter of the year.
Average occupancy figures posted strong gains in the third quarter helping
to boost total room revenues.
Renovations at the Bremerton and Yakima motels in the first and third
quarters resulted in unusually high supplies and maintenance expenses in those
periods.
Indirect operating expenses remain relatively flat with increases in
advertising, property and business tax expense accounting for much of the
$22,692 increase from the first to third quarter of 1998.
Property management and franchise fee expenses parallel room revenue in
their steady increase from the first through third quarters.
Nationwide the Super 8 motel chain continues to grow, increasing the name
familiarity of the chain.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, NUMBER OF SUPER 8 MOTELS INCREASE
------------------ ------------------------ --------
<S> <C> <C>
1997 1,614 122
1996 1,492 92
1995 1,400 180
</TABLE>
39
<PAGE> 48
<TABLE>
<CAPTION>
AS OF DECEMBER 31, NUMBER OF SUPER 8 MOTELS INCREASE
------------------ ------------------------ --------
<S> <C> <C>
1994 1,220 159
1993 1,060 119
1992 941 78
</TABLE>
The Super 8 "Superline" national reservation system and "VIP Club"
(approximately 5,000,000 members) continue to be improved.
Distributions paid to limited partners in 1995 aggregated $1,174,026, which
equaled the per-Unit amount necessary to pay to the limited partners a 10%
cumulative return on their investment from the final closing of the offering of
Units on May 5, 1984. Subsequently, on January 31, 1996, limited partners were
paid amounts, which varied by partner, necessary to pay that partner a 10%
return on their investment from the date of their investment (or, if later, the
initial breaking of the escrow established in connection with the offering on
January 12, 1983) until the closing of the offering on May 5, 1984.
Prior to 1985, Northwest II had been accruing the property management fees
of each motel. Even though the obligation to pay those fees existed, the terms
of the limited partnership agreement of Northwest II did not allow them to be
paid until such time as the limited partners had received a cumulative annual
10% return on their adjusted capital investment. In previous filings with the
SEC, and in Northwest II's prior years of financial statements, Northwest II's
accounting policy regarding these fees was to expense them when paid (instead of
when earned) and to not accrue unpaid property management fees as a liability on
the face of the balance sheet.
In 1994, Northwest II changed its accounting policy for property management
fees to reflect, on Northwest II's income statement, the expense when the
obligation to pay the fee was incurred and to accrue the corresponding liability
on the face of Northwest II's balance sheet. Thus, the financial information
contained in this report conforms with that reporting position. Previously
incurred but unpaid management fees totaled approximately $1,367,000 on December
31, 1995. Subsequent to that date, Northwest II has paid all unpaid management
fees to date.
YEAR 2000 COMPLIANCE ISSUE
Currently, equipment and software handle motel reservations and credit card
approvals provided respectively by Super 8 Motels, Inc. and the individual
banking institutions with which the properties do business. Currently, property
accounting (with the exception of call accounting) is completed manually.
Pursuant to the POWER-UP program being designed, instituted and paid for by
Super 8 Motels, Inc., all motels will be provided a PC-based Property Management
System which integrates all reservations, credit card approvals, call
accounting, security and motel accounting into a single system.
This fully integrated system is to be in place at every motel within the
Super 8 System by the third quarter of 1999. The equipment and software is new
and has been designed and developed by the Franchisor, and the franchisee will
be required to utilize it. Northwest II has been assured by Super 8 Motels, Inc.
that the total system will be year 2000 compliant. The total cost of this
conversion, which may be borne by the motels owned by Northwest II, should not
exceed $5,000 per motel.
Internally, the general partner of Super 8 Motels Northwest II and
Peninsula Management have undertaken the task of totally replacing the current
corporate accounting system to ensure that it will fully integrate with the new
Property Management System being installed by Super 8 Motels, Inc. It
40
<PAGE> 49
is anticipated that this conversion will be completed by the year end 1999. Part
of the hardware and software will be provided by the POWER-UP initiative at no
cost to the company. For those systems purchased by the general partner or
affiliates, all software, hardware and systems vendors will be required to
certify that their products are year 2000 compliant. The cost attributed to each
motel in Northwest II for this conversion should not exceed $5,000 per motel.
DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The general partners of Northwest II are PGI and Gerald Whitcomb.
Gerald Whitcomb, age 55, was educated at the University of Nebraska with
majors in economics and business finance. Whitcomb earned his J.D. from the
University of Nebraska in 1969, following which he practiced law until 1979.
Since 1979, he has been involved in the management of PGI and its affiliates.
Whitcomb is the principal organizer and stockholder of PGI and its
subsidiaries. Whitcomb is the general partner of Northwest I. He is also a
partner in Super 8 Motel Developers, which is general partner of Lacey,
Northwest II, Juneau, Anchorage and Peninsula. Mr. Whitcomb is the managing
partner of Tongass and Peninsula.
PGI is a privately owned Washington corporation. It owns franchise rights
for Super 8 Motels in Washington, Oregon and selected sites in Alaska.
The officers and directors of PGI are as follows:
<TABLE>
<CAPTION>
NAME AGE OFFICE TERM OF
OFFICE
<S> <C> <C> <C>
Gerald L. Whitcomb 54 Director, Treasurer and President One year
Maryanne Whitcomb 50 Chairman, Secretary, and Executive Vice One year
President
Lawrence Knudsen 56 Director and Executive Vice President One year
H. Samual Polack 56 Executive Vice President One year
Cortnae del Valle 26 Director One year
Kelly M. Huarte 23 Director One year
</TABLE>
EXECUTIVE COMPENSATION
The general partner received no salary or bonus compensation from the
Northwest II during the fiscal year ended December 31, 1997. See "Certain
Relationships and Related Transactions," below.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
<TABLE>
<CAPTION>
TITLE NAME PERCENT
----- ---- -------
<S> <C> <C>
General partners Gerald L. Whitcomb .1
PGI .9
Limited partners 900 various 99.0
-----
100.0
</TABLE>
41
<PAGE> 50
Gerald Whitcomb and Maryanne Whitcomb are the beneficial owners of all of
the stock of PGI and also own four Units individually and four Units in trust
for their children, in addition to Whitcomb's general partner interest. Kelly
Huarte owns two Units.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Transactions between Northwest II and the general partners, PGI and
Whitcomb, and between affiliates of the general partners are as follows:
<TABLE>
<CAPTION>
TRANSACTION 1995 1996 1997
----------- ---- ---- ----
<S> <C> <C> <C>
Purchases of supplies and equipment $266,673 $148,935 $182,941
Administrative service fees $182,235 $191,324 $205,999
Property management fees $168,112 $179,999 $162,328
</TABLE>
Northwest II has a management agreement with Peninsula Management to employ
it for a period of 20 years as manager of the motels owned by Northwest II. The
agreement provides for payment of a property management fee to the affiliate
equal to 5% of Northwest II's gross revenues from motel operations in addition
to reimbursement of certain out-of-pocket cost incurred by the affiliate in
connection with management of the property. The 5% base fees are recorded as
property management fees. The reimbursements of out-of-pocket costs are recorded
as administrative service fees.
Payment of property management fees is subordinated to receipt by
Unitholders of a cumulative, pre-tax return on their adjusted capital investment
of 10% per annum. This 10% was achieved during 1996. Accordingly, current year
management fees of $162,328 and prior years' management fees totaling $349,048
were paid in 1997. The balance of unpaid management fees of $350,000 were paid
in 1998.
Management believes that these transactions were made on terms at least
as favorable as could have been obtained from unaffiliated third parties.
42
<PAGE> 51
INDEX TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
REPORT OF INDEPENDENT ACCOUNTANTS....................................................................F-2
FINANCIAL STATEMENTS
Balance Sheets as of December 31, 1996, 1997 and September 30, 1998 (unaudited)..................F-3
Statements of Income for the years ended December 31, 1995, 1996 and 1997
and for the nine months ended September 30, 1997 and 1998 (unaudited).......................F-5
Statements of Changes in Partners' Equity for the years ended December 31, 1996
and 1997 and for the nine months ended September 30, 1998 (unaudited).......................F-6
Statements of Cash Flows for the years ended December 31, 1995, 1996 and 1997
and for the nine months ended September 30, 1997 and 1998 (unaudited).......................F-7
Notes to Financial Statements....................................................................F-8
</TABLE>
F-1
<PAGE> 52
REPORT OF INDEPENDENT ACCOUNTANTS
To the General and Limited Partners
Super 8 Motels Northwest II
We have audited the accompanying balance sheets of Super 8 Motels Northwest II
as of December 31, 1997 and 1996, and the related statements of income, changes
in partners' equity, and cash flows for the three years ended December 31, 1997,
1996 and 1995. These financial statements are the responsibility of Northwest
II's management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Super 8 Motels Northwest II as
of December 31, 1997 and 1996, and the results of its operations and its cash
flows for the three years ended December 31, 1997, 1996 and 1995, in conformity
with generally accepted accounting principles.
MOSS ADAMS LLP
Tacoma, Washington
February 2, 1998
F-2
<PAGE> 53
SUPER 8 MOTELS NORTHWEST II
BALANCE SHEET
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30, 1998
--------------------------------- ------------------
1996 1997 UNAUDITED
----------- ----------- -----------
<S> <C> <C> <C>
CURRENT ASSETS
Cash ............................... $ 551,202 $ 387,878 $ 297,498
Accounts receivable, trade ......... 17,457 15,042 22,417
Accounts receivable, affiliates .... 3,149 - -
Inventory .......................... 58,319 58,858 58,860
Prepaid expenses ................... 11,613 6,912 11,695
----------- ----------- -----------
Total current assets ........... 641,740 468,690 390,470
----------- ----------- -----------
PROPERTY AND EQUIPMENT, at cost
Land ............................... 714,301 714,301 714,301
Buildings .......................... 4,097,107 4,097,107 4,097,106
Equipment, furniture and fixtures... 1,241,326 1,242,261 1,244,306
----------- ----------- -----------
6,052,734 6,053,669 6,055,713
Less accumulated depreciation ...... (2,738,663) (2,906,997) (3,023,487)
----------- ----------- -----------
Total property and equipment.... 3,314,071 3,146,672 3,032,226
----------- ----------- -----------
OTHER ASSETS
Loan fees .......................... 26,375 26,375 26,375
Franchise fees ..................... 45,000 45,000 45,000
Lease option costs ................. 6,000 6,000 6,000
----------- ----------- -----------
77,375 77,375 77,375
Less accumulated amortization ... (46,214) (51,051) (54,679)
----------- ----------- -----------
Total other assets .......... 31,161 26,324 22,696
----------- ----------- -----------
$ 3,986,972 $ 3,641,686 $ 3,445,392
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 54
SUPER 8 MOTELS NORTHWEST II
BALANCE SHEET
LIABILITIES AND PARTNERS' EQUITY
<TABLE>
<CAPTION>
NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30, 1998
------------------------------ ------------------
1996 1997 (UNAUDITED)
---------- ---------- ----------
<S> <C> <C> <C>
CURRENT LIABILITIES
Accounts payable, trade ................. $ 47,021 $ 17,862 $ 26,298
Accounts payable, affiliates ............ 83,663 53,939 37,436
Accrued expenses ........................ 126,478 108,377 121,672
Current portion of long-term debt ....... 155,000 127,000 180,143
---------- ---------- ----------
Total current liabilities ........... 412,162 307,178 365,549
---------- ---------- ----------
NONCURRENT LIABILITIES
Long-term debt, net of current portion
shown above ........................... 2,345,801 2,223,015 2,265,662
Accrued rent under lease agreements ..... 137,201 152,550 166,985
---------- ---------- ----------
2,482,822 2,375,565 2,432,647
---------- ---------- ----------
ACCRUED PROPERTY MANAGEMENT FEES ............. 699,048 350,000 166,985
---------- ---------- ----------
COMMITMENTS (Notes 7 and 9)
PARTNERS' EQUITY
General partner's equity (deficiency).... 63,632 96,031 101,770
Limited partners' equity (authorized,
issued and outstanding
4,052 Units) ........................ 329,308 512,912 545,426
---------- ---------- ----------
392,940 608,943 647,196
---------- ---------- ----------
$3,986,972 $3,641,686 $3,445,392
========== ========== ==========
Book value per Unit .......................... $ 96.97 150.28 $ 159.72
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 55
SUPER 8 MOTELS NORTHWEST II
STATEMENT OF INCOME
<TABLE>
<CAPTION>
NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
--------------------------------------- -------------------------
1995 1996 1997 1997 1998
---------- ---------- ---------- ---------- ----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
SALES
Rooms ............................. $3,277,174 $3,500,148 $3,132,920 $2,487,308 $2,474,512
Other ............................. 85,069 99,682 113,201 85,346 80,199
---------- ---------- ---------- ---------- ----------
3,362,243 3,599,830 3,246,121 2,572,654 2,554,711
---------- ---------- ---------- ---------- ----------
DIRECT OPERATING EXPENSES
Payroll and related expenses ...... 654,913 660,323 659,424 508,128 518,682
Supplies and maintenance .......... 292,889 224,116 212,780 177,101 418,178
Utilities ......................... 187,831 195,160 191,653 146,296 146,386
Other ............................. 33,800 36,069 30,202 22,386 25,919
---------- ---------- ---------- ---------- ----------
1,169,433 1,115,668 1,094,059 853,911 1,109,165
---------- ---------- ---------- ---------- ----------
INDIRECT OPERATING EXPENSES
Taxes (principally property taxes)
and fees .......................... 144,931 147,424 148,799 66,750 64,679
Advertising and promotion ......... 126,888 82,104 83,566 35,622 37,853
Bank and credit card charges ...... 47,000 44,493 45,411 27,295 28,376
Insurance ......................... 38,604 37,721 36,541 112,073 99,079
Other ............................. 22,660 14,731 12,584 9,710 6,919
---------- ---------- ---------- ---------- ----------
380,083 326,473 326,901 251,450 236,906
---------- ---------- ---------- ---------- ----------
ADMINISTRATIVE AND GENERAL EXPENSES
Administrative service fees ....... 182,235 191,324 205,999 155,665 131,078
Property management fees .......... 168,112 179,999 162,328 99,492 98,980
Franchise fees .................... 131,938 139,654 125,294 128,633 127,736
Professional services ............. 36,257 42,279 37,949 24,525 23,520
Other ............................. 25,260 26,682 36,561 24,092 23,375
---------- ---------- ---------- ---------- ----------
543,802 579,938 568,131 432,407 404,689
---------- ---------- ---------- ---------- ----------
FIXED CHARGES
Interest expense .................. 246,505 244,594 238,831 3,628 3,628
Depreciation ...................... 174,683 170,833 168,334 127,896 116,490
Current Lease ..................... 137,591 143,153 146,580 172,682 167,906
Deferred Lease .................... 18,251 15,983 15,529 109,725 111,091
Amortization ...................... 4,838 4,838 4,838 11,647 14,435
---------- ---------- ---------- ---------- ----------
581,868 579,401 574,112 425,578 413,550
---------- ---------- ---------- ---------- ----------
INCOME FROM OPERATIONS .................. 687,057 998,350 682,918 609,308 390,401
OTHER INCOME ............................ 18,847 8,549 9,791 7,034 5,380
---------- ---------- ---------- ---------- ----------
NET INCOME .............................. $ 705,904 $1,006,899 $ 692,709 $ 616,342 $ 395,781
========== ========== ========== ========== ==========
NET INCOME PER LIMITED
PARTNERSHIP UNIT .................. $ 172.47 $ 211.22 $ 145.31 $ 129.29 $ 83.02
========== ========== ========== ========== ==========
EARNINGS TO FIXED CHARGES ............... $ 1.21:1 $ 1.74:1 $ 1.21:1 $ 1.45:1 $ .96:1
========== ========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 56
SUPER 8 MOTELS NORTHWEST II
STATEMENTS OF CHANGES IN PARTNERS' EQUITY
YEAR ENDED DECEMBER 31, 1996 AND 1997
AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
General Limited
Partner Partner Total
----------- ---------- -----------
<S> <C> <C> <C>
BALANCE, December 31, 1995 .............. $(30,618) $ 89,725 $ 59,107
Distributions paid ................ (56,785) (616,281) (673,066)
Net income ........................ 151,035 855,864 1,006,899
-------- --------- ----------
BALANCE, December 31, 1996 .............. 63,632 329,308 392,940
Distributions paid ................ (71,506) (405,200) (476,706)
Net income ........................ 103,905 588,804 692,709
-------- --------- ----------
BALANCE, December 31, 1997 .............. 96,031 512,912 608,943
Distributions Paid ................ (53,628) (303,900) (357,528)
Net Income ........................ 59,367 336,414 395,781
-------- --------- ----------
Balance, September 30, 1998 (Unaudited).. $101,770 $ 545,426 $ 647,196
======== ========= ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 57
SUPER 8 MOTELS NORTHWEST II
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------------------- --------------------------
1995 1996 1997 1997 1998
----------- ----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Revenues and other income received in cash ..... $ 3,349,353 $ 3,666,580 $ 3,261,475 $ 2,583,010 $ 2,552,716
Operating expenses paid in cash ................ (2,039,115) (2,770,299) (2,553,719) (2,006,169) (2,210,422)
Interest paid .................................. (244,550) (244,360) (242,652) (172,582) (168,892)
----------- ----------- ----------- ----------- -----------
Net cash provided by operating activities . 1,065,688 651,921 465,104 404,159 173,402
----------- ----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment ............ -- (23,550) (936) (934) (2,044)
Proceeds from sale of asset .................... -- 3,000 -- -- --
----------- ----------- ----------- ----------- -----------
Net cash used in investing activities ..... -- (20,550) (936) (934) (2,044)
----------- ----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from loan ............................. 129,580 -- -- -- --
Principal payments on long-term debt ........... (95,912) (141,019) (150,786) (106,847) (95,790)
Payment of loan fees ........................... (2,500) -- -- -- --
Distributions to:
Limited partners .......................... (1,174,026) (616,281) (405,200) (303,900) (303,900)
General partner ........................... (11,858) (56,785) (71,506) (53,628) (53,628)
----------- ----------- ----------- ----------- -----------
Net cash used in financing activities ..... (1,154,716) (814,085) (627,492) (464,735) (261,738)
----------- ----------- ----------- ----------- -----------
NET DECREASE IN CASH AND
CASH EQUIVALENTS ..................................... (89,028) (182,714) (163,324) (61,150) (90,380)
CASH AND CASH EQUIVALENTS,
beginning of year .............................. 822,944 733,916 551,202 551,202 387,878
----------- ----------- ----------- ----------- -----------
CASH AND CASH EQUIVALENTS, end of year ............... $ 733,916 $ 551,202 $ 387,878 $ 490,052 $ 297,498
=========== =========== =========== =========== ===========
RECONCILIATION OF NET INCOME TO
NET CASH PROVIDED BY OPERATING
ACTIVITIES
Net income ..................................... $ 705,904 $ 1,006,899 $ 692,709 $ 616,342 $ 395,781
----------- ----------- ----------- ----------- -----------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization .................. 179,521 175,671 173,172 131,524 120,118
Lease expense-deferred ......................... 18,251 15,983 15,529 5,771 14,435
Loss on sale of asset .......................... -- 5,864 -- -- --
Change in assets and liabilities
Accounts receivable ....................... (31,737) 58,201 5,564 3,332 (7,375)
Inventory ................................. 13,049 (466) (539) -- (2)
Prepaid expenses .......................... 18,583 3,387 4,701 (6,878) (4,783)
Accounts payable .......................... (15,454) 43,892 (58,883) 18,423 (8,067)
Accrued expenses .......................... 9,459 10,602 (18,101) (15,297) 13,295
Accrued management fees ................... 168,112 (668,112) (349,048) (349,048) (350,000)
----------- ----------- ----------- ----------- -----------
359,784 (354,978) (227,605) (212,183) (222,379)
----------- ----------- ----------- ----------- -----------
NET CASH PROVIDED BY OPERATING
ACTIVITIES ..................................... $ 1,065,688 $ 651,921 $ 465,104 $ 404,159 $ 173,402
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-7
<PAGE> 58
SUPER 8 MOTELS NORTHWEST II
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - PARTNERSHIP OPERATIONS
Super 8 Motels Northwest II is a Washington limited partnership. Northwest II
owns and operates three motels: one in Bremerton, Washington; one in Portland,
Oregon; and one in Yakima, Washington.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH EQUIVALENTS - Cash equivalents are investments with maturity at date of
purchase of three months or less.
INVENTORY - Inventory consists of various operating supplies which have been
valued at cost.
PROPERTY AND EQUIPMENT - Property and equipment are stated at cost and are
depreciated using straight-line and accelerated methods over estimated useful
lives as follows:
<TABLE>
<CAPTION>
Years
-----
<S> <C>
Land improvements 28
Buildings 7, 15, and 30
Equipment, furniture and fixtures 5 and 7
</TABLE>
Expenditures for maintenance and repairs and minor renewals and betterments are
charged to expense when incurred. Renewals and betterments which extend the
lives of the assets involved, if material in amount, are capitalized.
LOAN FEES - Loan fees incurred in connection with financing for the Yakima
property are amortized over the term of the loan of 10 years.
FRANCHISE FEES AND LEASE OPTION COSTS- Initial franchise fees and lease option
costs are stated at cost; amortization of these amounts is being provided using
the straight-line method over 20 and 30 years, respectively.
ACCRUED VACATION - It is Northwest II's policy to expense vacation pay as paid
rather than as earned as required by generally accepted accounting principles.
The effect upon the financial statements is not significant.
INCOME TAXES - No provision has been made in the accompanying financial
statements for federal or state income taxes as taxable income or loss of
Northwest II is allocated to and included in the taxable income of the partners.
See Note 5 for additional discussion.
INCOME PER LIMITED PARTNERSHIP UNIT - Net income per limited partnership unit
Unit is computed by dividing the limited partners' share of net income by the
limited partners' Units outstanding for each year.
F-8
<PAGE> 59
SUPER 8 MOTELS NORTHWEST II
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CONCENTRATION OF CREDIT RISK - Northwest II has bank deposits in excess of
federal deposit insurance limits. Northwest II's management does not anticipate
any adverse effect on its financial position resulting from the credit risk.
USE OF ESTIMATES - The preparation of the financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
UNAUDITED INTERIM FINANCIAL INFORMATION - The unaudited financial statements at
September 30, 1998 and for the nine months ended September 30, 1997 and 1998
have been prepared on the same basis as the audited financial statements
included herein. In the opinion of management, such unaudited financial
statements include all adjustments (consisting of only normal recurring
adjustments) necessary to present fairly the information set forth therein. The
results for the nine months ended September 30, 1997 and 1998 are not
necessarily indicative of results to be expected for the full year or for any
other interim period.
NOTE 3 - DISTRIBUTIONS AND ALLOCATIONS OF PROFITS AND LOSSES
DISTRIBUTIONS - Under The partnership agreement, on a quarterly basis, the
general partner determines the amount, if any, of cash available for
distribution and distributes cash as follows:
o 1% to the general partner and 99% to the limited partners until the limited
partners have received a cumulative pretax return on their adjusted capital
investment equal to 10% per year through the end of Northwest II year for
which the distribution is being made, then:
o Any remaining cash will be distributed 15% to the general partner and 85%
to the limited partners.
Distributions paid to the partners in 1995 aggregated $1,174,026, which equaled
a per-Unit amount necessary to pay to the limited partners a 10% cumulative
return on their investment from the final closing of the offering of Units on
May 5, 1984. Subsequently the limited partners were paid amounts, which varied
by partner, necessary to pay that partner a 10% return on their investment from
the date of their investment (or, if later, the initial breaking of the escrow
established in connection with the offering on January 12, 1983) until the
closing of the offering on May 5, 1984.
PROFIT AND LOSSES - Profits and losses are allocated 1% to the general partner
and 99% to the limited partners until the limited partners have received a
cumulative pretax return of 10% per year on their adjusted capital investment;
and thereafter, 15% to the general partner and 85% to limited partners.
F-9
<PAGE> 60
SUPER 8 MOTELS NORTHWEST II
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
NOTE 4 - LONG-TERM DEBT
Long-term debt at December 31, 1996 and 1997 consists of the
following:
<TABLE>
<CAPTION>
1996 1997
---------- ----------
<S> <C> <C>
o Note payable to bank, collateralized by assignment of land lease
and other property; interest rate is variable and is adjusted
annually based on a treasury bill index plus 3.5%; payable in
variable monthly installments which is currently $18,826 including
interest; due August 2009. The interest rate at December 31, 1997
is 9%.
$1,708,349 $1,634,802
o Note payable to bank, collateralized by assignment of land lease
and other property; interest rate is variable and is adjusted
annually based upon a treasury bill index plus 2.5%; payable in
monthly installments of $8,308, including interest; due February
2001. The interest rate at December 31, 1997 is 10.25%.
725,377 700,248
o Line of credit, collateralized by real property; interest rate is
variable at 1% plus lender's prime rate, currently payable in
monthly installments of $4,167 plus interest, due January 2000. The
interest rate at December 31, 1997 is 9.06%.
67,075 14,965
---------- ----------
2,500,801 2,350,015
Less current portion 155,000 127,000
---------- ----------
$2,345,801 $2,223,015
========== ==========
</TABLE>
F-10
<PAGE> 61
SUPER 8 MOTELS NORTHWEST II
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
NOTE 4 - LONG-TERM DEBT (CONTINUED)
Based on the December 31, 1997 interest rates, principal payments required on
these notes during each of the next five years and thereafter are as follows:
<TABLE>
<CAPTION>
<S> <C>
1998 $ 127,000
1999 123,000
2000 134,000
2001 153,000
2002 162,000
Thereafter 1,651,015
------------
$ 2,350,015
============
</TABLE>
NOTE 5 - INCOME TAXES
The cost of certain assets and the amount of certain expenses reported for
federal income tax purposes are different from the amounts reported under
generally accepted accounting principles in the accompanying financial
statements. The differences arise primarily from:
o Depreciating the buildings for financial reporting purposes using the
straight-line method over a 30 year life, and for federal income tax
purposes using the straight-line method over 15, 18, or 31.5 year life.
o Depreciating furniture and equipment for financial reporting purposes using
accelerated and straight-line methods over a 5 or 7 year life, and for
federal income tax purposes using the accelerated cost recovery method or
the modified accelerated cost recovery method over a 5 or 7 year life.
o Amortizing capitalized interest for federal income tax purposes using a
10 year life and for financial reporting purposes amortizing it over the
life of the building.
o Deducting sales tax incurred prior to 1987 on property and equipment
acquisitions as an expense for federal income tax purposes and capitalizing
it for financial reporting purposes.
F-11
<PAGE> 62
SUPER 8 MOTELS NORTHWEST II
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
NOTE 5 - INCOME TAXES (CONTINUED)
The following is a reconciliation of net income for financial reporting purposes
to net income for federal income tax reporting purposes:
<TABLE>
<CAPTION>
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
Net income as shown in the statement of income
$ 705,904 $ 1,006,899 $ 692,709
Additional depreciation and amortization for income tax
purposes (41,488) (38,785) (40,965)
Accrued (paid) property management fees 168,112 (668,112) (349,048)
Lease expense- deferred 18,251 15,983 15,529
Other 7,569 6,652 4,148
----------- ----------- -----------
Net income for federal income tax reporting purposes $ 858,348 $ 322,637 $ 322,373
=========== =========== ===========
</TABLE>
NOTE 6 - RELATED PARTY TRANSACTIONS
Transactions between Northwest II and the general partners, The Peninsula Group,
Inc. (formerly named Super 8 Motels Northwest, Inc.) and Gerald L. Whitcomb, and
between affiliates of the general partners are as follows:
<TABLE>
<CAPTION>
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Purchases of supplies and equipment $266,673 $148,935 $182,941
Administrative service fees $182,235 $191,324 $205,999
Property management fees $168,112 $179,999 $162,328
</TABLE>
Northwest II has a management agreement with an affiliate of the general
partners to employ the affiliate for a period of 20 years as manager of the
motels owned by Northwest II. The agreement provides for payment of a property
management fee to the affiliate equal to 5% of Northwest II's gross revenues
from motel operations in addition to reimbursement of certain out-of-pocket cost
incurred by the affiliate in connection with management of the property. The 5%
base fees are recorded as property management fees. The reimbursements of
out-of-pocket costs are recorded as administrative service fees.
Payment of property management fees is subordinated to receipt by the limited
partners of a cumulative, pretax return on their adjusted capital investment of
10% per annum. This 10% was achieved during 1996. Accordingly, current year
management fees of $162,328 and prior years' management fees totaling $349,048
were paid in 1997. The balance of unpaid management fees of $350,000 will be
paid only as sufficient operational cash flow is experienced.
NOTE 7 - COMMITMENTS
FRANCHISE AGREEMENTS - Northwest II has purchased franchise rights to provide
motel services to the general public using a system commonly known as Super 8
Motels. An initial franchise fee of $15,000 was paid for each motel and
Northwest II is committed to pay additional fees equal to 4% of gross room
revenue for the 20 year term of the respective agreements. In addition, 1% of
F-12
<PAGE> 63
SUPER 8 MOTELS NORTHWEST II
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
gross room revenue is remitted to Super 8 Motels for advertising and
participation in the national reservation system. This amount is included in
advertising and promotion.
LEASE COMMITMENTS - Northwest II leases the land upon which the Bremerton and
Yakima motels are located under three operating leases with initial lease terms
of 36, 30, and 24 years.
The Bremerton and one of the Yakima land leases provide for adjustment of the
minimum rent ranging from one to three years by a factor based on changes in the
consumer price index.
The remaining Yakima land lease provides for adjustment of the minimum rent
annually by a factor of 5%. This lease requires fixed minimum payment
escalations over the lease term. Generally accepted accounting principles
require Northwest II to recognize lease expense on a straight-line basis over
the term of each lease. As a result, lease expense is presently greater than
cash lease payments. Cash lease payments are captioned "lease expense- current"
in the statement of operations. Noncash lease expense is captioned "lease
expense- deferred" in the statement of income. In the balance sheet under
noncurrent liabilities, "accrued rent under lease agreements" reflects accrual
of noncash lease expense. This accrued rent will not begin to be paid until
2004.
Minimum lease payments based on current rents are as follows:
<TABLE>
<CAPTION>
<S> <C>
1998 $ 149,928
1999 154,514
2000 158,168
2001 162,081
2002 168,734
Thereafter 2,720,181
------------
$ 3,513,606
============
</TABLE>
NOTE 8 - FAIR VALUE OF FINANCIAL INSTRUMENTS
CASH AND CASH EQUIVALENTS - The carrying amount approximates fair value because
of the short-term maturity of those instruments.
LONG-TERM DEBT - The carrying amounts of Northwest II's borrowings under its
long-term revolving credit agreement and notes payable approximate fair value.
NOTE 9 - YEAR 2000 COMPLIANCE
Currently, motel reservations and credit card approvals are handled by
equipment and software provided respectively by Super 8 Motels, Inc. and
the individual banking institutions with which the properties do business.
Currently, internal accounting (with the exception of call accounting) is
completed manually. Pursuant to the POWER-UP program being designed,
instituted, and paid for by Super 8 Motels, Inc. all motels will be
provided a PC-based Property Management System which integrates all
reservations, credit card approvals, call accounting, security, and motel
accounting into a single system.
F-13
<PAGE> 64
SUPER 8 MOTELS NORTHWEST II
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
This fully integrated system is to be in place at every motel within the
Super 8 System by the third quarter of 1999. The new equipment and software
have been designed and developed by the franchisor, and the franchisee will
be required to utilize it. Northwest II has been assured by Super 8 Motels,
Inc. that the total system will be year 2000 compliant. The total cost of
this conversion, which may be borne by the motels owned by Northwest II,
should not exceed $5,000 per motel.
Internally, the general partner and the affiliated management company have
undertaken the task of totally replacing the current corporate accounting
system to ensure that it will fully integrate with the new Property
Management Systems being installed by Super 8 Motels, Inc. It is
anticipated that this conversion will be completed by year end 1998. Part
of the hardware and software will be provided by the POWER-UP initiative at
no cost to the Company. For those systems purchased by the general partner
or affiliates, all software, hardware, and systems vendors will be required
to certify that their products are year 2000 compliant. The cost attributed
to each motel in Northwest II for this conversion should not exceed $5,000
per motel.
NOTE 10- NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 131, "Disclosures
About Segments of an Enterprise and Related Information," which is required
to be adopted for annual periods beginning after December 15, 1997 and
interim periods beginning in fiscal year 1999. SFAS No. 131 establishes
standards for the way that public companies report information about
operating segments in an annual financial statements and requires that
those companies report information about segments in interim financial
reports issued to shareholders. The partnership's management believes this
new standard will not have significant effect on the partnership's
financial position or results of operations.
In March 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position ("SOP") 98-1, "Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use," which
establishes new accounting and reporting standards for the costs of
computer software developed or obtained for internal use. This statement
will be applied prospectively and is effective for fiscal years beginning
after December 15, 1998. The partnership's management believes that
implementation of this new standard will not have a significant effect on
its financial position or results of operations.
In April 1998, the AICPA issued SOP 98-5, "Reporting on the Costs of
Start-Up Activities," which requires costs of start-up activities to be
expensed as incurred. This statement is effective for fiscal years
beginning after December 15, 1998. The statement requires capitalized costs
related to start-up activities to be expensed as a cumulative effect of a
change in accounting principle when the statement is adopted. The
partnership's management believes that the adoption of this new standard
will not have a significant effect on its financial position or result
of operations.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement establishes new
accounting and reporting standards requiring that all derivative
instruments (including certain derivative
F-14
<PAGE> 65
SUPER 8 MOTELS NORTHWEST II
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
instruments embedded in other contracts) be recorded in the balance sheet
as either an asset or liability measured at its fair value. The statement
requires that changes in the derivative's fair value be recognized
currently in earnings unless specific hedge accounting criteria are met.
Special accounting for qualifying hedges allows a derivative's gains and
losses to offset related results on the hedged item in the income statement
and requires that a company must formally document, designate, and assess
the effectiveness of transactions that receive hedge accounting. This
statement is effective for all fiscal years beginning after June 15, 1999.
The partnership's management believes that the adoption of this new
standard will not have a significant effect on its financial position or
result of operations.
F-15
<PAGE> 66
ANNEX I
AGREEMENT AND PLAN OF REORGANIZATION AND MERGER (this "Agreement") dated
as of December 31, 1998, among GERALD L. WHITCOMB ("Whitcomb") and THE PENINSULA
GROUP, INC., a Washington corporation ("PGI"), (collectively, the "General
Partner"), on behalf of SUPER 8 MOTELS NORTHWEST II, a Washington limited
partnership ("NWII"), and COLUMBUS PROPERTIES L.L.C., a Washington limited
liability company ("Columbus").
RECITALS
WHEREAS, NWII has heretofore issued limited partnership units (the
"Units"), each representing limited partner interests in NWII;
WHEREAS, Whitcomb and PGI are NWII's general partners;
WHEREAS, NWII wishes to merge with and into Columbus (the "Merger")
pursuant and subject to the terms and conditions of this Agreement, whereby each
issued and outstanding Unit will be converted into the right to receive
$1,343.00 (the "Merger Consideration");
WHEREAS NWII has retained the services of Ragen McKenzie Incorporated to
render its opinion as to the fairness of the Merger Consideration to the holders
of the Units (the "Unitholders") from a financial point of view;
WHEREAS, the General Partner has also retained the services of McKee &
Schalka, an MAI Appraiser to appraise the real property and/or leasehold
interests owned by NWII;
WHEREAS, the General Partners, on behalf of NWII, have duly approved this
Agreement and the Merger pursuant hereto; and
WHEREAS, this Agreement and the Merger is to be submitted to the
Unitholders for approval and adoption at a meeting of Unitholders called for
such purpose (the "Merger Meeting") pursuant to Section 16.2 of the 1982
Certificate and Agreement of Limited Partnership of SUPER 8 MOTELS NORTHWEST II
(the "Partnership Agreement").
NOW THEREFORE, in consideration of the mutual benefits to be derived from
this Agreement and of the representations, warranties, agreements and conditions
contained in this Agreement, the parties agree as follows.
Article I
The Merger
1.1 The Merger. In accordance with and subject to (a) the provisions of
this Agreement, (b) the Articles of Merger (as hereinafter defined), and (c) the
Washington Uniform Limited Partnership Act (the "Washington Limited Partnership
Act") and the Washington Limited Liability Company Act (the "Washington Limited
Liability Company Act"), at the Effective Time (as hereinafter defined), NWII
shall be merged with and into Columbus in the Merger.
A-1
<PAGE> 67
As a result of the Merger, the separate existence of NWII shall cease and
Columbus shall continue as the surviving company. Columbus is hereinafter
sometimes referred to as the "Surviving Company."
1.2 Effective Time of the Merger. Subject to the provisions of this
Agreement, Articles of Merger, a form of which is attached hereto as Exhibit A
(the "Articles of Merger"), including the Plan of Merger, a form of which is
attached hereto as Exhibit B (the "Plan of Merger") shall be duly executed and
filed by NWII and Columbus on the Closing Date (as hereinafter defined) in the
manner provided in Section 25.10.820 of the Washington Limited Partnership Act
and Section 25.15.405 of the Washington Limited Liability Company Act. The
Merger shall become effective at such time on the Closing Date as the Articles
of Merger are filed with the Secretary of State of the State of Washington (or
such later time as may be specified in the Articles of Merger) (the "Effective
Time").
1.3 Closing. Unless this Agreement shall have been terminated and the
transactions contemplated by this Agreement shall have been abandoned pursuant
to the provisions of Article VIII, and subject to the provisions of Sections 7.1
and 7.2 hereof, the closing of the Merger (the "Closing") will take place at the
earliest 10:00 a.m., Tumwater, WA. time, on the first Business Day (as
hereinafter defined) occurring after the Merger Meeting (which shall occur after
the passage of 20 business days from and after the mailing of the Proxy
Statement (as defined below) to Unitholders) and at the latest on the last
business day of the month in which the Merger Meeting occurs, or, if all of the
conditions set forth in Section 7.1 and 7.2 hereof shall not have been satisfied
(or waived in accordance with Section 9.2 hereof), at such later date and time
which is agreed to in writing by the parties (the "Closing Date"). The Closing
shall take place at the offices of NWII at 751 Terminal Street SW, Tumwater,
Washington 98501, unless another place is agreed to by the parties. For purposes
of this Agreement, "Business Day" shall mean any day except Saturday, Sunday or
any day on which banks are generally not open for business in Tumwater,
Washington.
1.4 Effects of the Merger. The Merger shall, from and after the Effective
Time, have the effects provided for in the Washington Limited Partnership Act
and the Washington Limited Liability Company Act.
(a) Conversion of Units. At the Effective Time, by virtue of the
Merger and without any action on the part of NWII, Columbus, or any holder of
any of the Units, each Unit that is issued and outstanding immediately prior to
the Effective Time shall be canceled, extinguished and retired, and be converted
into and become a right to receive, without interest, the Merger Consideration.
(b) The Whitcombs' and PGI's Interests. Notwithstanding Section
1.4(a), at the Effective Time, by virtue of the Merger and without any action on
the part of NWII, Columbus, Gerald L. or Maryanne Whitcomb, or PGI, any
partnership interest (general or limited) in NWII owned by Gerald L. and/or
A-2
<PAGE> 68
Maryanne Whitcomb or PGI shall be contributed to Columbus in exchange for units
in Columbus.
1.5 Payment.
(a) From and after the Effective Time, such bank, trust or other stock
transfer company as shall be selected by Columbus shall act as payment agent
(the "Payment Agent") in effecting the payment of the Merger Consideration for
Units pursuant to Section 1.4(a) hereof. At or before the Effective Time,
Columbus shall deposit with the Payment Agent the aggregate Merger Consideration
in trust for the benefit of the Unitholders. Promptly after the Effective Time,
the Payment Agent shall mail to each record holder of Units a form of letter of
transmittal and any other required forms (the "Transmittal Documents") (which
shall specify that delivery shall be effected, and risk of loss and title to
such Units shall pass, only upon delivery of the Transmittal Documents to the
Payment Agent) and instructions for use in delivering the Transmittal Documents
and receiving the Merger Consideration for each Unit owned by the Unitholder.
Upon the surrender of such Transmittal Documents and the payment by the Payment
Agent of the Merger Consideration in exchange therefor, the Units owned by such
Unitholder shall forthwith be canceled. Until so surrendered and exchanged, the
Units owned by such Unitholder shall represent solely the right to receive the
Merger Consideration multiplied by the number of Units owned by such Unitholder,
and the holder thereof shall have no rights whatsoever as a Unitholder of NWII
or the Surviving Company. Upon the surrender of such Units, the holder shall
receive such Merger Consideration, without any interest thereon. If any cash is
to be paid to a name other than the name in which the Units surrendered in
exchange therefor is registered, it shall be a condition to such payment that
the person requesting such payment shall pay to the Payment Agent any transfer
or other taxes required by reason of the payment of such cash to a name other
than that of the holder of the Units surrendered, or such person shall establish
to the satisfaction of the Payment Agent that such tax has been paid or is not
applicable. Notwithstanding the foregoing, neither the Payment Agent nor any
party hereto shall be liable to a holder of Units for any Merger Consideration
or other payments made to a public official pursuant to applicable abandoned
property laws. The Surviving Company and the Payment Agent shall be entitled to
deduct and withhold from the Merger Consideration otherwise payable to a holder
of Units pursuant to the Merger any taxes or other amounts as are required by
applicable law, including without limitation Sections 3406 and 1445 of the
Internal Revenue Code of 1986. To the extent that amounts are so withheld by the
Surviving Company or the Payment Agent, they shall be treated for all purposes
of this Agreement as having been paid to the holder of the Units in respect of
which such deduction and withholding was made.
(b) Six (6) months after the Closing Date, the Surviving Company shall
be entitled to the return of all amounts then held by the Payment Agent pursuant
to Section 1.5(a) (including earnings thereon), and the Payment Agent's
A-3
<PAGE> 69
duties shall terminate. Thereafter, any holder of Units shall look only to the
Surviving Company (subject to applicable abandoned property, escheat and similar
laws) as a general creditor to receive in exchange therefor the Merger
Consideration, without any interest thereon.
(c) At and after the Effective Time, there shall be no transfers on
the books of the Surviving Company of any Units. As of the Effective Time, each
holder of a Unit which was converted into the right to receive cash pursuant to
Section 1.4(a) hereof shall be deemed to have withdrawn as a limited partner and
shall have no further interest in NWII or the Surviving Company or any
allocations or distributions of income, property or otherwise, other than the
right to receive the Merger Consideration as provided in this Article I.
1.6 Deregistration of Units. Following the Effective Time, the General
Partner, on behalf of NWII, shall take all actions necessary to effect the
deregistration of the Units with the Securities and Exchange Commission (the
"Commission").
1.7 Dissenters' Rights. Unitholders shall have dissenters' rights in
connection with the Merger as set forth in Article 14 of Chapter 25.10 of the
Revised Code of Washington.
Article II
Approval of the Merger
2.1 Actions of NWII and the General Partner.
(a) The General Partner hereby consents to the Merger, agrees in all
respects with the terms of this Agreement and, subject to the terms and
conditions of this Agreement, the consummation of the transactions contemplated
hereby. In connection therewith, pursuant to the Washington Limited Partnership
Act and Article VI of the Partnership Agreement, by executing this Agreement,
the General Partner, as the sole general partner of NWII, subject to the
requisite approval of the Unitholders at the Merger Meeting, consents to and
approves in all respects this Agreement and the transactions contemplated hereby
(including, without limitation, the Merger) on behalf of NWII.
(b) The General Partner shall submit this Agreement and the Merger to
a vote by the Unitholders in person or by proxy, at the Merger Meeting to be
held twenty (20) calendar days from and after the mailing of the Proxy Statement
to the Unitholders.
2.2 Proxy Statement. Promptly following the execution of this Agreement,
NWII shall prepare (and Columbus shall cooperate in preparing) and as soon as
reasonably practicable thereafter shall file with the Commission a preliminary
proxy statement with respect to the Merger. Subject to compliance with the rules
and regulations of the Commission, NWII shall thereafter file with the
A-4
<PAGE> 70
Commission and mail to Unitholders a definitive proxy statement with respect to
the Merger (the "Proxy Statement"). The term "Proxy Statement" shall mean such
Proxy Statement at the time it initially is mailed to the Unitholders and all
amendments or supplements thereto, if any, similarly filed and mailed. Columbus
and NWII each agree to correct any information provided by it for use in the
Proxy Statement which shall have become false or misleading in any material
respect.
Article III
Representations and Warranties of Columbus
Columbus represents and warrants at the date hereof to NWII and the
General Partner as follows:
3.1 Organization and Qualification. Columbus is a limited liability company
duly formed, validly existing and in good standing under the laws of the State
of Washington, with the requisite power and authority to carry on its respective
business as now conducted. Columbus is duly qualified to do business, and is in
good standing, in each jurisdiction where the character of its properties owned
or leased or the nature of its activities makes such qualification necessary,
except where the failure to be so qualified or in good standing would not, in
the aggregate, have a material adverse effect on Columbus. Copies of the
certificate of formation and operating agreement of Columbus (such documents,
the "Columbus Organizational Documents") previously delivered to NWII and the
General Partner are accurate and complete as of the date hereof.
3.2 Authority Relative to this Agreement. Columbus has the requisite power
and authority to enter into this Agreement and to perform its obligations
hereunder. The execution, delivery and performance of this Agreement by Columbus
and the consummation by Columbus of the transactions contemplated hereby have
been duly authorized by Columbus' managers and members as necessary and no other
action or proceeding on the part of Columbus is necessary to authorize the
execution, delivery and performance of this Agreement and the consummation of
the transactions contemplated hereby. This Agreement has been duly executed and
delivered by Columbus and constitutes a valid and binding obligation of
Columbus, enforceable in accordance with its terms, except to the extent that
its enforceability may be limited by applicable bankruptcy, insolvency,
reorganization or other laws affecting the enforcement of creditors' rights
generally or by general equitable principles.
3.3 Compliance.
(a) Neither the execution and delivery of this Agreement by Columbus,
nor the consummation of the transactions contemplated hereby nor compliance by
Columbus with any of the provisions hereof will (i) violate, conflict
A-5
<PAGE> 71
with, or result in a breach of any provision of, or constitute a default (or an
event which, with notice or lapse of time or both, would constitute a default)
under, or result in the termination of, or accelerate the performance required
by, or result in a right of termination or acceleration under, or result in the
creation of any lien, security interest, charge or encumbrance upon any of the
properties or assets of Columbus under any of the terms, conditions or
provisions of (x) the Columbus Organizational Documents (y) any material note,
bond, mortgage, indenture, deed of trust, license, lease, agreement or other
instrument or obligation to which it or any of its properties or assets, may be
subject, or (ii) subject to compliance with the statutes and regulations
referred to in the next paragraph, violate any judgment, ruling, order, writ,
injunction, decree, statute, rule or regulation applicable to Columbus or any of
its properties or assets, except, in the case of each of clauses (i) and (ii)
above, for such violations, conflicts, breaches, defaults, terminations,
accelerations or creations of liens, security interests, charges or
encumbrances, which in the aggregate, would not have a material adverse effect
on the transactions contemplated hereby or on the condition (financial or
other), business or operations of Columbus (a "Material Adverse Effect on
Columbus").
(b) Other than in connection with or in compliance with the provisions
of the Washington Limited Partnership Act, the Washington Limited Liability
Company Act, the Exchange Act or "blue sky" laws ("Blue Sky Laws") or other
similar statutes and regulations, no notice to, filing with, or authorization,
consent or approval of, any domestic or foreign public body or authority is
necessary for the consummation by Columbus of the transactions contemplated by
this Agreement, except where failure to give such notice, make such filings, or
obtain such authorizations, consents or approvals would not, in the aggregate,
have a Material Adverse Effect on Columbus.
3.4 Documents and Information. The information supplied by Columbus
expressly for inclusion in the Proxy Statement shall not, (i) at the time of the
mailing thereof and (ii) at the Closing Date, contain any untrue statement of a
material fact or omit to state any material fact necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
3.5 Financing. Columbus has obtained a commitment letter from U.S. Bank
(the "Commitment"), subject to customary conditions, to lend Columbus sufficient
funds to consummate the Merger and to pay the Merger Consideration to the
Unitholders.
Article IV
Representations and Warranties of NWII and the General Partner
NWII and the General Partner represent and warrant at the date hereof to
Columbus as follows:
A-6
<PAGE> 72
4.1 Organization and Qualification. NWII is a limited partnership duly
formed, validly existing and in good standing under the laws of the State of
Washington and has the requisite power and authority to carry on its business as
it is now being conducted. A copy of the Partnership Agreement (the
"Organizational Documents of NWII") which has heretofore been delivered to
Columbus is accurate and complete as of the date hereof.
4.2 Authority Relative to this Agreement. Subject to approval of this
Agreement and the transactions contemplated herein by Unitholders owing in the
aggregate at least sixty-six percent (66%) of the issued and outstanding Units
("Unitholder Approval") at the Merger Meeting, NWII and the General Partner have
the requisite power and authority to enter into this Agreement and to perform
their obligations hereunder. Subject to Unitholder Approval, the execution,
delivery and performance of this Agreement by NWII and the General Partner and
the consummation by NWII and the General Partner of the transactions
contemplated hereby have been duly authorized by NWII and the General Partner
and no other action or proceeding on the part of NWII or the General Partner is
necessary to authorize the execution, delivery and performance of this Agreement
and the consummation of the transactions contemplated hereby. Subject to
Unitholder Approval, this Agreement has been duly executed and delivered by NWII
and the General Partner and constitutes a valid and binding obligation of NWII
and the General Partner, enforceable in accordance with its terms, except to the
extent that its enforceability may be limited by applicable bankruptcy,
insolvency, reorganization or other laws affecting the enforcement of creditors'
rights generally or by general equitable principles.
4.3 Capitalization. As of the date hereof, there are four thousand
fifty-two (4,052) Units issued and outstanding. All such Units have been validly
issued. Other than such Units and the General Partner's general partnership
interest, there are no equity securities of NWII authorized or outstanding, and,
no outstanding options, warrants, rights to subscribe to (including any
preemptive rights), calls or commitments of any character whatsoever to which
NWII is a party or may be bound, requiring the issuance or sale of any Units or
other equity securities of NWII or securities or rights convertible into or
exchangeable for such Units or other equity securities of NWII, and there are no
contracts, commitments, understandings or arrangements by which NWII is or may
become bound to issue additional Units or other equity securities of NWII or
options, warrants or rights to purchase or acquire any additional Units or other
equity securities or securities convertible into or exchangeable for such Units
or other equity securities of NWII. None of the Units are held by NWII in
treasury.
4.4 Fees. NWII has not paid or agreed to pay any fee or commission to any
broker, finder or intermediary in connection with the transactions contemplated
hereby.
A-7
<PAGE> 73
4.5 Documents and Information. The information supplied by NWII and the
General Partner expressly for inclusion in the Proxy Statement shall not, (i) at
the time of the mailing thereof and (ii) at the Closing Date, contain any untrue
statement of a material fact or omit to state any material fact necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading.
4.6 Opinion of Financial Advisor. Ragen MacKenzie Incorporated, the
financial advisor to NWII (the "Financial Advisor"), has delivered to NWII its
written opinion, dated December 31, 1998, to the effect that the Merger
Consideration to be received by the Unitholders pursuant to the Merger is fair,
from a financial point of view, to the Unitholders.
4.7 Compliance.
(a) Neither the execution and delivery of this Agreement by NWII and
the General Partner nor the consummation of the transactions contemplated hereby
nor compliance by NWII and the General Partner with any of the provisions hereof
will (i) violate, conflict with, or result in a breach of any provision of, or
constitute a default (or an event which, with notice or lapse of time or both,
would constitute a default) under, or result in the termination of, or
accelerate the performance required by, or result in a right of termination or
acceleration under, or result in the creation of any lien, security interest,
charge or encumbrance upon any of the properties or assets of NWII under any of
the terms, conditions or provisions of (x) the Organizational Documents of NWII
(y) any material note, bond, mortgage, indenture, deed of trust, license, lease,
agreement or other instrument or obligation to which it or any of NWII's
properties or assets, may be subject, or (ii) subject to compliance with the
statutes and regulations referred to in the next paragraph, violate any
judgment, ruling, order, writ, injunction, decree, statute, rule or regulation
applicable NWII or the General Partner or any of NWII's properties or assets,
except, in the case of each of clauses (i) and (ii) above, for such violations,
conflicts, breaches, defaults, terminations, accelerations or creations of
liens, security interests, charges or encumbrances, which in the aggregate,
would not have a material adverse effect on the transactions contemplated hereby
or on the condition (financial or other), business or operations of NWII (a
"Material Adverse Effect on NWII").
(b) Other than in connection with or in compliance with the provisions
of the Washington Limited Partnership Act, the Washington Limited Liability
Company Act, the Exchange Act or "blue sky" laws ("Blue Sky Laws") or other
similar statutes and regulations, no notice to, filing with, or authorization,
consent or approval of, any domestic or foreign public body or authority is
necessary for the consummation by NWII and the General Partner of the
transactions contemplated by this Agreement, except where failure to give such
notice, make such filings, or obtain such authorizations, consents or approvals
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would not, in the aggregate, have a Material Adverse Effect on NWII and the
General Partner.
Article V
Covenants
5.1 Legal Conditions to the Merger. The General Partner (on behalf of
himself and NWII) and Columbus shall take all reasonable actions necessary to
comply promptly with all legal requirements with respect to the Merger and shall
take all reasonable action necessary to cooperate promptly with and furnish
information to the other parties in connection with any such requirements. The
General Partner (on behalf of himself and NWII) and Columbus shall take all
reasonable actions necessary (i) to obtain (and will take all reasonable actions
necessary to promptly cooperate with the other parties in obtaining) any
consent, authorization, order or approval of, or any exemption by, any
administrative agency or commission or other governmental authority or
instrumentality (a "Governmental Entity"), or other third party, required to be
obtained or made (or cooperate in the obtaining of any thereof required to be
obtained) in connection with the Merger or the taking of any action contemplated
by this Agreement; (ii) to lift, rescind or mitigate the effect of any
injunction or restraining order or other order adversely affecting the
consummation of the transactions contemplated hereby; (iii) to fulfill all
conditions pursuant to this Agreement; and (iv) to prevent, with respect to a
threatened or pending temporary, preliminary or permanent injunction or other
order, decree or ruling, the entry thereof.
Article VI
Additional Agreements
6.1 Distributions to Partners Prior to the Merger. On or before January 31,
1999, NWII shall distribute an aggregate amount of $119,203.00 to the partners
of NWII, such amount to be allocated between the Unitholders and the General
Partner in accordance with Section 10.2 of the Partnership Agreement.
6.2 Expenses. Columbus shall bear all costs and expenses of each party
hereto and/or pay all costs and expenses on behalf of each party hereto incurred
in connection with the transactions contemplated by this Agreement, having taken
such costs and expenses, including any real estate excise taxes payable by the
Unitholders in connection with their transfer of Units, into consideration in
determining the amount of the Merger Consideration.
6.3 Allocation of Amount Realized Between Internal Revenue Code Section 751
Property and Non-Section 751 Property. Pursuant to Section 751 of the Internal
Revenue Code of 1986, as amended, (the "Code") Columbus and NWII and the General
Partner agree that the amount realized is to be allocated between Code Section
751 property and non-Code Section 751 property based
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on the relative fair market value of NWII's Code Section 751 property and
non-Code Section 751 property as determined by Columbus.
Article VII
Conditions Precedent
7.1 Certain Conditions on the Obligation of Columbus to Consummate the
Merger.
(a) The obligations of Columbus to effect the Merger shall be subject
to the fulfillment of the following conditions, any or all of which may be
waived by Columbus in its sole discretion:
(i) except for changes in the business or conditions of NWII,
financial or otherwise, or in the results of operations of NWII, occurring prior
to the date of this Agreement, or expected by the General Partner to occur based
on events occurring prior to the date of this Agreement, there shall not have
occurred any Material Adverse Effect on NWII from that set forth in or
contemplated by the financial statements of NWII for the nine months ended
September 30,1998;
(ii) there shall not be pending or threatened against NWII or the
General Partner, any action, suit or proceeding involving a claim at law or in
equity or before or by any Governmental Entity, domestic or foreign, that would
be reasonably likely to have a Material Adverse Effect on NWII; and
(iii) there shall not be pending or threatened against NWII, the
General Partner, Columbus or their respective properties or businesses, any
other action, suit or proceeding involving a claim at law or in equity or before
or by any federal, state, or municipal or other court of competent jurisdiction
or other Governmental Entity, relating to the Merger or this Agreement that
would be reasonably likely to have a Material Adverse Effect on NWII.
(iv) the Commitment shall remain available to Columbus, such that
Columbus may borrow sufficient funds on or before the Closing Date in order to
transfer the Merger Consideration to the Payment Agent for payment to the
Unitholders pursuant to Section 1.4(a).
(b) The parties hereto agree that in exercising its discretion to
waive or require the fulfillment of the conditions prescribed in Section 7.1(a)
above, Columbus shall not be required to consider the interests of any person or
entity that may be affected by the Merger other than Columbus, and that Columbus
shall have no obligation, fiduciary or otherwise, to the limited partners of
NWII or the General Partner in exercising its discretion under Section 7.1(a).
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7.2 Obligation of Each Party to Effect the Merger. The respective
obligations of each party generally to effect the Merger shall be subject to the
fulfillment at or prior to the Effective Time of the following conditions:
(a) This Agreement and the Merger shall have received the required
Unitholder Approval.
(b) Neither the execution and delivery of this Agreement by NWII and
the General Partner nor the consummation of the transactions contemplated hereby
nor compliance by NWII and the General Partner with any of the provisions hereof
shall (i) violate, conflict with, or result in a breach of any provision of, or
constitute a default (or an event which, with notice or lapse of time or both,
would constitute a default) under, or result in the termination of, or
accelerate the performance required by, or result in a right of termination or
acceleration under, or result in the creation of any lien, security interest,
charge or encumbrance upon any of the properties or assets of NWII under any of
the terms, conditions or provisions of (x) the Organizational Documents of NWII
or (y) any material note, bond, mortgage, indenture, deed of trust, license,
lease, agreement or other instrument or obligation to which NWII is a party, or
to which it or any of its respective properties or assets, may be subject, or
(ii) violate any judgment, ruling, order, writ, injunction, decree, statute,
rule or regulation applicable to NWII or the General Partner or any of NWII's
properties or assets, except, in the case of each of clauses (i) and (ii) above,
for such violations, conflicts, breaches, defaults, terminations, accelerations
or creations of liens, security interests, charges or encumbrances, which would
not, in the aggregate, have a material adverse effect on the transactions
contemplated hereby or on the condition (financial or other), business or
operations of NWII (a "Material Adverse Effect on NWII");
(c) The Financial Advisor shall not have withdrawn or modified in any
manner materially adverse to NWII or any Unitholder its opinion as described in
Section 4.6; and
(d) No preliminary or permanent injunction or other order, decree or
ruling issued by a court of competent jurisdiction or by a Governmental Entity
nor any statute, rule, regulation or executive order promulgated or enacted by
any Governmental Entity shall be in effect, which would make the acquisition of
NWII by Columbus illegal or otherwise prevent the consummation of the Merger or
make the consummation of the Merger illegal.
Article VIII
Termination
8.1 Termination. This Agreement may be terminated, and the Merger
contemplated herein may be abandoned, at any time prior to the Effective Time,
whether prior to or after approval of the Merger by the Unitholders:
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(a) by mutual written consent of Columbus, NWII and the General
Partner; or
(b) by NWII and the General Partner if Columbus breaches in any
material respect any of its representations, warranties, covenants or agreements
contained in this Agreement (other than any breach caused by NWII or the General
Partner) or if the Financial Advisor shall have withdrawn or modified in any
manner adverse to NWII, the Unitholders, or Columbus its opinion as described in
Section 4.6; or
(c) by Columbus, if NWII or the General Partner breaches in any
material respect any of their representations, warranties, covenants or
agreements contained in this Agreement (other than any breach caused by
Columbus) or if the Financial Advisor shall have withdrawn or modified in any
manner adverse to NWII, the Unitholders, or Columbus its opinion as described in
Section 4.6; or
(d) by either Columbus or NWII and the General Partner:
(i) if the Merger has not been consummated prior to March 31,
1999; or
(ii) if any court of competent jurisdiction or other Governmental
Entity shall have issued an order, decree or ruling, or taken any other action
restraining, enjoining or otherwise prohibiting the Merger and such order,
decree, ruling or other action shall have become final and nonappealable.
8.2 Effect of Termination. In the event of the termination of this
Agreement as provided in Section 8.1 hereof, this Agreement shall forthwith
become void, and there shall be no liability on the part of Columbus, the
General Partner or NWII.
Article IX
General Provisions
9.1 Amendment. This Agreement may not be amended except by (i) an
instrument in writing signed on behalf of each of the parties hereto; provided,
however, that after approval of the Merger by the Unitholders at the Merger
Meeting, no amendment may be made without the further approval of Unitholders
holding in the aggregate at least sixty-six percent (66%) of the issued and
outstanding Units which would either (a) change the type or reduce the amount of
the Merger Consideration or (b) alter or change any other terms and conditions
of this Agreement, if any of such alterations or changes, alone or in the
aggregate, would materially adversely affect the Unitholders.
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9.2 Extension; Waiver. At any time prior to the Effective Time, whether
before or after the mailing of the Proxy Statement, any party hereto may (i)
extend the time for the performance of any of the obligations or other acts of
any other party hereto; (ii) waive any inaccuracies in the representations and
warranties contained in this Agreement; and (iii) waive compliance with any of
the agreements of the other parties or conditions to its own obligations
contained in this Agreement. Any agreement on the part of a party hereto to any
such extension or waiver shall be valid only if set forth in an instrument in
writing signed on behalf of such party by a duly authorized person. No such
consent or waiver of compliance given by any of the parties hereto shall operate
as a consent or waiver of compliance in respect of any subsequent default,
breach or non-observance, whether of the same or any other nature.
9.3 Nonsurvival of Representations, Warranties and Agreements. The
respective representations and warranties of NWII, the General Partner and
Columbus contained herein shall expire with, and be terminated and extinguished
upon, consummation of the Merger, and thereafter none of NWII, the General
Partner or Columbus or any officer, director or principal thereof, shall be
under any liability whatsoever with respect to any such representation or
warranty. This Section 9.3 shall have no effect upon any other obligation of the
parties, whether to be performed before or after the consummation of the Merger.
9.4 Entire Agreement; Counterparts.
(a) This Agreement contains the entire agreement among NWII, the
General Partner and Columbus with respect to the subject matter hereof and
supersedes all prior arrangements and understandings, both written and oral,
among such parties with respect thereto.
(b) This Agreement may be executed in one or more counterparts, all of
which shall be considered one and the same agreement and shall become effective
when one or more counterparts have been signed by each of the parties and
delivered to the other parties, it being understood that all parties need not
sign the same counterpart.
9.5 Severability. It is the desire and intent of the parties that the
provisions of this Agreement be enforced to the fullest extent permissible under
the law and public policies applied in each jurisdiction in which enforcement is
sought. Accordingly, in the event that any provision of this Agreement would be
held in any jurisdiction to be invalid, prohibited or unenforceable for any
reason, such provision, as to such jurisdiction, shall be ineffective, without
invalidating the remaining provisions of this Agreement or affecting the
validity or enforceability of such provision in any other jurisdiction.
Notwithstanding the foregoing, if such provision could be more narrowly drawn so
as not to be invalid, prohibited or unenforceable in such jurisdiction, the
parties shall adopt an amendment hereto in accordance with the provisions of
Section 9.1 hereof in which such provision, as to such jurisdiction, is so
narrowly drawn, without invalidating the remaining
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provisions of this Agreement or affecting the validity or enforceability of such
provision in any other jurisdiction.
9.6 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed to be sufficient if contained in a written
instrument and shall be deemed to have been duly given if delivered personally,
telecopied, sent by nationally recognized overnight courier or mailed by
registered or certified mail (return receipt requested), postage prepaid, to the
parties at the following addresses (or at such other addresses as shall be
specified by a party by like notice):
(a) If to NWII or the General Partner:
Gerald L. Whitcomb
7515 Terminal Street S.W.
Tumwater, WA 98501
with a copy to:
Bruce Bjerke
Graham & James LLP/Riddell Williams, P.S.
1001 Fourth Ave., #4500
Seattle, WA 98154
(b) If to Columbus:
Gerald L. Whitcomb
7515 Terminal Street S.W.
Tumwater. WA 98501
with a copy to:
Bruce Bjerke
Graham & James LLP/Riddell Williams, P.S.
1001 Fourth Ave., #4500
Seattle, WA 98154
All such notices and other communications shall be deemed to have been received
(a) in the case of personal delivery, on the date of such delivery if received
prior to 5:00 p.m. Tumwater, Washington time on such date, (b) in the case of a
telecopy, when the party receiving such telecopy shall have confirmed receipt of
the communication, (c) in the case of delivery by nationally recognized
overnight courier, on the Business Day following dispatch and (d) in the case of
mailing, on the third Business Day following such mailing.
9.7 Headings. The headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement.
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9.8 Assignment. This Agreement is not intended to confer upon any person
other than the parties any rights or remedies hereunder. This Agreement shall
not be assigned by operation of law or otherwise; provided, however, that
notwithstanding the foregoing, the parties hereto acknowledge that Columbus
shall have the unrestricted right to assign all of its respective rights
hereunder to a wholly owned affiliate of Columbus; provided, further, that
notwithstanding such assignment, Columbus shall not be released from its
obligations hereunder nor shall such assignment prejudice the rights of
Unitholders entitled to receive payment pursuant to Section 1.4(a) hereto to
receive such payment for Units properly delivered to the Payment Agent and
accepted for payment.
9.9 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Washington, without reference to the
conflicts of laws provisions thereof.
9.10 Consent to Jurisdiction; Service of Process.
(a) The parties hereto irrevocably submit to the jurisdiction of the
Superior Court of Thurston County of Washington or the U.S. District Court for
the Western District of Washington over any dispute arising out of or relating
to this Agreement or any of the transactions contemplated hereby and each party
hereby irrevocably agrees that all claims in respect of such dispute or
proceeding shall be heard and determined in such court. The parties hereby
irrevocably waive, to the fullest extent permitted by applicable law, any
objection which they may now or hereafter have to the laying of venue of any
such dispute brought in such court or any defense of inconvenient forum for the
maintenance of such dispute. Each of the parties hereto agrees that a judgment
in any such dispute may be enforced in other jurisdictions by suit on the
judgment or in any other manner provided by law.
(b) Each of the parties hereto hereby consents to process being served
by any party to this Agreement in any suit, action or proceeding of the nature
specified in subsection (a) above by mailing a copy thereof in accordance with
the provisions of Section 9.6 hereof.
9.11 Limitation of Liability. In no event shall any partner (other than the
General Partner) or representative of NWII or any other such person, be
personally liable for any obligation of NWII or the General Partner under this
Agreement. In no event shall recourse with respect to the obligations under this
Agreement of NWII or the General Partner be had to the assets or business of any
person other than NWII or the General Partner, respectively.
9.12 Limitation of Remedies. The sole remedy of any party hereto for breach
by any other party of a covenant, representation or warranty made under this
Agreement shall be limited to termination of this Agreement.
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IN WITNESS WHEREOF, the General Partner, on behalf of NWII, and Columbus
have caused this Agreement to be executed as of the date first written.
SUPER 8 MOTELS NORTHWEST II
By: /s/ Gerald L. Whitcomb
GERALD L. WHITCOMB
General Partner
By: /s/ Gerald L. Whitcomb
Gerald L. Whitcomb, President,
THE PENINSULA GROUP, INC.,
General Partner
COLUMBUS PROPERTIES L.L.C.
By: /s/ Gerald L. Whitcomb
GERALD L. WHITCOMB
Manager
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EXHIBIT A
ARTICLES OF MERGER
OF
SUPER 8 MOTELS NORTHWEST II, A WASHINGTON LIMITED PARTNERSHIP
AND
COLUMBUS PROPERTIES L.L.C., A WASHINGTON LIMITED LIABILITY COMPANY
THESE ARTICLES OF MERGER are executed for the purpose of merging Super 8
Motels Northwest II, a Washington limited partnership ("NWII") with an into
Columbus Properties L.L.C., a Washington limited liability company ("Columbus").
1) The plan of merger is attached hereto and made a part hereof.
2) The merger was duly approved by the partners of NWII pursuant to RCW
25.10.810 and the members of Columbus pursuant to RCW 25.15.400.
Dated: _________, 19__.
Columbus Properties L.L.C.
-------------------------------------------
By Gerald L. Whitcomb
Its Manager
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EXHIBIT B
PLAN OF MERGER
OF
SUPER 8 MOTELS NORTHWEST II, A WASHINGTON LIMITED PARTNERSHIP,
AND
COLUMBUS PROPERTIES L.L.C., A WASHINGTON LIMITED LIABILITY COMPANY
Super 8 Motels Northwest II, a Washington limited partnership ("NWII"), and
Columbus Properties L.L.C., a Washington limited liability company ("Columbus"),
hereby certify that:
FIRST: NWII and Columbus are planning to merge, with Columbus being the
surviving limited liability company into which NWII plans to merge.
SECOND: The terms and conditions of the merger were advised, authorized and
approved by the sixty-six percent (66%) of the partners of NWII and the
requisite vote of Columbus' members as set forth in its operating agreement.
THIRD: The manner and basis of converting the partnership interests of NWII
into member interests in Columbus or cash is as follows. Except as provided
below, each unit of NWII shall be converted into $1,343.00 cash. Partnership
interests (general or limited) in NWII owned by Gerald L. and/or Maryanne
Whitcomb and The Peninsula Group, Inc., a Washington corporation, shall be
contributed to Columbus in exchange for units in Columbus.
Dated: _______, 19__.
Super 8 Motels Northwest II Columbus Properties L.L.C.
- -------------------------------------- ----------------------------------
By Gerald L. Whitcomb, General Partner By Gerald L. Whitcomb, its Manager
- --------------------------------------
Gerald L. Whitcomb, President, The
Peninsula Group, Inc., General Partner
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ANNEX II
[Ragen MacKenzie Letterhead]
December 31, 1998
Gerald L. Whitcomb
General Partner
Super 8 Motels Northwest II
7515 Terminal St. S.W.
Tumwater, WA 98501
Dear Mr. Whitcomb:
We understand that Columbus Properties L.L.C. ("Columbus")(formerly
Whitcomb Family L.L.C.) has entered into a Merger Agreement, dated as of
December 31, 1998, (the "Merger Agreement") which provides, among other things,
for the merger of Super 8 Motels Northwest II, a Washington limited partnership
("Northwest II"), into Columbus, with Columbus as the surviving company
("Merger"). Pursuant to the Merger Agreement, at the effective time of the
Merger Columbus will i) pay $1,343.00 ("Merger Consideration") per limited
partnership unit ("Unit") to the holders thereof ("Unitholders") and ii) as a
result of the Merger will acquire all the assets of the Partnership
("Properties") and will assume the outstanding debt of the Partnership which
stood at approximately $2.4 million as of September 30, 1998 (together referred
to herein as the "Transaction"). The terms of the Transaction are set forth more
fully in the Merger Agreement. You have requested our opinion on behalf of
Northwest II and the Unitholders (the "Fairness Opinion") as to whether the
Merger Consideration to be paid by Columbus pursuant to the Merger Agreement is
fair, from a financial point of view, to the Unitholders of Northwest II Units.
In connection with rendering this Fairness Opinion, Ragen MacKenzie,
among other things: (i) reviewed the Merger Agreement; (ii) reviewed and
analyzed consolidated historic and projected financial and operating data of
Northwest II and the Properties, including audited and unaudited financial
statements for Northwest II and unaudited cash-basis estimates prepared by
management for the Properties; (iii) reviewed and analyzed other internal
information concerning the business and operations of Northwest II and the
Properties furnished to it by management; (iv) reviewed and analyzed publicly
available information concerning Northwest II and the Properties; (v) reviewed
and analyzed publicly available information concerning the terms of selected
merger and acquisition transactions that Ragen MacKenzie deemed relevant to its
inquiry; (vi) reviewed and analyzed selected market purchase price data that
Ragen MacKenzie considered relevant to its inquiry; (vii) held meetings and
discussions with Mr. Whitcomb and employees of Northwest II concerning the
operations, financial condition and prospects of the Properties; and (viii)
conducted such other financial studies, analyses and investigations, including
visits to SeaTac and Federal Way, and considered such other information as Ragen
MacKenzie deemed appropriate.
In preparing its Fairness Opinion, Ragen MacKenzie relied, without
independent verification, on the accuracy and completeness of all information
that was publicly available, supplied or otherwise communicated to Ragen
MacKenzie by the General Partner or Northwest II. Ragen MacKenzie assumed that
the financial estimates (including the underlying assumptions and bases thereof)
examined by it were reasonably prepared and reflected the
<PAGE> 85
best currently available estimates and good faith judgments of the General
Partner as to the future performance of the Properties. Ragen MacKenzie did not
make an independent evaluation or appraisal of the assets or liabilities
(contingent or otherwise) of Northwest II (including the Properties). However,
Ragen MacKenzie was furnished with independent appraisals on each property
prepared by McKee & Schalka Seattle, Washington (the "McKee Appraisals") in
conjunction with U.S. Bank's financing. Ragen MacKenzie assumed without
independent verification that the amount being paid per limited partnership Unit
was determined consistent with the partnership agreement. This Fairness Opinion
necessarily is based upon financial, economic, market and other conditions and
circumstances existing and disclosed to it as of the date of this Fairness
Opinion.
Our Fairness Opinion is directed only to the fairness, from a financial
point of view, of the Merger Consideration to be paid by Columbus to the
Unitholders of Northwest II and does not constitute a recommendation concerning
how Unitholders should vote with respect to the Merger Agreement.
Ragen MacKenzie, as part of its investment banking business' is engaged
in the valuation of businesses and their securities in connection with mergers
and acquisitions, negotiated underwritings, secondary distributions of
securities, private placements and valuations. We have acted as a financial
advisor to Northwest II in the preparation of this opinion and will receive a
fee for our services. In addition, Columbus, the surviving company pursuant to
the terms of the Merger Agreement, has agreed to indemnify us as to certain
liabilities arising out of the rendering of this Fairness Opinion.
This letter and the opinion expressed herein are provided at the
request of the General Partner and for the information of Northwest II and the
Unitholders and may not be referred to, quoted or used for any other purpose
without our prior written consent, except that this letter may be disclosed in
connection with a Proxy Statement used in connection with the Transaction.
Based upon and subject to the foregoing, it is our opinion that, as of
the date hereof, the aggregate Merger Consideration being paid by Columbus to
the Northwest II Unitholders pursuant to the Merger Agreement is fair, from a
financial point of view, to the Unitholders of Northwest II.
Very truly yours,
Ragen MacKenzie Incorporated
By: /s/ Robert P. Davidson
--------------------------------------
Robert P. Davidson
Vice President
2
<PAGE> 86
ANNEX III
ARTICLE 14
DISSENTERS' RIGHTS
RCW 25.10.900 DEFINITIONS. As used in this article:
(1) "Limited partnership" means the domestic limited partnership in which
the dissenter holds or held a partnership interest, or the surviving limited
partnership or corporation by merger, whether foreign or domestic, of that
limited partnership.
(2) "Dissenter" means a partner who is entitled to dissent from a plan of
merger and who exercises that right when and in the manner required by this
article.
(3) "Fair value," with respect to a dissenter's partnership interest,
means the value of the partnership interest immediately before the effectuation
of the merger to which the dissenter objects, excluding any appreciation or
depreciation in anticipation of the merger unless exclusion would be
inequitable.
(4) "Interest" means interest from the effective date of the merger until
the date of payment, at the average rate currently paid by the limited
partnership on its principal bank loans or, if none, at a rate that is fair and
equitable under all the circumstances.
RCW 25.10.905 PARTNER--DISSENT--PAYMENT OF FAIR VALUE. (1) Except as
provided in RCW 25.10.915 or 25.10.925(2), a partner of a domestic limited
partnership is entitled to dissent from, and obtain payment of, the fair value
of the partner's partnership interest in the event of consummation of a plan of
merger to which the limited partnership is a party as permitted by RCW 25.10.800
or 25.10.840.
(2) A partner entitled to dissent and obtain payment for the partner's
partnership interest under this article may not challenge the merger creating
the partner's entitlement unless the merger fails to comply with the procedural
requirements imposed by this title, Title 23B RCW, the partnership agreement, or
is fraudulent with respect to the partner or the limited partnership.
(3) The right of a dissenting partner to obtain payment of the fair value
of the partner's partnership interest shall terminate upon the occurrence of any
one of the following events:
(a) The proposed merger is abandoned or rescinded;
(b) A court having jurisdiction permanently enjoins or sets aside the
merger; or
(c) The partner's demand for payment is withdrawn with the written consent
of the limited partnership.
RCW 25.10.910 DISSENTERS' RIGHTS--NOTICE--TIMING. (1) Not less than ten
days prior to the approval of a plan of merger, the limited partnership must
send a written notice to all partners who are entitled to vote on or approve the
plan of merger that they may be entitled to assert dissenters' rights under this
article. Such notice shall be accompanied by a copy of this article.
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(2) The limited partnership shall notify in writing all partners not
entitled to vote on or approve the plan of merger that the plan of merger was
approved, and send them the dissenters' notice as required by RCW 25.10.920.
RCW 25.10.915 PARTNER--DISSENT--VOTING RESTRICTION. A partner who is
entitled to vote on or approve the plan of merger and who wishes to assert
dissenters' rights must not vote in favor of or approve the plan of merger. A
partner who does not satisfy the requirements of this section is not entitled to
payment for the partner's interest under this article.
RCW 25.10.920 PARTNERS--DISSENTERS' NOTICE--REQUIREMENTS. (1) If the plan
of merger is approved, the limited partnership shall deliver a written
dissenters' notice to all partners who satisfied the requirements of RCW
25.10.915.
(2) The dissenters' notice required by RCW 25.10.910(2) or by subsection
(1) of this section must be sent within ten days after the approval of the plan
of merger, and must:
(a) State where the payment demand must be sent;
(b) Inform holders of the partnership interest as to the extent transfer
of the partnership interest will be restricted as permitted by RCW 25.10.930
after the payment demand is received;
(c) Supply a form for demanding payment;
(d) Set a date by which the limited partnership must receive the payment
demand, which date may not be fewer than thirty nor more than sixty days after
the date the notice under this section is delivered; and
(e) Be accompanied by a copy of this article.
RCW 25.10.925 PARTNER--PAYMENT DEMAND--ENTITLEMENT. (1) A partner who
demands payment retains all other rights of a partner until the proposed merger
becomes effective.
(2) A partner sent a dissenters' notice who does not demand payment by the
date set in the dissenters' notice is not entitled to payment for the partner's
partnership interest under this article.
RCW 25.10.930 PARTNERSHIP INTERESTS--TRANSFER RESTRICTIONS. The limited
partnership may restrict the transfer of partnership interests from the date the
demand for their payment is received until the proposed merger becomes effective
or the restriction is released under this article.
RCW 25.10.935 PAYMENT OF FAIR VALUE--REQUIREMENTS FOR COMPLIANCE. (1)
Within thirty days of the later of the date the proposed merger becomes
effective, or the payment demand is received, the limited partnership shall pay
each dissenter who complied with RCW 25.10.925 the amount the limited
partnership estimates to be the fair value of the partnership interest, plus
accrued interest.
(2) The payment must be accompanied by:
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<PAGE> 88
(a) Copies of the financial statements for the most recent fiscal year
maintained as required by RCW 25.10.050;
(b) An explanation of how the limited partnership estimated the fair value
of the partnership interest;
(c) An explanation of how the accrued interest was calculated;
(d) A statement of the dissenter's right to demand payment; and
(e) A copy of this article.
RCW 25.10.940 MERGER--NOT EFFECTIVE WITHIN SIXTY DAYS--TRANSFER
RESTRICTIONS. (1) If the proposed merger does not become effective within sixty
days after the date set for demanding payment, the limited partnership shall
release any transfer restrictions imposed as permitted by RCW 25.10.930.
(2) If, after releasing transfer restrictions, the proposed merger becomes
effective, the limited partnership must send a new dissenters' notice as
provided in RCW 25.10.910(2) and 25.10.920 and repeat the payment demand
procedure.
RCW 25.10.945 DISSENTER'S ESTIMATE OF FAIR VALUE--NOTICE. (1) A dissenter
may notify the limited partnership in writing of the dissenter's own estimate of
the fair value of the dissenter's partnership interest and amount of interest
due, and demand payment of the dissenter's estimate, less any payment under RCW
25.10.935, if:
(a) The dissenter believes that the amount paid is less than the fair
value of the dissenter's partnership interest or that the interest due is
incorrectly calculated;
(b) The limited partnership fails to make payment within sixty days after
the date set for demanding payment; or
(c) The limited partnership, having failed to effectuate the proposed
merger, does not release the transfer restrictions imposed on partnership
interests as permitted by RCW 25.10.930 within sixty days after the date set for
demanding payment.
(2) A dissenter waives the right to demand payment under this section
unless the dissenter notifies the limited partnership of the dissenter's demand
in writing under subsection (1) of this section within thirty days after the
limited partnership made payment for the dissenter's partnership interest.
RCW 25.10.950 UNSETTLED DEMAND FOR PAYMENT--PROCEEDING--
PARTIES--APPRAISERS. (1) If a demand for payment under RCW 25.10.945 remains
unsettled, the limited partnership shall commence a proceeding within sixty days
after receiving the payment demand and petition the court to determine the fair
value of the partnership interest and accrued interest. If the limited
partnership does not commence the proceeding within the sixty-day period, it
shall pay each dissenter whose demand remains unsettled the amount demanded.
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<PAGE> 89
(2) The limited partnership shall commence the proceeding in the superior
court. If the limited partnership is a domestic limited partnership, it shall
commence the proceeding in the county where its office is maintained as required
by RCW 25.10.040(1). If the limited partnership is a domestic corporation, it
shall commence the proceeding in the county where its principal office, as
defined in *RCW 23B.01.400(17), is located, or if none is in this state, its
registered office under RCW 23B.05.010. If the limited partnership is a foreign
limited partnership or corporation without a registered office in this state, it
shall commence the proceeding in the county in this state where the office of
the domestic limited partnership maintained pursuant to RCW 25.10.040(1) merged
with the foreign limited partnership or foreign corporation was located.
(3) The limited partnership shall make all dissenters (whether or not
residents of this state) whose demands remain unsettled parties to the
proceeding as in an action against their partnership interests and all parties
must be served with a copy of the petition. Nonresidents may be served by
registered or certified mail or by publication as provided by law.
(4) The limited partnership may join as a party to the proceeding any
partner who claims to be a dissenter but who has not, in the opinion of the
limited partnership, complied with the provisions of this chapter. If the court
determines that such partner has not complied with the provisions of this
article, the partner shall be dismissed as a party.
(5) The jurisdiction of the court in which the proceeding is commenced is
plenary and exclusive. The court may appoint one or more persons as appraisers
to receive evidence and recommend decisions on the question of fair value. The
appraisers have the powers described in the order appointing them or in any
amendment to it. The dissenters are entitled to the same discovery rights as
parties in other civil proceedings.
(6) Each dissenter made a party to the proceeding is entitled to judgment
for the amount, if any, by which the court finds the fair value of the
dissenter's partnership interest, plus interest, exceeds the amount paid by the
limited partnership.
RCW 25.10.955 UNSETTLED DEMAND FOR PAYMENT--COSTS--FEES AND EXPENSES OF
COUNSEL. (1) The court in a proceeding commenced under RCW 25.10.950 shall
determine all costs of the proceeding, including the reasonable compensation and
expenses of appraisers appointed by the court. The court shall assess the costs
against the limited partnership, except that the court may assess the costs
against all or some of the dissenters, in amounts the court finds equitable, to
the extent the court finds the dissenters acted arbitrarily, vexatiously, or not
in good faith in demanding payment.
(2) The court may also assess the fees and expenses of counsel and experts
for the respective parties, in amounts the court finds equitable:
(a) Against the limited partnership and in favor of any or all dissenters
if the court finds the limited partnership did not substantially comply with the
requirements of this article; or
(b) Against either the limited partnership or a dissenter, in favor of any
other party, if the court finds that the party against whom the fees and
expenses are assessed acted arbitrarily, vexatiously, or not in good faith with
respect to the rights provided by this article.
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<PAGE> 90
(3) If the court finds that the services of counsel for any dissenter were
of substantial benefit to other dissenters similarly situated, and that the fees
for those services should not be assessed against the limited partnership, the
court may award to these counsel reasonable fees to be paid out of the amounts
awarded the dissenters who were benefited.
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<PAGE> 91
ANNEX IV
Per Unit Proceeds to Unitholders if the Northwest II Motels Were Sold Based Upon
the Best Offer Received by Exvere
<TABLE>
<CAPTION>
<S> <C>
Northwest II's allocated share
of proposed $80 million Purchase Price $ 9,112,000(1)
Less: Current Liabilities in excess
of Current Assets at
September 30, 1998 after
deduction of Cash Distributions
to Partners of $178,764 paid October 31, 1998
and $119,203 paid January 31, 1999 (92,425)
Less: Long-Term Debt at September 30, 1998 (2,445,805)
-----------
Amount Available for Distribution
Before Selling Costs $ 6,573,770
Less: Estimated selling costs and
expenses of winding down of Northwest II,
including 1% sales commission, title insurance,
real estate excise tax, appraisal fees
fairness opinion, legal, tax and accounting $ (457,036)
-----------
Net Available for Distribution to Partners $ 6,116,734
</TABLE>
<TABLE>
<CAPTION>
Allocation of Net Available for
Distribution to Partners Between
Limited Partners and General Partner:
Limited Partner General Partner Total
--------------- --------------- -----
<S> <C> <C> <C>
Priority Return of Net
Capital Contribution
Pursuant to Section 10 of
the Partnership Agreement $3,960,250 $ 40,002 $4,000,252
Remaining Net Available
For Distribution to Partners
Allocated 85% Limited
Partners and 15% General
Partner Pursuant to Section 10
of the Partnership Agreement 1,799,010 317,472 2,116,482
---------- ---------- ----------
TOTAL $5,759,260 $ 357,474 $6,116,734
---------- ---------- ----------
</TABLE>
Per Unit Distribution
To Limited Partners $5,759,260 / 4,052 = $1,421
- --------
(1) Excludes the proposed $4 Million contingent purchase price based upon the
performance of the 27 motel properties over a 5-year period which, if
earned, would result in an additional payment of $93 per unit to Northwest
II Unitholders.
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<PAGE> 92
Per Unit Proceeds to Unitholders if the Northwest II Motels Were Sold
Individually at the McKee Appraised Values.
<TABLE>
<S> <C>
Appraised Values:
Bremerton - without land $ 1,300,000
Yakima - without land 2,080,000
Portland 5,300,000
-----------
TOTAL $ 8,680,000
Less: Current Liabilities in excess
of Current Assets at
September 30, 1998 after
deduction of Cash Distributions to Partners
of $178,764 paid October 31, 1998 and
$119,203 Paid January 31, 1999 (92,425)
Less: Long-Term Debt at September 30, 1998 (2,445,805)
-----------
Amount Available for Distribution
Before Selling Costs $ 6,141,770
Less: Estimated selling costs and
expenses of winding down of Northwest II,
including 4% sales commission, title insurance,
real estate excise tax, appraisal fees,
fairness opinion, legal, tax and accounting ($ 654,940)
-----------
Net Available for Distribution to Partners $ 5,486,830
</TABLE>
<TABLE>
<CAPTION>
Allocation of Net Available for
Distribution to Partners Between
Limited Partners and General Partners:
Limited Partner General Partners Total
--------------- ---------------- -----
<S> <C> <C> <C>
Priority Return of Net
Capital Contribution
Pursuant to Section 10 of
the Partnership Agreement $3,960,250 $ 40,022 $4,000,252
Remaining Net Available for
Distribution to Partners
Allocated 85% Limited
Partners and 15% General
Partners Pursuant to Section 10
of the Partnership Agreement 1,263,592 222,986 1,486,578
---------- ---------- ----------
TOTAL $5,223,842 $ 262,988 $5,486,830
---------- ---------- ----------
Per Unit Distributions
To Limited Partners $5,223,842 / 4,052 = $1,289
---------- ----- ------
</TABLE>
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<PAGE> 93
PROXY SUPER 8 MOTELS NORTHWEST II PROXY
7515 TERMINAL STREET, S.W., TUMWATER, WA 98501
---------------------------------------------
SPECIAL MEETING OF LIMITED PARTNERS -- FEBRUARY [ ], 1999
THIS PROXY IS SOLICITED ON BEHALF OF NORTHWEST II
The undersigned hereby appoints Gerald Whitcomb and Maryanne Whitcomb
as proxies, each with full power of substitution, and hereby authorizes them to
represent and to vote, in such manner as in their discretion shall be deemed
appropriate to carry out the authority as designated below, all the limited
partnership units of Super 8 Motels Northwest II ("Northwest II") held of record
by the undersigned on [ ], at the special meeting of limited partners to be held
February [ ], 1999, or any adjournments or postponements thereof.
1. Agreement and Plan of Merger and Reorganization, dated December 31,
1998, between Northwest II and Columbus Properties L.L.C. ("Merger").
___ FOR the Merger
___ AGAINST the Merger
___ ABSTAIN
2. In their discretion, the proxies are authorized to vote upon such
other business as may properly come before the meeting or any
adjournments thereof.
(OVER)
<PAGE> 94
THIS PROXY CARD, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER
DIRECTED HEREIN BY THE UNDERSIGNED LIMITED PARTNER, AND WILL GRANT DISCRETIONARY
AUTHORITY TO VOTE ON OTHER MATTERS. EXCEPT AS OTHERWISE DIRECTED, THIS PROXY
WILL BE VOTED FOR THE MERGER.
Please sign exactly as name appears below. When limited partnership
units are held by joint tenants, both should sign. When signing as an attorney,
executor, 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 partnership, please sign in partnership name by
authorized person.
PLEASE MARK, SIGN, DATE AND
RETURN THE PROXY CARD
PROMPTLY USING THE ENCLOSED
ENVELOPE.
DATED: __________, 1998
----------------------------
Signature
----------------------------
Signature, if held jointly
2
