<PAGE> 1
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or
Section 240.14a-12
FFCA Management Company Limited Partnership
-------------------------------------------
(Name of Person(s) Filing Proxy Statement)
GUARANTEED HOTEL INVESTORS 1985, L.P.
-------------------------------------
(Name of Registrant as Specified in Its Charter)
Payment of Filing Fee (Check the appropriate box):
/ / $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(j)(2)
or Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
1) Title of each class of securities to which
transaction applies: units of assigned limited
partnership interests
2) Aggregate number of securities to which transaction
applies: 200,000 units of assigned limited
partnership interests.
3) Per unit price or other underlying value of
transaction computed pursuant to Exchange Act Rule
0-11: $73,250,000 (determined by the amount of cash
consideration to be received in connection with the
proposed transaction)
4) Proposed maximum aggregate value of transaction:
5) Total fee paid: $14,650.00
/X/ Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
<PAGE> 2
GUARANTEED HOTEL INVESTORS 1985, L.P.
Dear Investor:
On behalf of FFCA Management Company Limited Partnership, the general
partner of Guaranteed Hotel Investors 1985, L.P., we are requesting your
consent to sell the hotels owned by Guaranteed Hotel Investors 1985, L.P.
pursuant to the proposals set forth in the accompanying Consent Solicitation
Statement. Thereafter, your partnership will be liquidated, all assets
distributed and a final Schedule K-1 issued. The general partner believes that
conditions in the hotel industry have substantially improved over the past
several years and therefore are requesting your consent to the sale of the
hotels.
Whether you own a few or many units in Guaranteed Hotel Investors
1985, L.P., it is important that your units be represented. We encourage you to
make certain your units are represented by signing and dating the accompanying
consent card and promptly returning it in the enclosed envelope. Please note
that a consent card that is not signed will be invalid.
Should you have any questions regarding this Consent Solicitation
Statement, please call D.F. King & Co., Inc. at 800-848-3410.
Sincerely,
FFCA Management Company
Limited Partnership
By: /s/ Morton Fleischer
-------------------------------------
Morton Fleischer, General Partner
Scottsdale, Arizona
Dated: January 29, 1996
<PAGE> 3
NOTICE OF CONSENT SOLICITATION
NOTICE IS HEREBY GIVEN that investors in Guaranteed Hotel Investors
1985, L.P. (the "Partnership") will be asked to consent to the following
proposals by March 15, 1996, unless extended from time to time by FFCA
Management Company Limited Partnership (the "General Partner") (the "Consent
Date"):
1. A proposal to authorize the General Partner to accept the
terms of an offer to purchase all of the Partnership's
interest in three parcels of land located in Irving, Texas;
Fort Lauderdale, Florida; and Tampa, Florida and the three
hotels (including related equipment, fixtures and personal
property) situated thereon (collectively, the "Hotels") in a
single transaction, by Starwood Lodging Trust through its
affiliate, SLT Realty Limited Partnership (collectively, the
"Buyer") for a cash payment of $73,250,000 and the assumption
by the Buyer of all of the Partnership's obligations with
respect to the Hotels and the release of the Partnership of
all liabilities related to its ownership of the Hotels, which
purchase will be followed by a liquidation of the Partnership
and final distribution of assets as described in this Consent
Solicitation Statement. This proposal also authorizes the
General Partner, in the event the Buyer fails to purchase the
Hotels, to negotiate and accept the terms of an offer to
purchase the Hotels with any other party not affiliated with
the Partnership or General Partner, provided that the
purchase price is at least $70,000,000 and paid in cash.
2. A proposal to amend the Partnership Agreement to authorize
the payment of a fee in the amount of $982,620 to the General
Partner upon completion of the sale of the Hotels and
liquidation of the Partnership for substantial and
unanticipated services (as described in the Consent
Solicitation Statement) rendered to the Partnership from
January 1, 1991 to the date of liquidation of the
Partnership. These services were not anticipated under the
original Partnership Agreement which did not contemplate the
direct ownership of the Hotels by the Partnership and
therefore contained no provisions for the compensation of the
General Partners for services performed when the Partnership
owned and operated the Hotels. The amount of this fee is
based upon the loan servicing fees that would have been paid
to the General Partner if the Hotels had not been acquired by
the Partnership.
Each person (an "Investor") who holds one or more units of assigned
limited partnership interests ("Units") in the Partnership and is reflected as
an Investor on the books and records of the Partnership on the date of mailing
of this Notice of the Consent Solicitation is entitled to receive such notice
and consent to these proposals. Valid transferees of Units after the date of
the Consent Solicitation Statement and prior to the Consent Date will be
entitled to revoke or revise a consent previously given by the transferor with
respect to such Units before the Consent Date. An affirmative vote of Investors
holding a majority of Units is required to approve each proposal. Although
Investors have the opportunity to vote on both Proposal No. 1 and Proposal
<PAGE> 4
No. 2, Proposal No. 2 is contingent upon Investor approval of Proposal No. 1.
To the extent Proposal No. 1 is not approved by an affirmative vote of
Investors holding a majority of Units, Proposal No. 2 will not be adopted
regardless of the vote of Investors. FFCA Investor Services Corporation 85-A,
the initial limited partner (the "Initial Limited Partner") and holder of
record of the limited partnership interests in the Partnership will deliver the
consents of the Investors to the Partnership as directed by Investors. No
meeting of Investors will be held.
All Investors are requested to complete, date and sign the enclosed
Consent Card and return it promptly in the postage paid, return-addressed
envelope provided for that purpose. By returning your Consent Card promptly you
can help the Partnership avoid the expense of follow-up mailings.
THE ENCLOSED CONSENT IS BEING SOLICITED BY THE GENERAL PARTNER. THE
GENERAL PARTNER RECOMMENDS THAT YOU VOTE IN FAVOR OF THE PROPOSALS.
FFCA Management Company
Limited Partnership
By: /s/ Morton Fleischer
--------------------------------------
Morton Fleischer, General Partner
Scottsdale, Arizona
Dated: January 29, 1996
<PAGE> 5
<TABLE>
<CAPTION>
----------------------------------
TABLE OF CONTENTS
----------------------------------
Page
----
<S> <C>
SUMMARY ......................................................................................... iii
The Partnership............................................................................... iii
Events Subsequent to the Initial Financing of the Hotels by the Partnership................... iii
Proposed Sale of the Hotels................................................................... iv
The Buyer and Purchase Price.................................................................. iv
Estimated Liquidating Distributions........................................................... v
Liquidation Procedures........................................................................ v
Fairness Opinion.............................................................................. vi
The Proposals................................................................................. vi
Recommendation of the General Partner......................................................... vi
Federal Income Tax Consequences............................................................... vi
GENERAL INFORMATION............................................................................... 1
CONSENT PROCEDURES................................................................................ 2
HISTORY OF THE PARTNERSHIP........................................................................ 3
Initial Organization and Operations........................................................... 3
The 1991 Default by the Woolley/Sweeney Partnerships.......................................... 5
The 1993 Texas State Court Action............................................................. 7
Doubletree Management......................................................................... 7
Engagement of Financial Advisor............................................................... 8
Fairness Opinion of Lehman Brothers........................................................... 9
Solicitation of Potential Purchasers.......................................................... 10
Purchase Agreement............................................................................ 11
Appraisals.................................................................................... 14
PROPOSAL NO. 1: SALE OF ALL PARTNERSHIP PROPERTY.................................................. 15
Benefits of Sale of Hotels and Liquidation of Partnership..................................... 15
Detriments of Sale of Hotels and Liquidation of Partnership................................... 16
Partnership Agreement Provisions Regarding Dissolution of Partnership......................... 17
Accounting Treatment.......................................................................... 18
Federal Income Tax Considerations............................................................. 18
Opinions of Counsel........................................................................... 18
Federal Income Tax Characterization of the Partnership and the Trust Fund..................... 19
Tax Consequences of the Sale.................................................................. 20
Taxation of Tax-exempt Investors.............................................................. 22
</TABLE>
i
<PAGE> 6
<TABLE>
<S> <C>
State Tax Consequences and Withholding........................................................ 22
Regulatory Requirements....................................................................... 22
PROPOSAL NO. 2: GENERAL PARTNER FEE............................................................... 23
GENERAL PARTNER COMPENSATION...................................................................... 25
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.................................... 26
INDUSTRY ......................................................................................... 26
HOTELS ......................................................................................... 27
LEGAL PROCEEDINGS................................................................................. 28
MARKET FOR UNITS AND RELATED SECURITY HOLDER MATTERS.............................................. 28
SELECTED FINANCIAL DATA........................................................................... 29
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS............. 30
Liquidity and Capital Resources............................................................... 30
Results of Operations......................................................................... 31
Litigation.................................................................................... 33
Inflation..................................................................................... 36
UNAUDITED PRO FORMA FINANCIAL INFORMATION......................................................... 36
Adjustments to Unaudited Pro Forma Balance Sheet.............................................. 37
SOLICITATION OF CONSENTS.......................................................................... 41
ANNUAL REPORT AND OTHER DOCUMENTS................................................................. 41
OTHER MATTERS..................................................................................... 41
NOTICE TO BANKS, BROKER-DEALERS AND VOTING TRUSTEES AND THEIR
NOMINEES...................................................................................... 41
</TABLE>
ii
<PAGE> 7
SUMMARY
The following is a summary of certain information contained in this
Consent Solicitation Statement. This summary is not intended to be complete and
is qualified in its entirety by the more detailed information and financial
statements contained elsewhere in this Consent Solicitation Statement.
References to the Amended and Restated Certificate and Agreement of Limited
Partnership (the "Partnership Agreement") of Guaranteed Hotel Investors 1985,
L.P. (the "Partnership") contained in this Consent Solicitation Statement are
qualified in their entirety by the terms of the Partnership Agreement
previously filed with the Securities and Exchange Commission, which is
incorporated in this Consent Solicitation Statement by reference. Copies of the
Partnership Agreement will be furnished, without charge, to any Investor who
makes a written or oral request therefor to William S. Parker, Investor
Services, FFCA Management Company Limited Partnership, 17207 North Perimeter
Drive, Scottsdale, Arizona 85255, telephone number (602) 585-4500.
THE PARTNERSHIP
The Partnership is a Delaware limited partnership formed in 1985 to
provide permanent financing for three hotels operated by separate partnerships
which were affiliated with Robert E. Woolley and Charles M. Sweeney (the
"Woolley/Sweeney Partnerships"). The permanent financing was provided by the
Partnership under separate ground leases with, and loans to, the
Woolley/Sweeney Partnerships. See "HISTORY OF THE PARTNERSHIP."
EVENTS SUBSEQUENT TO THE INITIAL FINANCING OF THE HOTELS BY THE PARTNERSHIP
During 1991, the Woolley/Sweeney Partnerships failed to comply with
the terms of their financing agreements with the Partnership and stopped making
required payments to the Partnership. After extended negotiations, the
Partnership executed a settlement agreement (the "1992 Settlement Agreement")
with the Woolley/Sweeney Partnerships in April 1992. Under the 1992 Settlement
Agreement, the Woolley/Sweeney Partnerships conveyed to the Partnership the
Hotels located in Irving, Texas, Fort Lauderdale, Florida and Tampa, Florida.
Management agreements were also executed in April 1992 between the Partnership
and Crown Sterling Management, Inc. ("CSMI"), an affiliate of the
Woolley/Sweeney Partnerships and provided for the management of the hotels by
CSMI for an 18-month period.
In August 1993, CSMI and Messrs. Woolley and Sweeney commenced
litigation in state court in Dallas, Texas against the Partnership and others
alleging, among other things, that the Partnership had orally extended the term
of the management contract for the Hotels. This litigation was settled and CSMI
delivered possession of the Hotels to the Partnership in May 1994 (the "1994
Settlement Agreement").
In May 1994, management agreements (the "Doubletree Management
Agreements") with respect to the Hotels were executed by the Partnership with
Doubletree Partners, an affiliate of Doubletree Hotels Corporation
("Doubletree"). The Hotels are currently operated as "Doubletree Guest Suites."
See "HISTORY OF THE PARTNERSHIP."
iii
<PAGE> 8
PROPOSED SALE OF THE HOTELS
As a result of improving conditions in the hotel industry, FFCA
Management Company Limited Partnership (the "General Partner"), the general
partner of the Partnership, on behalf of the Partnership engaged Lehman
Brothers Inc. ("Lehman Brothers") in June 1995 to provide services to the
Partnership in connection with a possible sale of the Hotels. These conditions
included increased liquidity for the financing of hotel acquisitions and the
lack of substantial new construction of hotels. The market for hotel sales has
also recently improved, as reflected by an increasing number of purchases of
hotels and recent increases in both average daily room rates and occupancy
rates for many hotels throughout the United States.
In connection with the sale of the Hotels, the General Partner
considered retaining several investment banking firms and selected Lehman
Brothers on the basis of its financial expertise. Lehman Brothers is an
internationally recognized investment banking firm headquartered in New York
City and has substantial experience in executing transactions for the hotel
industry. From June through August of 1995, Lehman Brothers identified
potential purchasers of the Hotels and, after initially contacting such
purchasers, sent detailed information to approximately 15 potential purchasers.
In order to liquidate and terminate the Partnership, the General Partner
advised potential purchasers that cash purchase offers would be preferred. By
September 25, 1995, Lehman Brothers received five bids from potential
purchasers which ranged from approximately $57,000,000 to $72,000,000. Three of
these bidders were then requested to consider increasing their offers in a
"best and final" round of bidding and to review the Partnership's proposed form
of purchase agreement for the Hotels. Thereafter, three revised offers were
received. See "PROPOSAL NO. 1-SALE OF ALL PARTNERSHIP PROPERTY."
THE BUYER AND PURCHASE PRICE
Each of the three final bidders submitted a revised offer to the
Partnership by October 6, 1995. After a review of these offers, the Partnership
has entered into the Purchase Agreement with Starwood Lodging Trust ("SLT"),
through its affiliate, SLT Realty Limited Partnership (collectively, the
"Buyer"). The Buyer has agreed, subject to the consent of Investors, to acquire
from the Partnership fee simple title to the Hotels, for a cash payment of
$73,250,000. The Buyer is not affiliated with the General Partner or the
Partnership or the Woolley/Sweeney Partnerships.
SLT conducts all of its business as the general partner of SLT Realty
Limited Partnership, and is the only hotel real estate investment trust whose
shares are paired with those of a hotel operating company, Starwood Lodging
Corporation ("SLC"), the shares of which are traded as units (the "Paired
Shares"). Together, SLT and SLC own equity and mortgage interests in a
geographically diversified portfolio of hotel assets throughout the United
States, which as of January 19, 1996 totalled 50 hotels. Many of the hotels are
operated under licensing or franchise agreements with national hotel
organizations. The Paired Shares are listed on the New York Stock Exchange and,
as of January 19, 1996, the Paired Shares, including those issuable upon the
exchange of partnership units, have an equity market capitalization of
approximately $613,000,000. See "PROPOSAL NO. 1-SALE OF ALL PARTNERSHIP
PROPERTY."
iv
<PAGE> 9
ESTIMATED LIQUIDATING DISTRIBUTIONS
The General Partner estimates that the sale of the Hotels to the Buyer
for $73,250,000, followed by a distribution and liquidation of the Partnership
would result in estimated liquidating distributions of approximately $378 in
cash per $500 Unit. The estimated liquidating distribution will be paid to
Investors in two installments, which are estimated to be approximately $368 and
$10, respectively, in cash per $500 Unit. The two installments are necessary
because the Partnership has agreed with the Buyer to establish a trust fund
(the "Trust Fund") in the amount of $2,000,000 with Norwest Bank Arizona,
National Association. The Trust Fund is the sole and exclusive source of funds
to which the Buyer will look subsequent to the sale of the Hotels for recourse
in the event of a default by the Partnership of its representations,
warranties, covenants or obligations under the Purchase Agreement. The
Partnership will distribute to Investors the first installment as soon as
practicable after the sale of the Hotels to the Buyer. The second installment
will be distributed to Investors after one year if no claims have been made by
the Buyer, or as soon as practicable after a final decision has been rendered
on all disputed claims, but in no event later than three years after the
acquisition of the Hotels by the Buyer. There can be no assurance, however,
that the actual liquidating distribution to be received by Investors will be
equal to the estimated liquidation distribution and such actual liquidation
distribution will be dependent on unforeseen or contingent liabilities of the
Partnership.
As of the date of this Consent Solicitation Statement, Investors who
purchased Units at the initial admission of Investors to the Partnership on
February 6, 1986 have received quarterly cash distributions of $335.86 per $500
Unit, which when combined with the estimated liquidating distributions of
approximately $378 per Unit would result in total cash distributions to
Investors admitted in February 1986 for the life of the Partnership of
approximately $714 per $500 Unit. Investors were also admitted to the
Partnership on May 9, 1986. These Investors have received quarterly cash
distributions of $325.35 per $500 Unit which, when combined with the estimated
liquidating distribution of approximately $378 per Unit, would result in total
cash distributions to the Investors admitted in May 1986 for the life of the
Partnership of approximately $703 per $500 Unit. See "UNAUDITED PRO FORMA
FINANCIAL INFORMATION."
LIQUIDATION PROCEDURES
As soon as practicable after the sale of the Hotels to the Buyer, the
General Partner will take all steps necessary to complete the liquidation of
the Partnership. Upon liquidation of the Partnership, the General Partner will
apply and distribute the assets of the Partnership to Investors and the General
Partner in accordance with the provisions of the Partnership Agreement, and
$2,000,000 will be deposited in the Trust Fund. Distributions from the Trust
Fund will be made to Investors, as beneficiaries of the Trust Fund, in the same
manner as required for liquidating distributions under the Partnership
Agreement. Each Investor will receive a final Schedule K-1 from the Partnership
as soon as practicable after the liquidation of the Partnership. It is
estimated that the transaction costs of the sale of the Hotels and the
liquidation of the Partnership will be approximately $500,000 (exclusive of the
financial advisory fee or the fee to the General Partner if Proposal No. 2 is
approved).
v
<PAGE> 10
FAIRNESS OPINION
The General Partner requested, and Lehman Brothers has rendered, an
opinion (the "Fairness Opinion") with respect to the fairness, from a financial
point of view, to the Partnership of the purchase price of the Hotels. Lehman
Brothers will receive a fee for its services in connection with the sale of the
Hotels, which fee is contingent upon the consummation of such sale. Lehman
Brothers has also performed various investment banking services for affiliates
of the General Partner and the Partnership in the past and have received
customary fees for such services. See "HISTORY OF THE PARTNERSHIP-Engagement of
Financial Advisor."
THE PROPOSALS
Investors will be asked to consent to the following two proposals,
which are described in greater detail under "NOTICE OF CONSENT SOLICITATION" in
this Consent Solicitation Statement to authorize: (i) the sale of the three
Hotels to the Buyer for an amount equal to $73,250,000 in cash, or, if the
Buyer does not acquire the Hotels, the sale to any other third party not
affiliated with the General Partner or the Partnership for a purchase price of
at least $70,000,000, to be paid in cash, and liquidation of the Partnership
and final distribution of assets, and (ii) the payment of a fee to the General
Partner for substantial and unanticipated services rendered to the Partnership
since January 1, 1991 in the amount of $982,620 as a substitute for loan
servicing fees which would have been paid to the General Partner if the Hotels
had not been acquired by the Partnership. The payment of a fee to the General
Partner is contingent upon the approval by the Investors of the sale of the
Hotels. See "PROPOSAL NO. 2-GENERAL PARTNER FEE."
RECOMMENDATION OF THE GENERAL PARTNER
THE GENERAL PARTNER RECOMMENDS THAT, IN LIGHT OF IMPROVED CONDITIONS
IN THE HOTEL INDUSTRY, INVESTORS APPROVE THE SALE OF THE HOTELS AND LIQUIDATION
OF THE PARTNERSHIP AS DESCRIBED IN PROPOSAL NO. 1. THE GENERAL PARTNER FURTHER
RECOMMENDS THAT, IN LIGHT OF THE SUBSTANTIAL AND UNANTICIPATED SERVICES
RENDERED BY THE GENERAL PARTNER SINCE JANUARY 1, 1991, THAT INVESTORS APPROVE
THE FEE AS DESCRIBED IN PROPOSAL NO. 2.
FEDERAL INCOME TAX CONSEQUENCES
The sale of the Hotels will constitute a taxable transaction for
federal income tax purposes. A taxable gain of approximately $125 per $500 Unit
is anticipated from the sale, a majority of which will be a capital gain for
federal income tax purposes. As a result of the liquidation of the Partnership,
each Investor who acquired his Units in the initial offering is also expected
to recognize a loss of approximately $53 per Unit. Each Investor should consult
his own tax advisor as to the specific consequences of this transaction. See
"PROPOSAL NO. 1-SALE OF ALL PARTNERSHIP PROPERTY-Tax Consequences of the Sale."
vi
<PAGE> 11
GUARANTEED HOTEL INVESTORS 1985, L.P.
17207 NORTH PERIMETER DRIVE
SCOTTSDALE, ARIZONA 85255
-------------------------------------------
CONSENT SOLICITATION STATEMENT
-------------------------------------------
GENERAL INFORMATION
The Partnership was formed on July 22, 1985 under the Delaware Revised
Uniform Limited Partnership Act to acquire three parcels of land located in
Irving, Texas; Fort Lauderdale, Florida; and Tampa, Florida on which three
hotels are situated. The Partnership leased each of these parcels to the
Woolley/Sweeney Partnerships under separate ground leases and made separate
first mortgage loans for the permanent financing of the Hotels. As described
below, the Hotels currently operate as Doubletree Guest Suites which provide
guest rooms, group meeting room facilities, restaurants and shops. The general
partner of the Partnership is FFCA Management Company Limited Partnership, a
Delaware limited partnership (the "General Partner"). The general partners of
the General Partner are Perimeter Center Management Company, a Delaware
corporation ("PCMC") and Mr. Morton Fleischer. The initial limited partner of
the Partnership is FFCA Investor Services Corporation 85-A, a Delaware
corporation wholly-owned by PCMC (the "Initial Limited Partner"). The Initial
Limited Partner holds legal title to the limited partnership interests of the
Partnership (the "Limited Partnership Interests") and is used to avoid state
filing requirements when Investors transfer Units.
This Consent Solicitation Statement, the accompanying Consent Card
(the "Consent"), and the Notice of Consent Solicitation will be first mailed or
given to each person (an "Investor") who holds one or more units of assigned
limited partnership interests (the "Units") in the Partnership on or about
January 29, 1996. The Initial Limited Partner cannot vote its own interests in
connection with this Consent Solicitation Statement. The executive offices of
the Partnership and the Initial Limited Partner are located at The Perimeter
Center, 17207 North Perimeter Drive, Scottsdale, Arizona 85255 and the
telephone number is (602) 585-4500.
This Consent Solicitation Statement is furnished in connection with
the solicitation by the General Partner of consents directing the Initial
Limited Partner to deliver the consents of Investors to the Partnership
regarding the proposals described herein on March 15, 1996, a period of 45 days
from the date of this Consent Solicitation Statement, unless extended from time
to time by the General Partner (the "Consent Date"). The consents are being
solicited by the General Partner pursuant to Section 11.2 of the Second Amended
and Restated Certificate and Agreement of Limited Partnership of the
Partnership (the "Partnership Agreement"). The information contained herein
concerning the Partnership and the General Partner has been furnished by the
General Partner. Information contained herein concerning the Buyer has been
furnished to the General Partner by the Buyer.
<PAGE> 12
The General Partner solicits consents by mail to give each Investor an
opportunity to direct the Initial Limited Partner to vote the number of Limited
Partnership Interests corresponding to the number of Units held by the Investor
on all matters described in this Consent Solicitation Statement. Investors are
urged to: (i) read this Consent Solicitation Statement carefully; (ii) specify
their choice in each matter by marking the appropriate box on the enclosed
Consent Card; and (iii) sign, date and return the Consent Card by mail in the
postage-paid, return addressed envelope provided for that purpose.
All Units represented by a properly executed and valid Consent Card
received prior to the Consent Date will be voted by the Initial Limited Partner
in accordance with the instructions marked thereon or otherwise as provided
therein, unless such Consent Card has previously been revoked or revised.
Unless instructions to the contrary are marked, or if no instructions are
specified, the Initial Limited Partner will treat each such Consent Card as a
direction to vote the Units represented thereby in favor of the proposals set
forth on the Consent Card. Any Consent Card may be revoked or revised at any
time prior to the Consent Date by submitting another Consent Card bearing a
later date or by giving written notice of revocation to the Initial Limited
Partner at the Partnership's address indicated above. Any notice of revocation
or revision sent to the Partnership must include the Investor's name, the
number of Units with respect to which the prior Consent Card was given, and a
statement that the Investor revokes all previously executed Consent Cards, and
must be received prior to the Consent Date to be effective.
CONSENT PROCEDURES
Pursuant to the Partnership Agreement, only Investors are entitled to
consent to matters under the Partnership Agreement. The General Partner is not
entitled to vote. The Initial Limited Partner is the holder of all of the
Limited Partnership Interests in the Partnership. On the Consent Date, 200,000
Units representing interests in the Limited Partnership Interests will be held
by Investors.
Each Limited Partnership Interest on the Consent Date is entitled to
one vote. Pursuant to Sections 7.2 and 11.2 of the Partnership Agreement, each
Investor will be entitled to direct the Initial Limited Partner to vote on the
Consent Date (and the Initial Limited Partner is required to vote in accordance
with the Investor's direction) that number of Limited Partnership Interests
equal to the number of Units held by the Investor on the Consent Date. A
REFERENCE IN THIS CONSENT SOLICITATION STATEMENT TO A CONSENT WITH RESPECT TO
UNITS SHALL REFER TO SUCH DIRECTIONS GIVEN TO THE INITIAL LIMITED PARTNER BY
THE INVESTORS OF THE UNITS BY A PROPERLY EXECUTED CONSENT CARD OR SUBSEQUENT
REVISION THEREOF.
The Partnership Agreement does not provide for the setting of a record
date for determining the Investors entitled to vote Units with respect to
matters upon which votes will be cast on the Consent Date. Accordingly, each
Investor reflected on the books and records of the Partnership and the Initial
Limited Partner on the date of mailing of the Notice of Consent Solicitation
will be entitled to vote its Units on the Consent Date regarding the proposals
submitted for approval. If an Investor validly transfers one or more Units
after returning its
2
<PAGE> 13
Consent, the new Investor may revoke or revise, before the Consent Date, the
transferor Investor's Consent Card with respect to the transferred Units under
the procedures described under "General Information" for revoking or revising a
Consent Card.
The General Partner and its affiliates do not hold (and will not hold
as of the Consent Date) any Units, except that certain officers and directors
of PCMC hold four Units (less than one percent of the outstanding Units). These
officers and directors will vote their Units in favor of each proposal
described below.
An affirmative vote of a majority of Limited Partnership Interests on
the Consent Date is required for approval of each proposal being submitted for
a vote. Abstentions are counted in tabulations of the proposals but are not
deemed to be affirmative votes. Each proposal will be tabulated separately.
Although Investors have the opportunity to vote on both Proposal No. 1 and
Proposal No. 2, Proposal No. 2 is contingent upon Investor approval of Proposal
No. 1. To the extent Proposal No. 1 is not approved by an affirmative vote of
Investors holding a majority of Units, Proposal No. 2 will not be adopted
regardless of the vote of Investors.
Directions provided to the Initial Limited Partner by Consent will be
tabulated by an automated system administered by Gemysis Transfer Agents.
HISTORY OF THE PARTNERSHIP
INITIAL ORGANIZATION AND OPERATIONS
The Partnership was formed in July 1985 under the Delaware Revised
Uniform Limited Partnership Act to acquire three parcels of land located in
Irving, Texas; Fort Lauderdale, Florida; and Tampa, Florida on which three
hotels are situated. The Partnership leased each of the parcels to the
Woolley/Sweeney Partnerships under separate ground leases and made separate
first mortgage loans for the permanent financing of the Hotels. The Hotels were
required to be operated by the Woolley/Sweeney Partnerships as "Embassy Suites
Hotels" under the financing documents with the Partnership.
In November 1985, the Partnership commenced a public offering of
$100,000,000 of Units in the Partnership pursuant to a Registration Statement
on Form S-11 under the Securities Act of 1933, as amended. The Partnership sold
a total of 200,000 Units to investors at $500 per Unit for a total of
$100,000,000. The initial Investors, as purchasers of Units, acquired the
following number of Units on each of the following dates: 74,000 Units on
February 5, 1986, and 126,000 Units on May 9, 1986. Subsequent to that later
date, no Investor has made any additional capital contribution. The Investors
share in the benefits of ownership of the Partnership's assets, including its
real property investments, according to the number of Units held in
substantially the same manner as limited partners of a partnership.
After deducting organizational and offering expenses, including sales
commissions, the Partnership had $89,000,000 in net offering proceeds to invest
in the Hotels. Of this amount,
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approximately $86,538,000 was initially invested in the three Hotels. The
remainder of the net proceeds was used to establish a cash reserve.
The Partnership's principal objectives were to (i) preserve, protect
and enhance Partnership capital through guaranty and letter of credit
arrangements, (ii) provide annual cash distributions and (iii) provide for
participation in potential capital appreciation of the Hotels.
The Woolley/Sweeney Partnerships were required to make specified
payments to the Partnership under the ground lease and loan agreements with the
Partnership and such payments were secured by three separate letters of credit
with initial aggregate stated amounts of approximately $9,700,000 and the
personal guaranties of Messrs. Woolley and Sweeney. In addition, the
Partnership had the right to require Messrs. Woolley and Sweeney to repurchase
the Hotels at a price of approximately $35,636,000 for the Fort Lauderdale,
Florida Hotel, $35,068,000 for the Tampa, Florida Hotel and $41,426,000 for the
Irving, Texas Hotel (for a total of approximately $112,130,000), in the event
of default.
In the late 1980's, the hotel industry experienced substantial excess
capacity and overbuilding of hotels. This, coupled with an economic recession
in the United States, resulted in lower than projected occupancy, lower average
daily room rates and, therefore, lower income for the Hotels and other hotels
in the United States. Notwithstanding the industry's problems, the
Woolley/Sweeney Partnerships made, on a timely basis, all payments due to the
Partnerships from the date of the initial financing of the Hotels by the
Partnership through April 1991.
During the late 1980's, the Woolley/Sweeney Partnerships and their
franchisor, Embassy Suites, Inc. ("ESI") became involved in a dispute and
resulting litigation, which ultimately resulted in the termination of the ESI
franchise agreements with the Woolley/Sweeney Partnerships in December 1990.
The Woolley/Sweeney Partnerships elected to form a new hotel system using a
suite concept entitled "Crown Sterling Suites." Thereafter, the Partnership's
Hotels, as well as the 19 other hotels owned or controlled by the
Woolley/Sweeney Partnerships or their affiliates, were operated under the
"Crown Sterling Suites" hotel system. The termination of the ESI franchise
agreements constituted a default by the Woolley/Sweeney Partnerships under the
financing agreements with the Partnership and was done without the consent of
the Partnership.
Since the Woolley/Sweeney Partnerships were making payments to the
Partnership on a timely basis, the General Partner determined not to declare a
default or take any legal action at that time to enforce the Partnership's
rights to have the Hotels operated as Embassy Suite hotels or to have the
Hotels repurchased by Messrs. Woolley and Sweeney, but reserved the right to do
so at a later date.
Commencing in October 1990, the Partnership was notified by the bank
which had issued the three letters of credit in favor of the Partnership, that
the letters of credit would not be renewed. As a result, and because of the
failure of the Woolley/Sweeney Partnerships to make the required payments
commencing in April 1991, the Partnership called all three letters of
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<PAGE> 15
credit, in the amount of approximately $9,700,000, prior to their expiration.
Under the agreements with the Woolley/Sweeney Partnerships, proceeds from the
letters of credit were required to be used first to satisfy the current
quarterly payment obligations of the Woolley/Sweeney Partnerships. The
Partnership applied these proceeds to the quarterly payments due in July and
October 1991 and January 1992.
THE 1991 DEFAULT BY THE WOOLLEY/SWEENEY PARTNERSHIPS
Based upon the failure of the Woolley/Sweeney Partnerships to comply
with the terms of their agreements with the Partnership, in mid-1991, the
General Partner commenced discussions with legal counsel concerning remedies
and alternatives available under the agreements with the Woolley/Sweeney
Partnerships. After this analysis, the General Partner determined that it was
in the Partnership's best interests to enforce the Partnership's rights under
certain repurchase agreements (the "Repurchase Agreements"), pursuant to which
the Partnership could require Messrs. Woolley and Sweeney to repurchase the
Hotels for the sum of the original acquisition and outstanding principal loan
amounts with respect to all of the Hotels plus the accrued but unpaid interest
on the loans. Appropriate notices were sent to Messrs. Woolley and Sweeney in
July 1991, and the repurchase dates were set in accordance with the Repurchase
Agreements and the closings under the Repurchase Agreements were scheduled to
occur commencing in January 1992.
Upon receiving these notices, representatives of the Woolley/Sweeney
Partnerships commenced negotiations with the General Partner to resolve the
disputes with the Partnership. The General Partner reviewed available legal and
business options and concluded that efforts to enforce the Partnership's
agreements against the Woolley/Sweeney Partnerships would likely result in
protracted litigation and bankruptcy filings by the Woolley/Sweeney
Partnerships and their affiliates. The General Partner further concluded that a
bankruptcy filing by the Woolley/Sweeney Partnerships would likely delay the
ability of the Partnership to obtain control over the Hotels for a period of 6
to 24 months and could adversely affect the ability of the Partnership to
retain certain funds already in its possession. The General Partner further
concluded that during a bankruptcy proceeding, substantial deterioration of the
Hotels might occur and the Partnership might not receive most of the payments
due under its agreements. Similar delays and problems would likely be
experienced if the Partnership were to attempt to enforce the Repurchase
Agreements against Messrs. Woolley and Sweeney at that time. Based upon the
foregoing analysis, the General Partner concluded that it was in the
Partnership's best interests to obtain possession of the Hotels as quickly as
possible.
In order to obtain control of the Hotels and, among other things,
avoid prolonged litigation, the Partnership executed a settlement agreement
(the "1992 Settlement Agreement") in April 1992, with the Woolley/Sweeney
Partnerships. The 1992 Settlement Agreement provided that the ground leases
would be terminated and the Woolley/Sweeney Partnerships would convey the
Hotels to the Partnership. As a result, after the date of such terminations
and conveyance, the Partnership no longer received interest and rent payments
under the mortgage
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<PAGE> 16
and lease agreements related to the Hotels, rather it now owns the Hotels and
receives the actual operating income of the Hotels.
In the opinion of the General Partner, the 1992 Settlement Agreement
allowed the Partnership to obtain immediate ownership and control of the Hotels
and avoid extended and costly litigation. In addition, by entering into the
1992 Settlement Agreement with the Woolley/Sweeney Partnerships, the
Partnership avoided the possibility of the Woolley/Sweeney Partnerships filing
for relief under Chapter 11 of the federal bankruptcy laws which would likely
have resulted in substantial delays in obtaining ownership and control of the
Hotels by the Partnership, adversely affecting the ability of the Partnership
to retain certain funds already in its possession, and resulting in the risks
of deterioration in the physical condition of the Hotels.
Management agreements were also executed in April 1992 between the
Partnership and Crown Sterling Management, Inc. ("CSMI"), an affiliate of the
Woolley/Sweeney Partnerships. The management agreements provided for management
of the Hotels for an eighteen-month period at which time the agreements
terminated with no provision for extension. The management fee under the
agreements was equal to three percent of revenue, as defined therein.
In April 1992, as part of the 1992 Settlement Agreement, the
Partnership amended the Repurchase Agreements with Messrs. Woolley and Sweeney,
for the repurchase of the Hotels (the "First Amended Repurchase Agreements").
These amendments extended the date by five years by which the Partnership could
require Messrs. Woolley and Sweeney to repurchase the Hotels. The First Amended
Repurchase Agreements granted the Partnership an option to require Messrs.
Woolley and Sweeney to repurchase the Hotels from the Partnership without
notice, from October 8, 1996 until October 8, 1997. In addition, upon certain
events of default, the Partnership had the right to accelerate the repurchase
obligation after giving the requisite notice to Messrs. Woolley and Sweeney.
As part of the 1992 Settlement Agreement, the Partnership and two
affiliates of the Woolley/Sweeney Partnerships, Crown Sterling Real Estate, a
Texas corporation, and Crown Sterling Real Estate Associates, a Florida
corporation (the "Crown Entities"), also entered into an incentive fee
agreement in April 1992 (the "Incentive Fee Agreement"). The Incentive Fee
Agreement provided that if the Crown Entities identified and referred to the
Partnership potential buyers and a sale of the Hotels is consummated, then the
Crown Entities would be entitled to an incentive fee of 50% of the net sales
proceeds in excess of $112,129,658 in the aggregate from the sale or sales of
one or more of the Hotels. The Incentive Fee Agreement was terminated effective
May 19, 1994, with no incentive fee having been paid thereunder.
In addition, the 1992 Settlement Agreement granted the Woolley/Sweeney
Partnerships and Messrs. Woolley and Sweeney an option to purchase each of the
Hotels (the "Options") and granted the Woolley/Sweeney Partnerships a right of
first refusal with respect to a sale of each of the Hotels (the "Rights of
First Refusal"). The Options granted the Woolley/Sweeney Partnerships the
option to purchase the Hotels for five years from April 8, 1992, or such
shorter period upon the occurrence of various events described in the Options,
based upon the greater
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of the fair market value of the Hotels or the price specified in the First
Amended Repurchase Agreements. The Options were also terminated effective May
19, 1994.
THE 1993 TEXAS STATE COURT ACTION
In August 1993, CSMI and Messrs. Woolley and Sweeney, among others,
commenced litigation in state court in Dallas, Texas against the Partnership
and certain of its affiliates, Embassy Suites, Inc., and certain other
individuals and entities. In connection with this litigation, CSMI alleged,
among other things, that, notwithstanding the October 1993 expiration dates set
forth in the written management agreements, the expiration dates were extended
by three and one-half years through an oral agreement allegedly reached between
representatives of CSMI and the Partnership. CSMI asserted in its lawsuit that,
pursuant to the terms of the written management agreements, as allegedly
extended, the Partnership was responsible for the payment to CSMI of its
payroll expenses and management fees after October 1993. The Partnership denied
the existence of any oral agreements to extend the terms of the management
agreements beyond October 1993, and contended that, since the management
agreements expired by their terms on such date, no sums were due to CSMI which
would otherwise be payable under the management agreements with CSMI.
The Texas state court litigation was settled by the parties in May
1994 (the "1994 Settlement Agreement"). In connection with the settlement, CSMI
delivered possession of the Hotels to the Partnership in May 1994. All
agreements which were part of the 1992 Settlement Agreement were terminated as
of such date, except for the First Amended Repurchase Agreements, which were
further amended as described below. The Partnership agreed to pay CSMI for
certain expenses subject to verification and reconciliation by an outside
independent accounting firm. The Partnership also agreed to pay CSMI for
management services for the period from October 1993 through May 19, 1994.
On May 19, 1994, the Partnership also amended the First Amended
Repurchase Agreements with Messrs. Woolley and Sweeney, for the repurchase of
the Hotels (the "Second Amended Repurchase Agreements"). These amendments
extended the date by five years by which the Partnership could require Messrs.
Woolley and Sweeney to repurchase the Hotels. The Second Amended Repurchase
Agreements grant the Partnership an option to require Messrs. Woolley and
Sweeney to repurchase the Hotels from the Partnership on or after October 20,
2001, and on or before April 20, 2002, at a price of approximately $35,636,000
for the Fort Lauderdale, Florida Hotel, $35,068,000 for the Tampa, Florida
Hotel and $41,426,000 for the Irving, Texas Hotel (for a total of approximately
$112,130,000). Upon certain events of default, the Partnership may accelerate
the repurchase obligation after giving the requisite notice to Messrs. Woolley
and Sweeney.
DOUBLETREE MANAGEMENT
Since the management agreements with CSMI were scheduled to expire in
October 1993, the General Partner commenced a review of the management and
licensing of the Hotels by third
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<PAGE> 18
parties during 1993. The General Partner reviewed additional information and
had personal meetings with senior officers of different management companies
and hotel chains. As a result, the General Partner determined that it was in
the best interests of the Partnership that all three Hotels be managed by
Doubletree Hotels Corporation ("Doubletree") and licensed as "Doubletree Guest
Suites." The General Partner proceeded to negotiate and execute management
agreements with Doubletree. Management of the Hotels was transferred to
Doubletree Partners, an affiliate of Doubletree, in May 1994 and the Hotels
currently operate as Doubletree Guest Suites which provide guest rooms and
group meeting room facilities. One of the Hotels owns and operates a restaurant
within the Hotel, and the two other Hotels lease the Hotel restaurant to a
third party operator.
ENGAGEMENT OF FINANCIAL ADVISOR
Pursuant to a letter dated June 16, 1995 (the "Engagement Letter"),
the General Partner on behalf of the Partnership engaged Lehman Brothers Inc.
("Lehman Brothers") to provide certain services to the Partnership in
connection with the sale of the Hotels. Lehman Brothers is an internationally
recognized investment banking firm headquartered in New York City and has
substantial experience in executing transactions for the hotel industry. The
General Partner selected Lehman Brothers on the basis of such expertise.
Under the Engagement Letter, the Partnership has engaged Lehman
Brothers as the Partnership's sole and exclusive agent for the purpose of (i)
providing financial advisory services to the Partnership in connection with the
sale of the Hotels, (ii) identifying opportunities for the sale of the Hotels
and advising the Partnership with respect to all such opportunities (whether or
not identified by Lehman Brothers) and (iii) as requested by the Partnership,
participating on behalf of the Partnership in negotiations concerning the sale
of the Hotels.
In connection with accepting the Engagement Letter, Lehman Brothers
also has specifically agreed to do the following: (i) assist in the preparation
and dissemination of descriptive information concerning the Hotels, (ii)
develop, update and review with the Partnership on an on-going basis a list of
parties which might be interested in acquiring the Hotels, and (iii) if
requested by the Partnership, render an opinion (the "Fairness Opinion") with
respect to the fairness, from a financial point of view, to the Partnership of
the purchase price of the Hotels. The General Partner has requested Lehman
Brothers to prepare and deliver the Fairness Opinion.
Among other things, the Partnership is obligated to make available to
Lehman Brothers all information concerning the business, assets, operations,
financial conditions and prospects of the Partnership and the Hotels that is
reasonably requested by Lehman Brothers. The General Partner does not intend to
impose any limitations on Lehman Brothers with respect to the investigations
made or procedures to be followed by it in performing its obligations under the
Engagement Letter.
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For its services, the Partnership will reimburse Lehman Brothers for
its reasonable expenses (including, without limitation, professional and legal
fees and disbursements); provided, however, that the amount of the
reimbursement shall not exceed $25,000 without approval of the Partnership. The
Partnership also will pay to Lehman Brothers one percent (1%) of the
Consideration involved in the sale of the Hotels (i) if the sale occurs during
the term of the Engagement Letter regardless of whether the purchasers were
identified by Lehman Brothers or Lehman Brothers rendered advice concerning
such sale or (ii) if a sale occurs at any time during the 12 months following
the effective date of the termination of the Engagement Letter. The Engagement
Letter defines "Consideration" generally to include the amount of all cash paid
by a purchaser of the Hotels. If the Hotels are sold to the Buyer for
$73,250,000, Lehman Brothers will receive a fee of $732,500. The compensation
for the sale of the Hotels is payable to Lehman Brothers at the closing of the
sale of the related Property. The Partnership has also agreed to indemnify and
hold Lehman Brothers harmless against certain liabilities, including
liabilities arising under federal securities laws and other losses, claims,
damages or liabilities arising out of the services to be rendered by Lehman
Brothers (unless the losses, claims, damages or liabilities are determined to
have resulted from the gross negligence or willful misconduct of Lehman
Brothers).
Generally, the term of the Engagement Letter extends 12 months from
the date of the Engagement Letter, provided that (with certain exceptions)
either party may terminate the Engagement Letter by giving the other party at
least 10 days prior written notice.
FAIRNESS OPINION OF LEHMAN BROTHERS
The Fairness Opinion states that Lehman Brothers is of the opinion as
of January 9, 1996 that, from a financial point of view, the consideration to
be received by the Partnership pursuant to the proposed sale of the Hotels is
fair to the Partnership. Lehman Brothers was not requested to opine, and the
Fairness Opinion does not in any manner address, the underlying business
decision to sell the Hotels or the allocation or use of proceeds from the sale
of the Hotels. Moreover, the Fairness Opinion is necessarily based upon
market, economic and other conditions as they existed on, and could be
evaluated as of, January 9, 1996.
In arriving at its opinion, Lehman Brothers reviewed and analyzed,
among other things, the following: (i) the Purchase Agreement and the specific
financial terms of the proposed sale of the Hotels; (ii) publicly available
information concerning the Partnership, including the Partnership's September
30, 1995 Form 10-Q and December 31, 1994 Form 10-K; (iii) financial, operating
and market information with respect to the business, operations and prospects
of the Hotels furnished by the Partnership; (iv) the appraisal of the Hotels
performed by Cushman & Wakefield, Inc.; (v) certain market information obtained
by Lehman Brothers from independent sources regarding conditions and trends in
the hotel market generally; (vi) a comparisons of the financial terms of the
proposed sale of the Hotels with the financial terms of other hotel sale
transactions Lehman Brothers deemed relevant; (vii) a comparison of the
financial terms of the proposed sale of the Hotels with the financial results
of certain analyses conducted by Lehman Brothers that it deemed relevant; and
(viii) the results of Lehman Brothers
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efforts to solicit proposals and offers from third parties with respect to the
purchase of the Hotels and the amount and nature of the offers received from
other potential acquirors in the bidding process. In addition, Lehman Brothers
held discussions with the management of the Partnership and the General Partner
concerning the business, operations, financial conditions and prospects of the
Hotels and undertook such other studies, analyses and investigations it deemed
appropriate.
In conducting its review and arriving at its Fairness Opinion, Lehman
Brothers assumed the accuracy and completeness of the financial and other
information provided to it or which were publicly available and did not attempt
to independently verify such information. Lehman Brothers relied upon the
statements and information provided by the management of the Partnerships and
the General Partner as to the reasonableness and achievability of the financial
projections of the Partnership. In its Fairness Opinion, Lehman Brothers
assumed that such projections reflected the best currently available estimates
and judgments of the management of the Partnership as to the future financial
performance of the Hotels, and relied on such projections in arriving at the
Fairness Opinion. In addition, Lehman Brothers did not conduct a physical
inspection of the Hotels.
Lehman Brothers will receive a fee for its services in connection with
the sale of the Hotels, which fee is contingent upon the consummation of such
sale. Lehman Brothers has also performed various investment banking services
for affiliates of the General Partner and the Partnership in the past and has
received customary fees for such services. Lehman Brothers has performed in the
past and continues to provide investment banking services to the Buyer and its
affiliates and has received and will receive customary fees for such services.
Lehman Brothers also has provided the Buyer with currently outstanding credit
facilities and may provide or assist the Buyer in obtaining the financing
required for the acquisition of the Hotels and will receive customary fees for
such services.
SOLICITATION OF POTENTIAL PURCHASERS
From June through August of 1995, Lehman Brothers identified potential
purchasers for the Hotels and sent, after initially contacting such purchasers,
detailed information to approximately 15 potential purchasers. These potential
purchasers were investors known to be currently active in the acquisition of
hotel properties and included pension funds (or their advisers), foreign
investors, real estate investment trusts and hotel operating and investment
companies. In order to liquidate and terminate the Partnership, the General
Partner advised potential purchasers that cash purchase offers would be
preferred. Lehman Brothers, on behalf of the Partnership, requested that bids
for the Hotels be delivered by September 25, 1995.
By September 25, 1995 Lehman Brothers received five bids from
potential purchasers which ranged from approximately $57,000,000 to
$72,000,000. Three of these bidders were then requested to consider increasing
their offers in a "best and final" round of bidding and to review the
Partnership's proposed form of purchase agreement. Thereafter, three revised
offers were received.
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<PAGE> 21
Each of the three final bidders submitted a revised offer to the
Partnership by October 6, 1995. After a review of the offers described above,
the Partnership has entered into a Purchase Agreement with the Buyer. The Buyer
has agreed to acquire, subject to the consent of the Investors, from the
Partnership fee simple title to the Hotels, for a cash payment of $73,250,000.
The Buyer is not affiliated with the General Partner or the Partnership. Lehman
Brothers has provided investment banking services to affiliates of the General
Partner and the Buyer.
SLT conducts all of its business as the general partner of SLT Realty
Limited Partnership, and is the only hotel real estate investment trust whose
shares are paired with those of a hotel operating company, Starwood Lodging
Corporation ("SLC"), the shares of which are traded as units (the "Paired
Shares"). Together, SLT and SLC own equity and mortgage interests in a
geographically diversified portfolio of hotel assets throughout the United
States, which as of January 19, 1996 totalled 50 hotels. Many of the hotels are
operated under licensing or franchise agreements with national hotel
organizations. The Paired Shares are listed on the New York Stock Exchange and,
as of January 19, 1996, the Paired Shares, including those issuable upon the
exchange of partnership units, have an equity market capitalization of
approximately $613,000,000. See "PROPOSAL NO. 1-SALE OF ALL PARTNERSHIP
PROPERTY."
PURCHASE AGREEMENT
Following is a summary of certain provisions of the Purchase Agreement
and is qualified in its entirety by these specific provisions set forth in the
Purchase Agreement, the terms of which may be changed by the General Partner,
except for the cash sales price described below.
The Purchase Agreement provides that the Partnership will sell all of
the Hotels to the Buyer in exchange for cash in an aggregate amount of
$73,250,000 and the assumption by the Buyer of the Partnership's rights and
obligations under various contracts and instruments relating to the Hotels (the
"Purchase Price"). The sale of all of the Hotels is intended to be an
integrated and simultaneous transaction and the Partnership's obligation to
sell the Hotels is contingent upon all of the Hotels and all of the obligations
transferred under the Purchase Agreement being purchased and assumed by the
Buyer. As of the date of this Consent Solicitation Statement, the Buyer has
completed its due diligence review of the Hotels and approved the conditions of
the Purchase Agreement, including the condition of the properties,
environmental matters, title and contracts to be assumed by the Buyer.
In connection with the Purchase Price, the Buyer has delivered to a
specified title company $700,000 which is being held in escrow in an interest
bearing account by the title company. This amount being held in escrow is not
refundable to the Buyer, except under certain circumstances described below.
The remaining balance of the Purchase Price will be paid by the Buyer to the
Partnership upon closing of the sale of the Hotels (subject to any prorations
and adjustments required under the Purchase Agreement). In addition, the Buyer
will either assume all of the Partnership's obligations under the management
agreements for each of the Hotels
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between the Partnership and Doubletree Hotel Corporation ("Doubletree") or
deliver the sale termination fee as described below (or a receipt from
Doubletree evidencing the payment of the sale termination fee) for each of the
Hotels as required under the Doubletree Management Agreements. The Buyer is
also obligated to pay for all costs and expenses of the transaction (except for
legal fees of the Partnership) including the cost of all analysis of the Hotels
conducted by the Buyer, the fees and expenses of the Buyer's attorneys, title
policy premiums, various filing and recording costs, survey costs and fees and
charges of the escrow agent.
The Purchase Agreement provides that the Buyer is purchasing the
Hotels from the Partnership with limited representations and warranties from
the Partnership and otherwise on an "as is," "where is" basis and with all
faults. The representations and warranties of the Partnership under the
Purchase Agreement will survive for a period of one year. The Buyer has agreed
that the only source of funds for claims against the Partnership in connection
with the purchase of the Hotels for breaches of any representations and
warranties is the $2,000,000 (plus interest earnings thereon) held in the Trust
Fund.
Prior to the closing of the sale of the Hotels, the Purchase Agreement
may be terminated by the Buyer or the Seller under certain circumstances. The
Buyer may terminate the Purchase Agreement if: (i) the Partnership materially
breaches a representation, warranty or covenant set forth in the Purchase
Agreement, or (ii) all of the conditions to the Partnership's obligation to
sell the Hotels have been satisfied and the Partnership fails to close the
sale. In the event that the Buyer terminates the Purchase Agreement for any of
the reasons set forth above, the Buyer is entitled to a return of its deposit.
If the Buyer terminates the Purchase Agreement for either of the reasons set
forth above, the moneys on deposit with the title company, as escrow agent,
will be returned to the Buyer and the Partnership will be obligated to pay the
costs of title policy commitments and surveys.
The Partnership may terminate the Purchase Agreement if: (i) Investors
have not approved the sale of the Hotels to the Buyer by April 30, 1996 under
terms set forth in this Consent Solicitation Statement and the Purchase
Agreement, (ii) the Buyer materially breaches a representation, warranty or
covenant under the Purchase Agreement, or (iii) all of the conditions to the
Buyer's obligation to close have been satisfied and the Buyer fails to close
the purchase of the Hotels. In the event that the Partnership terminates
pursuant to (i) above, the moneys on deposit with the title company, as escrow
agent will be returned to the Buyer and, except with respect to certain
indemnity obligations of the Buyer, neither party shall have any further
obligation to the other. In the event that the Partnership terminates the
Purchase Agreement pursuant to clauses (ii) or (iii) above, the moneys on
deposit with the title company, as escrow agent, will be paid to the
Partnership.
The Buyer is required to assume or terminate all third-party contracts
with respect to the Hotels except the Doubletree Management Agreements,
although if the Buyer does not elect to assume the Doubletree Management
Agreements, it must pay a sale termination fee (the "Sale Termination Fee")
under each Management Agreement. Under the Doubletree Management Agreements,
the Partnership has the right to terminate the Management Agreements upon the
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sale of the Hotels to the Buyer provided Doubletree is notified of the pending
sale and is paid a Sale Termination Fee of $550,000 for the Dallas Hotel,
$425,000 for the Tampa Hotel and $450,000 for the Ft. Lauderdale Hotel. If the
termination notice is not given to Doubletree at least 60 days before the
closing of the sale, the Partnership must also pay Doubletree an amount which
will leave Doubletree in the same economic position as if the notice had been
given at least 60 days before the sale closing (including paying Doubletree for
WARN Act (the federal plant closing and notification law) liabilities, if any).
If the Buyer determines not to assume the Doubletree Management Agreements, the
Buyer, and not the Partnership, will have to pay the foregoing Sale Termination
Fee.
Buyer has agreed that the sole and exclusive source of funds to which
it will look subsequent to the sale of the Hotels for recourse in the event of
a breach or default by the Partnership for any of the Partnership's
representations, warranties, covenants or obligations under the Purchase
Agreement will be a $2,000,000 (plus interest earnings) trust fund (the "Trust
Fund") to be established by the Partnership with Norwest Bank Arizona, National
Association immediately after closing with a portion of the proceeds from the
sale of the Hotels. The Partnership and the Buyer have agreed to negotiate the
provisions of the trust and escrow agreement pursuant to which the Trust Fund
will be held and disbursed. In order for the trust agreement to satisfy certain
securities law and federal income tax provisions, it is expected that the trust
agreement will contain the following features: (i) specify that beneficial
interests in the Trust Fund will not be transferable except by operation of law
or the death of the beneficiary; (ii) specify that the sole purpose of the
Trust Fund will be the liquidation of its assets and the distribution of any
proceeds in the liquidation; (iii) specify that the trustee will have only
those powers necessary to accomplish the foregoing purpose; (iv) if the trust
agreement permits the trustee to invest trust funds prior to payments to third
parties or distributions to beneficiaries, the trust agreement will prohibit
the trustee from buying and selling such investments prior to their maturity;
(v) require that the trustee provide each beneficiary with periodic reports
containing unaudited financial statements and certain other information, and
that the trustee file such reports with the Securities and Exchange Commission;
and (vi) provide that the Trust Fund will terminate upon the earlier of the
complete distribution of the trust corpus or three years from the date of the
sale of the Hotels. In this regard, the Partnership and the Buyer have agreed
that the Trust Fund will only be available to satisfy claims of the Buyer made
during the one-year period commencing upon the date the Buyer acquires the
Hotels. If, at the end of such one-year period, no claims have been made by
Buyer or if final decisions have been rendered for all disputed claims, the
remaining balance of the Trust Fund will be disbursed to Investors. If,
however, there exist disputed claims at the end of such one-year period, no
disbursements will be made from the Trust Fund until a final decision has been
reached as to all disputed claims; provided, however, that no later than three
years after the acquisition of the Hotels by the Buyer the remaining balance of
the Trust Fund will be disbursed to Investors, and the Buyer will have no
further recourse as to such disputed claims.
In the event that a competing and more favorable offer (a "Competing
Offer") to acquire the Hotels is received by the Partnership prior to obtaining
the Consent described in this Consent Solicitation Statement, then the
Partnership is required to advise the Buyer of the manner in
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<PAGE> 24
which the terms of the Competing Offer are more favorable to the Partnership
than those offered by the Buyer and allow the Buyer a fifteen-day period to
agree to match the terms offered pursuant to the Competing Offer. In the event
that the Buyer does not agree to match the Competing Offer, the Partnership
will be entitled to enter into a contract with respect to the Competing Offer
provided that the Partnership causes the title company to return the moneys on
deposit to the Buyer. At the time of the closing of the Competing Offer, the
Partnership must pay to the Buyer a sum of money in an amount equal to three
percent of the Purchase Price as the Buyer's sole and exclusive remedy as a
result of the termination of the Purchase Agreement. If the Competing Offer is
terminated and the Hotels are not conveyed by Partnership to the buyer under
the Competing Offer, the Partnership must notify the Buyer and the Buyer will
have a period of ten business days after receipt of the Partnership's notice to
notify the Partnership of the Buyer's election to enter into a purchase
agreement with Partnership for the purchase of the Hotels on the terms and
conditions set forth in the Purchase Agreement, but with such adjustments to
the time periods for deliveries, reviews and closing as the parties shall in
good faith require.
APPRAISALS
The Partnership has received an appraisal (the "Appraisal") dated
March 10, 1995 from Cushman & Wakefield, Inc. Cushman & Wakefield, Inc. is a
nationally recognized, independent and fully diversified real estate firm with
extensive valuation experience. The General Partner elected to retain Cushman &
Wakefield, Inc. to render the appraisal because it has rendered similar
appraisals to affiliates of the General Partner since 1981 and because of its
valuation experience. The General Partner and its affiliates have no contract,
agreement or understanding with Cushman & Wakefield, Inc. regarding any future
engagement. The Appraisal was restricted to the market value of the
Partnership's interest in the Hotels. The Appraisal did not render an opinion
as to the value of other assets or liabilities of the Partnership.
For purposes of preparing the Appraisal, the Hotels were reinspected
during 1994 by Cushman & Wakefield's Appraisal Services Group. The valuation in
the Appraisal addressed the market value of the fee simple interest in the
Hotels as a going concern. Among other assumptions, Cushman & Wakefield, Inc.
assumed that the highest and best use of the Hotels is their continued use as
hotel properties. After considering numerous factors, the Appraisal concluded
that the market value of the fee simple interest in the Hotels, as of December
31, 1994, was $50,000,000 or $250 on a per Unit basis. The General Partner
believes the substantial difference between the Appraisal and the Purchase
Price of the Hotels is the result of improving conditions in the hotel industry
as a result of increased liquidity for the financing of hotel acquisitions and
the lack of substantial new construction of hotels. The General Partner also
believes this difference is the result of capital improvements made by the
Partnership since obtaining possession of the Hotels and the management
services rendered by the General Partner to the Partnership since January 1,
1991. The General Partner will not obtain an appraisal dated subsequent to the
Appraisal prior to the contemplated sale of the Hotels.
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PROPOSAL NO. 1:
SALE OF ALL PARTNERSHIP PROPERTY
The General Partner has recommended that all of the Partnership's
interest in the Hotels be sold and the Partnership dissolved. Section 5.4(b)(i)
of the Partnership Agreement requires the consent of the Investors holding more
than 50% of Units to dispose of all or substantially all of the assets of the
Partnership. Investors will be asked on the Consent Date to approve the terms
of an offer to purchase all of the Hotels in a single transaction by the Buyer
for consideration consisting of cash in the amount of $73,250,000 and the
assumption by the Buyer of the Partnership's obligations with respect to the
Hotels, and the release of the Partnership of all liabilities related to its
ownership of Hotels, which purchase will be followed by a liquidation of the
Partnership and final distribution of assets. The Buyer is not affiliated with
the General Partner or any of its partners, officers or directors or the
Partnership. This proposal also authorizes the General Partner, in the event
the Buyer fails to purchase the Hotels, to negotiate and accept the terms of an
offer to purchase the Hotels with any other party not affiliated with the
Partnership or the General Partner followed by a liquidation of the Partnership
and final distribution of assets, provided the purchase price is at least
$70,000,000 in cash. The General Partner currently has no reason to believe
that the Buyer will fail to purchase the Hotels.
The background and reasons for the sale of the Hotels and the
liquidation and dissolution of the Partnership are set forth below. A
description of the history and business of the Partnership and the Hotels is
set forth above under "HISTORY OF THE PARTNERSHIP." In the event Investors fail
to approve the sale of the Hotels, the General Partner will continue to manage
and operate the Hotels.
BENEFITS OF SALE OF HOTELS AND LIQUIDATION OF PARTNERSHIP
The General Partner believes that current market conditions make the
sale of the Hotels advisable. The market for the sale of hotel real estate has
improved over the past several years. This market improvement is reflected,
according to industry sources, by an increasing number of purchases of hotels
and increases in both average daily room rates and occupancy rates. In
addition, there has been a low rate of new construction of hotels in the United
States over the last several years and increased availability of financing for
hotel properties.
There has also been an increase in the demand for hotel properties as
a result of consolidation and restructuring in the hotel industry, including
transactions in which brands and companies were acquired by investors with
adequate financing. New investors include groups of professional real estate
investors, including institutional investors and management companies.
As a result of these improved market conditions and the current demand
for hotel properties, the General Partner concluded that it was an appropriate
time to sell the Hotels. In order to possibly increase the selling price of the
Hotels, the General Partner retained Lehman
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Brothers as financial advisor to solicit potential purchasers. See "HISTORY OF
THE PARTNERSHIP-Engagement of Financial Advisor."
In liquidation, the Partnership will pay off existing liabilities and
debts and distribute the net liquidation proceeds to the Investors and the
General Partner in accordance with the Partnership Agreement. Existing
liabilities and debts of the Partnership are not anticipated to be substantial.
The estimated transaction costs of the sale of the Hotels and the liquidation
of the Partnership are expected to be approximately $500,000 (exclusive of the
financial advisory fee payable to Lehman Brothers and the fee to the General
Partner if Proposal No. 2 is approved). See "UNAUDITED PRO FORMA FINANCIAL
INFORMATION." The primary advantage of this strategy is that it allows for
final liquidation of the Investors' investment and a substantial distribution
of cash as described under "UNAUDITED PRO FORMA FINANCIAL INFORMATION." An
additional benefit of the sale of the Hotels is that the anticipated estimated
liquidating distribution will be substantially higher than recent secondary
sale transactions for the Units. Following liquidation, Investors would be at
liberty to use the funds received for investment, business, personal or other
purposes. The benefit of liquidation depends in large measure upon the amount
and timing of the distributions that the Investors could reasonably expect as a
result of liquidating the Partnership's assets. Relevant to this consideration
is an assessment as to whether the continued holding of the Hotels will improve
the overall return that might be realized by the Investors. These assessments
should be considered in view of the original investment objectives of each
Investor, and the extent to which those investment objectives have been or,
with additional time, might be fulfilled.
DETRIMENTS OF SALE OF HOTELS AND LIQUIDATION OF PARTNERSHIP
The sale of the Hotels would deprive the Investors of any benefits
from possible future appreciation and operation of the Hotels. Certain
circumstances currently affecting the financial and real estate markets must be
taken into account when considering the desirability and timing of any proposed
sale of the Hotels. For example, the fundamental operating results for hotel
properties may improve during the next few years. If new construction were to
remain at low levels and financing were to continue to be available on
reasonable terms and conditions, the value of the Hotels might increase.
An additional detriment of the sale of the Hotels is that such sale
would terminate the Second Amended Repurchase Agreements of the Woolley/Sweeney
Partnerships. See "HISTORY OF THE PARTNERSHIP-The 1991 Default by the
Woolley/Sweeney Partnerships." The Second Amended Repurchase Agreements grant
the Partnership an option to require Messrs. Woolley and Sweeney to repurchase
the Hotels from the Partnership on or after October 20, 2001, and on or before
April 20, 2002, at a price of approximately $35,636,000 for the Fort Lauderdale,
Florida Hotel, $35,068,000 for the Tampa, Florida Hotel and $41,426,000 for the
Irving, Texas Hotel (a total of approximately $112,130,000).
The General Partners considered the effect of the sale of the Hotels
and the resulting termination of the Second Amended Repurchase Agreement in
connection with recommending
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the sale of the Hotels. The General Partner concluded that a sale in 1995 in
light of current hotel market conditions was better for Investors than
exercising the Partnership's option in 2001 to require the Woolley/Sweeney
Partnerships to repurchase the Hotels. In reaching this conclusion, the General
Partner noted that the Partnership's rights under the Second Amended Repurchase
Agreement are not currently exercisable and, that if exercised in 2001, would
likely result in costly and time-consuming litigation. This conclusion is based
upon the history of prior litigation between the Partnership and the
Woolley/Sweeney Partnerships. See "HISTORY OF THE PARTNERSHIP." Further, the
General Partner believes that the Partnership's ability to collect
approximately $112,130,000, which is the total amount which would be owed under
the Second Amended Repurchase Agreement, is uncertain. Furthermore, the
obligations under the Second Amended Repurchase Agreement are personal to
Messrs. Woolley and Sweeney and might result in a bankruptcy filing by either
or both of them. Moreover, the General Partner is unable to determine whether
Messrs. Woolley and Sweeney would have the financial resources to repurchase
the Hotels under the Second Amended Repurchase Agreement, even if such persons
desired to do so.
Finally, the sale of all of the Hotels will result in the liquidation
of the Partnership. Upon liquidation, the periodic distributions to the
Investors from the Partnership would therefore cease.
PARTNERSHIP AGREEMENT PROVISIONS REGARDING DISSOLUTION OF PARTNERSHIP
The following discussion of the provisions of the Partnership
Agreement concerning the dissolution and liquidation of the Partnership is
qualified in its entirety to the Partnership Agreement.
Pursuant to Section 8.1 of the Partnership Agreement, the Partnership
will dissolve upon the occurrence of certain events, including the sale or
other disposition at one time of all or substantially all of the Partnership
assets. After the sale of the Hotels as proposed in this Consent Solicitation
Statement, the General Partner will dissolve the Partnership. However, the
Partnership will not terminate until the Partnership Agreement has been
cancelled and the assets of the Partnership have been distributed.
Section 8.2 of the Partnership Agreement provides that, upon the
dissolution of the Partnership, its liabilities will be paid first to third
party creditors and then to the General Partner for any loans or advances made
by it to the Partnership. Any amounts remaining will be distributed: first, to
the Limited Partners (and with respect to the Initial Limited Partner, for the
benefit of the Investors to the extent of their Units) in the amounts of their
respective capital accounts on the date of distribution; second, to the General
Partner in the amount of its capital account on the date of distribution;
third, to the Limited Partners (and with respect to the Initial Limited
Partner, for the benefit of the Investors to the extent of their Units) in an
amount necessary to return their Adjusted Capital Contributions (as defined in
the Partnership Agreement); and fourth, to the Partners (and with respect to
the Initial Limited Partner, for the benefit of the Investors to the extent of
their Units) in respect of profits in accordance with the
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profit allocation provisions of the Partnership Agreement. As of September 30,
1995, the General Partner's Capital Account had a negative balance of
approximately $324,000, and the General Partner will be obligated to contribute
cash to the Partnership in the amount of the negative balance. Any such cash
will be distributed in the foregoing order of priority. Proposal No. 2 of this
Consent Solicitation Statement amends these provisions and provides for the
payment of a fee to the General Partner upon liquidation of the Partnership.
Section 8.2 of the Partnership Agreement also provides that, upon
dissolution, the General Partner may cause the Partnership's then remaining
assets to be sold in such manner as it, in its sole discretion, determines in
an effort to obtain the best prices for the assets. Following sale of the
Hotels, the General Partner does not expect that the Partnership will have any
substantial assets other than cash. Pending completion of the sale of assets
and the cancellation of the Partnership Agreement, the General Partner will
have the right to continue to operate the business of the Partnership and
otherwise deal with Partnership assets.
ACCOUNTING TREATMENT
The proposed sale of the Hotels will be treated as a sale of the real
estate and related assets under the full accrual method. Under this method of
accounting, profit is recognized in full when the sale is consummated. See
"UNAUDITED PRO FORMA FINANCIAL INFORMATION."
FEDERAL INCOME TAX CONSIDERATIONS
Kutak Rock, counsel for the General Partner ("Counsel"), has rendered
an opinion regarding the material federal income tax consequences associated
with the sale of the Hotels (the "Sale") and the transactions related thereto,
which are summarized in this section and which may affect Investors who are
individuals and citizens or residents of the United States. The following
discussion further briefly summarizes such issues which may affect certain
Investors which are tax-exempt persons. This summary was prepared by Counsel
and is based upon the Internal Revenue Code of 1986, as amended (the "Code"),
Treasury regulations promulgated or proposed thereunder (the "Regulations") and
published rulings and court decisions, all of which are subject to changes
which could adversely affect the Investors. Each Investor should consult his
own tax advisor as to the specific consequences of the proposed Sale, and the
transactions related thereto, that may apply to such Investors. No ruling from
the IRS, or from any other taxing authority, will be sought or obtained as to
any of the following tax issues, and, neither the IRS nor the courts are bound
by the discussion set forth below.
OPINIONS OF COUNSEL
Counsel has rendered its opinion to the Partnership concerning the
material federal income tax consequences relating to the Sale and the related
transactions. Subject to the limitations and qualifications described below,
Counsel has opined that as of the date hereof, the Partnership will be
characterized as a partnership rather than as an association taxable as a
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corporation for federal income tax purposes and that the Sale, if consummated,
will be a taxable transaction in which gain or loss is recognized in full. Such
opinions are based in part upon certain representations of the General Partner.
In addition, Counsel has rendered its opinion to the effect that this
discussion, which represents the material federal income tax consequences
associated with the Sale, and which may affect Investors who are individuals
and citizens or residents of the United States, is correct to the extent such
discussion describes provisions of the Code or interpretations thereof.
FEDERAL INCOME TAX CHARACTERIZATION OF THE PARTNERSHIP AND THE TRUST FUND
Under Section 7701 of the Code and the Regulations promulgated
thereunder, an entity organized under state law as a limited partnership will
be characterized as a partnership rather than an association taxable as a
corporation for federal income tax purposes, if it possesses no more than two
of the following four enumerated corporate characteristics:
(i) Free transferability of interests;
(ii) Continuity of life;
(iii) Centralization of management; and
(iv) Limited liability.
Notwithstanding the foregoing, under Section 7704 of the Code an
entity which is deemed a publicly traded partnership will be characterized as
an association taxable as a corporation. For this purpose, a partnership will
be considered publicly traded if its interests are traded on an established
securities market or are readily tradeable on a secondary market or the
substantial equivalent thereof.
An entity organized under state law as a liquidating trust will be
characterized as a trust for federal income tax purposes if it is organized for
the purpose of liquidating assets and distributing the proceeds thereof and if
its activities are limited to those reasonably necessary to accomplish such
purpose. Conversely, if the liquidation period is unduly prolonged or if the
trust conducts substantial business activities, the entity will be treated as
an association taxable as a corporation for federal income tax purposes.
Counsel will deliver its opinion to the Partnership to the effect that
as of the date hereof the Partnership is characterized as a partnership for
federal income tax purposes. In addition, Counsel will deliver its opinion to
the effect that as of the date hereof, the Trust Fund will be characterized as
a trust rather than as an association taxable as a corporation for federal
income tax purposes. Such opinions are based in part upon a number of
representations by the General Partner including a representation concerning
the number of units in the Partnership which were traded in each year. If the
Service were to successfully challenge the federal income tax characterization
of the Partnership, gain or loss recognized as a result of the Sale would be
taken
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into account by the Partnership rather than the Investors and, in addition,
distributions of the proceeds thereof likely would be taxable to the Investors
as dividends. Similarly, if the Trust Fund were treated as an association,
investment income of the Trust Fund would be subject to tax and the
distributions thereof would be taxable to the Investors as dividends.
TAX CONSEQUENCES OF THE SALE
In connection with the Sale, the assets of the Partnership will be
transferred to the Buyer in return for cash. The Partnership will then
immediately liquidate and distribute such cash to the Investors and to the
Trust Fund, respectively. Each Investor will be required to recognize a share
of the income or loss of the Partnership for its final taxable year, subject to
the limits described below, including gain or loss recognized as a result of
the Sale. Each Investor will receive a final Schedule K-1 from the Partnership
as soon as practical after the liquidation of the Partnership. Following the
termination of the Trust Fund, each Investor will receive a Form 1099-INT,
disclosing that Investor's share of any interest earned by the Partnership on
the Trust Fund. As described above, the Sale will constitute a taxable
transaction in which gain or loss will be recognized in full.
The amount of gain or loss recognized by the Partnership will equal
the difference between (i) the sum of the amount of cash received as a result
of the Sale, including cash transferred to the Trust Fund, and the amount of
any liabilities assumed by the Buyer, and (ii) the adjusted basis of its assets
including the Hotels. The amount of gain or loss recognized by the Partnership
as a result of the Sale will be allocated among its partners in accordance with
the terms of the Partnership Agreement. Each Investor will take into account
his share of such gain or loss regardless of whether he voted in favor of the
Sale.
Under the provisions of Section 1060 of the Code, in the event of a
sale of assets which constitute a trade or business, for purposes of
calculating gain or loss, the seller will be required to segregate its assets
into certain classes. The consideration to be received for such assets will be
allocated among the classes and among assets of a particular class in
accordance with their respective fair market values. The General Partner
believes that the allocation to be used by the Partnership in connection with
the Sale represents the fair market values of its assets. If the IRS were to
successfully challenge such allocation, the amount of ordinary income to be
recognized by the Partnership could be increased.
The Partnership has not made an election under Section 754 of the
Code. This election, if made, would permit the Partnership to adjust the basis
of its assets to reflect the price paid by a purchaser of Units. Because this
election has not been made, the amount of gain or loss recognized by the
Partnership as a result of the Sale will be determined solely by reference to
the basis of its assets and not by the purchase price paid by any Investor for
his Units. The allocation by the Partnership of each Investor's gain or loss in
connection with the Sale will be determined by reference to the basis of the
Partnership in its underlying assets rather than by reference to the basis of
an Investor's Units. However, as described in greater detail below, the
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amount of gain actually recognized by an Investor as a result of the
liquidation of the Partnership will be determined in part by reference to the
basis of his Units.
Except as with respect to recapture income described below, gains or
losses recognized as a result of the Sale will be treated as realized from the
sale of assets used in a trade or business within the meaning of Section 1231
of the Code. Each Investor will be required to net his gain or loss from the
Sale with gains or losses of Section 1231 assets from other sources. If the
result of such netting is a loss, such loss will be treated as an ordinary
loss. Conversely, if the result of such netting is a gain, such gain will be
treated as a capital gain. In certain cases, Section 1231 gain, which otherwise
would be treated as capital gain, will be recharacterized as ordinary income to
the extent of losses from Section 1231 assets recognized during any of the five
preceding years. Each Investor should consult his own tax advisor concerning
the application of the provisions of Section 1231 of the Code. All or a portion
of the gain attributable to personal property recognized by the Partnership as
a result of the Sale will be characterized as ordinary income. Gain recognized
as a result of the Sale will be treated as passive income under the provisions
of Section 469 of the Code.
The Sale will not result in the recognition of material unrelated
business taxable income ("UBTI") by any tax-exempt Investor which does not hold
Units in the Partnership either as a "dealer" or as debt-financed property
within the meaning of Section 514, and is not an organization described in Code
Section 501(c)(7) (social clubs), 501(c)(9) (voluntary employees' beneficiary
associations), 501(c)(17) (supplemental unemployment benefit trusts) or
501(c)(20) (qualified group legal services plans). The four classes of exempt
organizations noted in the previous sentence may recognize gain or loss on the
Sale.
Upon consummation of the Sale, the General Partner intends to
liquidate the Partnership and distribute the net proceeds to its Investors and
to the Trust Fund for the benefit of the Investors. The taxable year of the
Partnership will end at such time and each Investor in the Partnership must
report, in his taxable year that includes the Sale, his share of all income,
gain, loss, deduction and credit for such Partnership through the date of the
Sale (including gain or loss resulting from the Sale described above). Each
Investor whose taxable year is not a calendar year could be required to take
into income in a single taxable year his share of income of the Partnership
attributable to more than one of its taxable years.
The net proceeds of the Sale will be distributed among the Investors
and the General Partner in a manner which will be on a pro rata basis based on
their respective capital account balances adjusted to reflect the gain or loss
recognized as a result of the Sale. The Investors will be required to recognize
gain as a result of the distribution of cash in liquidation of the Partnership
only to the extent such distribution, including cash transferred to the Trust
Fund, exceeds the basis of their Units. If the amount of cash distributed in
liquidation of the Partnership is less than the basis of an Investor in his
Units, such Investor will be permitted to recognize a loss to the extent of
such excess. Each Investor who purchased his Units in the initial offering
thereof will recognize a loss as a result of the liquidation. If the
liquidation does
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not occur during the same taxable year as the Sale, Investors would not be
entitled to use any such loss to offset gain recognized as a result of the
Sale.
The General Partner expects a taxable gain of approximately $125 per
$500 Unit from the sale, a majority of which will be Section 1231 or capital
gain. In the case of Units assigned during the year in which the Sale occurs,
gain will be allocated among the transferor and transferee thereof based on the
number of days of the year each held such interest. In addition, if the Sale is
consummated, each Investor will be required to take into account a share of the
gain recognized as a result thereof whether or not such Investor voted in favor
of the Sale. The General Partner anticipates that the sale will not generate a
material amount of unrelated business taxable income for tax-exempt Investors.
The General Partner expects that as a result of the liquidation of the
Partnership, each Investor who acquired his Units in the initial offering
thereof will also recognize a loss of approximately $53 per Unit.
TAXATION OF TAX-EXEMPT INVESTORS
As a general matter, persons who are exempt from tax under the
provisions of Section 501 of the Code will be entitled to exclude from the
calculation of unrelated business taxable income ("UBTI") any capital gains,
unless the properties to which the gains are attributable are subject to
acquisition indebtedness. Acquisition indebtedness includes debt incurred to
purchase or improve property and certain debt incurred either before or after
the acquisition or improvement of such property. The Hotels are not subject to
acquisition indebtedness. Any gain recharacterized as ordinary income under the
provisions of Section 1245 of the Code will be required to be included in the
calculation of UBTI by Investors who are tax-exempt persons. Each Investor who
is a tax-exempt person should consult his own tax advisor concerning the
recognition of UBTI as a result of the Sale.
STATE TAX CONSEQUENCES AND WITHHOLDING
The Partnership may be subject to state or local taxation in various
state or local jurisdictions, including those in which it transacts business.
The state and local tax treatment of the Partnership and its partners may not
conform to the federal income tax consequences discussed above. Consequently,
Investors should consult their own tax advisors regarding the effect of state
and local tax laws on the Sale.
REGULATORY REQUIREMENTS
Except for state and local filings in connection with liquor licenses
for the Hotels, no federal or state regulatory requirements, other than
applicable requirements related to federal and state securities laws, if any,
must be complied with in order to complete the sale of the Hotels, and no
regulatory approvals must be obtained in order to complete the sale. In
addition, Investors will not have dissenter's right in the event Proposal No. 1
is approved.
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THE GENERAL PARTNER RECOMMENDS THAT INVESTORS CONSENT TO PROPOSAL NO. 1
BY MARKING THE "FOR" BOX.
PROPOSAL NO. 2:
GENERAL PARTNER FEE
The General Partner recommends that Investors consent to an amendment
to the Partnership Agreement authorizing the payment of a fee in the amount of
$982,620 (the "Fee") to the General Partner for substantial and unanticipated
services rendered to the Partnership from January 1, 1991 to the date of
liquidation of the Partnership. As described below, these services were not
anticipated under the original Partnership Agreement which did not contemplate
the direct ownership of the Hotels by the Partnership and therefore contained
no provisions for the compensation of the General Partners for services
performed when the Partnership owned and operated the Hotels. The amount of
this Fee is based upon the loan servicing fees which would have been paid to
the General Partner if the Hotels had not been acquired by the Partnership. The
Fee would be payable after the closing of the sale of the Hotels and upon the
final distribution of assets and liquidation of the Partnership.
When the Partnership was originally organized and commenced
operations, the Partnership received revenue from ground leases and loans for
the Hotels from the Woolley/Sweeney Partnerships. In order to maximize
distributions to Investors, the General Partner fees for Partnership operations
were paid not by the Partnership, but by the Woolley/Sweeney Partnerships. The
two fees payable by the Woolley/Sweeney Partnerships were (i) an advisory fee
(the "Advisory Fee") payable to an affiliate of the General Partner and (ii)
loan servicing fees (the "Loan Servicing Fee"), also payable to an affiliate of
the General Partner. The Loan Servicing Fee was intended to compensate the
General Partner for its servicing of the loans for the Hotels and was not
intended to compensate the General Partner in the event the Partnership owned
and operated the Hotels.
The Advisory Fee consisted of an annual fee equal to 30% of the net
operating cash flow (as defined) of the Hotels. No amounts were received by the
affiliate of the General Partner for the Advisory Fee during the life of the
Partnership.
The Loan Servicing Fee was an amount equal to 1/4 of 1% of the
original principal amount of the loans for the Hotels. The Loan Servicing Fee
was payable in advance on a quarterly basis by the Woolley/Sweeney
Partnerships. The Loan Servicing Fee was payable for a 10-year period
commencing on the dates the loans for the Hotels were made. As a result of the
1992 Settlement Agreement, the Loan Servicing Fee was terminated. The Loan
Servicing Fee resulted in annual payments of approximately $79,000 for the
Irving, Texas Hotel, $69,000 for the Fort Lauderdale, Florida Hotel and $69,000
for the Tampa, Florida Hotel. Since the organization of the Partnership, the
affiliate of the General Partner has received an aggregate of approximately
$1,104,000 for the Loan Servicing Fee. As described above under "HISTORY OF THE
PARTNERSHIP," the Partnership acquired the Hotels in April 1992 pursuant to the
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1992 Settlement Agreement with the Woolley/Sweeney Partnerships. The last
payment of the Loan Servicing Fee was received in April 1991 for the quarter
ended June 1991. Since that date, the General Partner has received no fees from
the Partnership. The General Partner has continued to receive a reimbursement
of expenses as permitted under the Partnership Agreement and one percent of
Partnership cash flow by virtue of its general partnership interest in the
Partnership. See "GENERAL PARTNER COMPENSATION."
The Partnership Agreement, as initially executed, did not contemplate
the direct ownership of the Hotels by the Partnership as a result of
foreclosure and therefore there was no provision for the compensation of the
General Partner in the event the Partnership owned and operated the Hotels.
Since January 1991, the General Partner has provided substantial and
unanticipated management services to the Partnership as a result of the
Partnership's ownership and operation of the Hotels, for which it has received
no compensation. The services of the General Partner include (i) services
required to obtain possession of the Hotels, (ii) services required by the
lengthy litigation with the Woolley/Sweeney Partnerships (see "HISTORY OF THE
PARTNERSHIP"), (iii) services required to correct deferred maintenance of the
Hotels incurred prior to the Partnership obtaining possession of the Hotels,
(iv) services performed in the selection of a new hotel manager and negotiation
of new contracts for the operation of the Hotels after the Partnership obtained
possession of the Hotels, (v) services performed in the implementation of asset
management procedures to facilitate the professional management and control of
the operations of the Hotels, and (vi) services performed in connection with
the proposed sale of the Hotels.
The amount which would have been received by an affiliate of the
General Partner with respect to the Loan Servicing Fee from July 1991 to
December 1995 is $982,620. As a result, the proposed Fee is also $982,620 and
is equal to the unpaid Loan Servicing Fee. The Fee is an amount the General
Partner believes to be fair and reasonable. This belief is based upon a
comparison of (i) the amount of the Loan Servicing Fee which would have been
received by an affiliate of the General Partner and (ii) customary fees for
real estate limited partnerships as reflected in the Guidelines for Real Estate
Programs of the North American Securities Administrators Association, Inc. (the
"Blue Sky Guidelines").
By comparison, under the Blue Sky Guidelines, a general partner of a
real estate limited partnership is entitled to various fees, which include up
to ten percent of cash available for distribution by such partnership and a
property management fee of up to six percent of property gross revenue,
provided such property management fee is no greater than the competitive fee
for the geographic area.
The General Partner calculated the fee it would have received under
the Blue Sky Guidelines based upon ten percent of cash available for
distribution, for the period from January 1, 1992 through September 30, 1995
and determined the amount of the Fee to be approximately $1,320,000. The
General Partner also calculated the property management fee it would have
received, based upon three percent of property gross revenue, for the same
period and determined the amount of the property management fee to be
approximately $2,215,000.
24
<PAGE> 35
Therefore, the total amount of Fees which could have been paid to the General
Partner consistent with the Blue Sky Guidelines was approximately $3,535,000.
On the basis of this analysis, the General Partner believes that a Fee
of $982,620, which was equal to the Loan Servicing Fee that the General Partner
would have received, was fair and reasonable. This Fee was not determined by
arm's-length negotiation with any person representing the Investors.
Section 10.1(c)(iii) of the Partnership Agreement requires the consent
of more than 50% of the interests in the Partnership held by Limited Partners
to amend the Partnership Agreement to authorize the payment of the Fee.
Pursuant to Section 10.1(b) of the Partnership Agreement, the General Partner
has proposed that Section 5.6 of the Partnership Agreement be amended to
authorize the payment of the Fee by adding a new Section 5.6(e) to read as
follows:
"(e) For its services to the Partnership from January 1, 1991 through
the date of liquidation of the Partnership, the General Partner shall
be paid a fee by the Partnership in the amount of $982,620. Such fee
shall be payable to the General Partner following the sale of the
Hotels and upon the final distribution in liquidation of the
Partnership."
If Investors consent to the Fee, the Fee will be paid to the General
Partner upon liquidation of the Partnership and at the same time the Trust Fund
is established. See "HISTORY OF THE PARTNERSHIP-Purchase Agreement."
THE GENERAL PARTNER RECOMMENDS THAT THE INVESTORS CONSENT TO PROPOSAL
NO. 2 BY MARKING THE "FOR" BOX.
GENERAL PARTNER COMPENSATION
Pursuant to provisions of the Partnership Agreement, the officers and
directors of PCMC serve in such capacities without remuneration from the
Partnership. The General Partner is entitled to be reimbursed for certain
expenses as permitted under the Partnership Agreement.
As a general partner of a partnership, the General Partner is
allocated one percent of all profit, gain, loss, deductions and credits for
federal income tax purposes and one percent of all cash flow of the
Partnership. The General Partner is also entitled to a subordinated real estate
disposition fee under certain circumstances.
The Initial Limited Partner serves as assignor and initial limited
partner without compensation from the Partnership. It is not entitled to any
share of the profits, losses or cash distributions of the Partnership. The
director and officers of the Initial Limited Partner serve without compensation
from the Initial Limited Partner or the Partnership.
25
<PAGE> 36
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
As of January 29, 1996, the only person or group known by the
Partnership to own directly or beneficially 5% or more of the outstanding Units
of the Partnership was Pitt & Co., a nominee of Minneapolis Employees'
Retirement Fund, P.O. Box 2444, Church Street Station, New York, New York
10008. As of that date, Pitt & Co. owned 10,000 Units, or 5% of the total
number of Units.
The General Partner of the Partnership and its general partners owned
no Units as of January 29, 1996. The directors and officers of PCMC,
individually and as a group, owned less than 1% of the Units as of December
1995. PCMC is owned 66.67% by Morton Fleischer and 33.33% by Robert W.
Halliday.
The Initial Limited Partner has an interest in the Partnership as a
limited partner and it serves as the owner of record of all of the limited
partnership interests assigned by it to the Investors. However, the Initial
Limited Partner has no right to vote its interest on any matter and it must
vote the assigned interests as directed by the Investors.
INDUSTRY
The hotel industry is highly competitive. The principal areas of
competition include the location of the hotel facility, the size and
configuration of rooms or suites, the daily room rental rate, the quality of
the furnishings, services and other amenities provided, public identification
of the hotel chain and convenience of reservation confirmation services. The
success of the Partnership is dependent upon the Partnership's and Doubletree
Partners' ability to implement asset management procedures that will facilitate
the professional management and control of the operations of the Hotels. The
success of the Partnership may also depend on the ability of each Hotel to
remain competitive in its room and occupancy rates, amenities, location and
service, among other factors.
In 1994, operating statistics for the United States hotel industry
indicated improvement over 1993. According to industry statistics as provided
by industry sources which the General Partner believes reliable, increasing
demand in the hotel industry resulted in an average room occupancy for 1994 of
65.2%, an increase of 3.3% over the prior year. This statistic is comparable to
the Partnership's Hotels' average room occupancy of 65.3% for 1994. The average
room rate for all hotels in the United States for 1994 was $63.63, an increase
of 3.8% over 1993. The Partnership's Hotels' average room rate increased 2.6%
in 1994 to $86.57.
The all-suite segment, which includes properties similar to the
Hotels, continues to be one of the top performing segments, with 1994 occupancy
increasing 2.1% and rates increasing 4.5% over 1993. By comparison, the upscale
segment showed occupancy increasing 1.8% and rates increasing 3.8%.
26
<PAGE> 37
Reflecting both the change in occupancy and daily room rate, the
revenue per available suite ("REVPAS") increased 7.3% in 1994 to $41.49
nationwide. For all-suite properties the increase was 6.8% to $61.55, which was
comparable to the Partnership's hotels' average REVPAS in 1994 of $56.50.
The Partnership does not segregate revenues or assets by geographic
region, and such a presentation is not applicable and would not be material to
an understanding of the Partnership's business taken as a whole.
Compliance with federal, state and local law regarding the discharge
of materials into the environment or otherwise relating to the protection of
the environment has not had, and is not expected by the Partnership to have,
any material adverse effect upon capital expenditures, earnings or the
competitive position of the Partnership. The Partnership is not presently a
party to any litigation or administrative proceeding with respect to its
compliance with such environmental standards. In addition, the Partnership does
not anticipate being required to expend any funds in the near future for
environmental protection in connection with its operations.
The hotel business, in general, fluctuates seasonally depending on the
individual hotel's location and type of target market each property serves. The
Partnership's Hotel located in Irving, Texas is situated near an airport and
primarily serves the business traveler market. As a result, its business is
consistent throughout the year except for the months of November and December
when business slows because of the holidays. The Ft. Lauderdale Hotel is
somewhat affected by the tourist market, however, it is located in the Cypress
Creek Business Park and focuses on the corporate market. The busiest season for
the Ft. Lauderdale Hotel is January through April due to the Florida climate.
The Hotel located in Tampa, Florida is also impacted cyclically by the Florida
climate. The Tampa Hotel, however, is located near the Tampa International
Airport and therefore is less dependent upon tourism and therefore its
operations are less cyclical.
No portion of the Partnership's business is subject to renegotiation
of profits or termination of contracts or subcontracts at the election of the
United States Government. The Partnership does not manufacture any products and
therefore does not require any raw materials in order to conduct its business.
The Partnership does not have any employees. All personnel used to
operate the Hotels are employees of Doubletree. The Partnership reimburses
Doubletree for payroll costs.
HOTELS
The Partnership owns, unencumbered, a 7.14 acre parcel of land located
in Irving, Texas, on which is situated a 312-unit, all-suite hotel purchased by
the Partnership on February 27, 1986; a 3.09 acre parcel located in Tampa,
Florida, on which is situated a 263-unit, all-suite hotel purchased by the
Partnership on May 16, 1986; and a 5.11 acre parcel
27
<PAGE> 38
located in Fort Lauderdale, Florida, on which is situated a 258-unit, all-suite
hotel purchased by the Partnership on November 5, 1986. As discussed under
"BUSINESS" above, the Hotels currently operate as Doubletree Guest Suites.
Independent of the Partnership, the Initial Limited Partner has no
interest in any real or personal property.
LEGAL PROCEEDINGS
The Partnership and its properties are not parties to, or subject to,
any material pending legal proceedings.
MARKET FOR UNITS AND RELATED SECURITY HOLDER MATTERS
During the nine months ended September 30, 1995 and the years ended
December 31, 1994 and 1993, there was no established public trading market for
the Units, and it is unlikely that an established public market for the Units
will develop. As of September 30, 1995, there were 14,279 record holders of the
Units.
For the two most recent fiscal years and the interim period ended
September 30, 1995, the Partnership made the following cash distributions to
the Investors:
NINE MONTHS ENDED SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
Per Unit
Distribution Total
------------ -----
Date of Number Cash From Cash From
Distribution of Units Operations Capital Operations Capital
------------ -------- ---------- ------- ---------- -------
<S> <C> <C> <C> <C> <C>
March 31 200,000 $5.00 - $1,000,000 -
June 30 200,000 5.00 - 1,000,000 -
September 30 200,000 5.00 - 1,000,000 -
</TABLE>
28
<PAGE> 39
YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
Per Unit
Distribution Total
------------ -----
Date of Number Cash From Cash From
Distribution of Units Operations Capital Operations Capital
------------ -------- ---------- ------- ---------- -------
<S> <C> <C> <C> <C> <C>
March 31 200,000 $5.00 - $1,000,000 -
June 30 200,000 5.00 - 1,000,000 -
September 30 200,000 5.00 - 1,000,000 -
December 31 200,000 5.00 - 1,000,000 -
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1993
Per Unit
Distribution Total
------------ -----
Date of Number Cash From Cash From
Distribution of Units Operations Capital Operations Capital
------------ -------- ---------- ------- ---------- -------
<S> <C> <C> <C> <C> <C>
March 31 200,000 $4.68 - $ 936,000 -
June 30 200,000 5.00 - 1,000,000 -
September 30 200,000 5.00 - 1,000,000 -
December 31 200,000 5.00 - 1,000,000 -
</TABLE>
Cash from operations, defined as cash return in the agreement of
limited partnership which governs the Partnership, is distributed to the
Investors. The Adjusted Capital Contribution per Unit of the Investors, as
defined in the Partnership Agreement, was $500 as of September 30, 1995. The
Adjusted Capital Contribution of an Investor is generally the Investor's
initial capital contribution reduced by cash distributions to the Investor of
proceeds from the sale of Partnership assets.
Any differences in the amounts of distributions set forth in the above
tables from the information contained in "SELECTED FINANCIAL DATA" below are
due to rounding the amount of distributions payable per Unit down to the
nearest whole cent and carrying any fractional cents forward from one period to
the next.
SELECTED FINANCIAL DATA
The selected financial information set forth below has been derived
from the Partnership's Financial Statements included herein and published
financial statements of the Partnership previously filed with the SEC and not
appearing herein. The Partnership's financial statements for each of the years
ended December 31, 1994, 1993 and 1992 have been audited by Arthur
29
<PAGE> 40
Andersen LLP, independent public accountants. The unaudited financial data for
the nine months ended September 30, 1995 and 1994, include all adjustments,
that the General Partner considers necessary for a fair presentation of the
financial position and the results of operation for these periods. The selected
financial data set forth below do not purport to be complete and should be read
in conjunction with "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS" and the Partnership's Financial Statements
and the notes thereto included elsewhere in this Proxy Statement. All amounts
are in thousands of dollars except for per Unit amounts.
<TABLE>
<CAPTION>
Nine Months Ended
September 30 Year Ended December 31,
----------------- --------------------------------------------
1995(1) 1994(1) 1994(1) 1993(1) 1992(1) 1991(2) 1990
---- ---- ------- ------- ------- ------- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues $18,154 $16,201 $21,643 $21,399 $15,303 $ 5,716 $10,597
Net Income (Loss) 3,743 2,211 2,495 2,704 1,396 (29,920) 10,205
Net Income (Loss)
Per Unit 18.53 10.94 12.35 13.38 6.91 (148.10) 50.51
Total Assets 54,640 57,815 54,709 56,669 56,454 58,040 98,516
Distributions of Cash
from Operations
to Investors 3,000 3,000 4,000 3,938 3,080 3,143 9,202
Distributions of Cash
from Operations
Per Unit 15.00 15.00 20.00 19.69 15.40 15.72 46.01
Return of Capital(3)
to Investors - - - - 420 4,656 -
Return of Capital(3)
Per Unit - - - - 2.10 23.28 -
</TABLE>
(1) In 1992, the 1992 Settlement Agreement was reached with the Woolley/Sweeney
Partnerships whereby the Hotels were conveyed to the Partnership. As a result,
the Partnership no longer receives interest and rent payments under the
mortgage and lease agreements related to the Hotels, but owns the Hotels and
receives the actual hotel operating income (since April 9, 1992).
(2) Operations in 1991 were impacted by the failure of the Woolley/Sweeney
Partnerships to make their land lease and mortgage loan payments in the third
quarter of 1991. A $33,500 000 provision was made to write down mortgage loans
receivable and land subject to operating leases to estimated realizable value.
(3) Return of capital for financial reporting purposes is not determined in the
same manner as return of capital for purposes of determining an Investor's
Adjusted Capital Contribution.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1995, the Partnership had received $100,000,000
in gross proceeds from its offering of assigned limited partnership
interests ("Units"). Net funds available for investment, after payment of
sales commissions and organization costs, amounted to approximately
$89,000,000. The offering of Units is the Partnership's sole source of
capital, and since the final closing of limited partnership units was held
on May 9, 1986, the Partnership will not receive additional funds from the
offering. As of November 1986, the Partnership was fully invested.
As of September 30, 1995, the Partnership's balance sheet reflected
$4,493,019 of working capital, which represents an increase of $1,537,837
from the December 31, 1994 working capital amount of $2,955,182. During the
nine months ended September 30, 1995, the
30
<PAGE> 41
Partnership generated cash from operating activities of $4,479,642 as compared
to $4,975,467 generated in the same period in 1994. The difference between
periods is due primarily to an increase in other receivables during the nine
months ended September 30, 1995, which represents funds in escrow with a Texas
state court related to the settlement with Messrs. Woolley and Sweeney discussed
below under "Litigation." These funds are expected to be returned to the
Partnership in the fourth quarter of 1995. Cash used for investing activities
during the nine months ended September 30, 1995 was $987,418 which principally
consisted of hotel renovations of $1,020,288 as compared to $1,042,412 in
capital expenditures during the comparable period in 1994. Ongoing capital
improvements related to hotel renovations of approximately $150,000 are
scheduled to continue through December 1995. Management believes that its
existing cash and short-term investments will be sufficient to fund its
operations and capital outlays. The Partnership declared a cash distribution to
Investors of $1,000,000 for the quarter ended September 30, 1995, which,
combined with the first and second quarterly distributions of $2,000,000 amounts
to $3,000,000 year to date. Funds held by the Partnership during the period were
invested in U.S. Government Agency discount notes and bank repurchase agreements
(which are secured by United States Treasury and Government obligations).
During 1994, Doubletree Partners, the hotel's management company,
spent $1,425,000 for purposes of management assumption, brand conversion, and
renovation of the three hotels owned by the Partnership in connection with the
management agreements between Doubletree Partners and the Partnership. The
management agreements provide that if the Partnership sells the hotels during
years one through five of the agreements and Doubletree Partners is not
retained by the new owners as manager of the hotels, all of the $1,425,000 is
to be reimbursed to Doubletree Partners as a sale termination fee, and if the
sale occurs in years 6 through 10, fifty percent of the amount is to be
reimbursed. No liability has been established in the financial statements
related to this contingency because the Purchase Agreement provides that the
Buyer will either assume the management agreements and obtain the Partnership's
release with respect thereto, or pay the sale termination fee.
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1995 COMPARED WITH NINE MONTHS ENDED
SEPTEMBER 30, 1994. Room revenue increased by $773,115 or 6% to $13,857,553 for
the nine months as compared to $13,084,438 for the same nine months of the
prior year. This increase is primarily attributable to the Irving, Texas hotel
for which room revenues increased by $761,281 in 1995 over the same period in
1994 as the hotel began to regain some of the market share that was lost as a
result of litigation (see "Litigation" below).
Food and beverage revenue increased by $343,679 or 19% for the nine
months as compared to the same nine months of the prior year. The increase
primarily resulted because the Partnership hired a new director of catering at
the Tampa hotel. The new director brought in new business and increased the
wedding reception business of the hotel.
31
<PAGE> 42
Other revenues of $2,147,607 for the nine months increased compared to
the same nine months of the prior year of $1,311,177. The increase resulted
primarily from the reversal during the period of the disputed liabilities as
discussed below under "Litigation."
General and administrative expenses decreased to $2,337,459 for the
nine months from $4,565,448 for the same period in 1994. This decrease
primarily resulted from disputed claims of approximately $1,800,000 included in
the 1994 amount related to the litigation discussed below. If these costs had
not been in dispute, this amount would have been included in property operating
costs and expenses, advertising and promotion, and repairs and maintenance in
1994. Also contributing to the decrease was a reduction in legal expenses of
approximately $480,000 as the litigation with CSMI was substantially over as of
June 30, 1995 (see "Litigation" below).
Advertising and promotion increased by $1,050,863 to $1,648,739 for
the period as compared to $597,876 for the same period of the prior year.
Doubletree Hotels instituted a national marketing plan in 1995 and,
accordingly, the hotels pay a percentage of room revenue for this new marketing
program. Additionally, to cultivate the market share that was lost as a result
of the litigation, extra marketing personnel were hired and additional
advertising expense was incurred.
Property taxes and insurance decreased by $95,832 or 7% to $1,261,815
from $1,357,647 for the same period of the prior year. Certain of the hotel
insurance policies were renewed under plans that Doubletree Hotels made
available to the Partnership. These policies provided broader coverage than the
previous policies at reduced costs. In addition, the Partnership appealed the
hotel property taxes which resulted in tax savings.
According to industry statistics that the Partnership believes to be
reliable, the average daily hotel rate is projected to increase in 1995 at a
rate in excess of inflation, while at the same time occupancy is projected to
reach approximately 63%. These statistics are true for the industry as a whole
although certain markets may be stronger or weaker.
Certain key statistics and financial information related to the
Partnership's hotel operations were obtained from the unaudited financial
statements as reported by Doubletree Partners for the nine months ended
September 30, 1995 as compared to the same period of the prior year.
32
<PAGE> 43
<TABLE>
<CAPTION>
ADR* % of Occupancy REVPAS**
9 Months Ended 9 Months Ended 9 Months Ended
-------------- -------------- --------------
September 30, September 30, September 30, September 30, September 30, September 30,
1995 1994 1995 1994 1995 1994
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Ft. Lauderdale $78.63 $85.62 72.5% 65.3% $56.53 $54.91
Tampa $85.40 $89.10 63.7% 62.6% $54.38 $55.78
Irving $90.44 $92.27 79.9% 67.9% $72.28 $62.64
</TABLE>
- - ------------
*Average Daily Room Rate
**Revenue Per Available Suite
The hotel business, in general, fluctuates seasonally depending on the
individual hotel's location and type of target market each property serves. The
Partnership's hotel located in Irving, Texas is situated near an airport,
primarily serves the business traveler market and its business is fairly
consistent throughout the year. The Ft. Lauderdale hotel is somewhat affected
by the tourist market, while also focusing on the corporate market, and its
busiest season is January through April due to the Florida climate. The hotel
located in Tampa, Florida is also impacted cyclically by the Florida climate,
however, it is located near the Tampa International Airport and therefore is
less dependent upon tourism, and its operations are less cyclical.
LITIGATION
In connection with the Texas state court litigation settlement, the
Partnership agreed to pay CSMI for management services through May 19, 1994 and
to reimburse or be reimbursed by CSMI for certain expenses subject to
verification and reconciliation by an outside independent accounting firm. The
independent accounting firm's report, in summary, concluded that no amount was
owed by the Partnership to CSMI. CSMI disputed these findings and filed a
motion to set aside the accounting firm's report. On June 10, 1995, the
District Court disallowed a major portion of the accounting firm's report and
ordered that the Partnership pay CSMI $772,043, which the Partnership had
previously recorded as a liability. After depositing approximately $850,000
into an escrow account with the Texas State Court to cover the liability to
CSMI, including other costs, the Partnership was granted its motion for a new
trial on September 8, 1995. Thereafter, the Partnership began negotiations
with CSMI related to property taxes on the Hotels that the Partnership paid in
1991 which otherwise should have been paid by the Woolley/Sweeney Partnerships
(the "Advanced Taxes"). The 1992 Settlement Agreement provided that, under
certain circumstances, the Woolley/Sweeney Partnerships would be obligated to
reimburse the Partnership for the Advanced Taxes in 1996. CSMI has agreed not
to require the payment of the $772,043 to CSMI in exchange for the
Partnership's agreement not to seek reimbursement of the Advanced Taxes.
Accordingly, the Partnership reduced its liability by $772,043 which reduction
is reflected as other revenue in the accompanying Statement of Income. Amounts
recoverable from the Texas State Court escrow account related to settlement of
this dispute are included in other receivables in the accompanying balance
sheet. This concludes all outstanding items of dispute with CSMI.
33
<PAGE> 44
In the opinion of management, the financial information included in
this report reflects all adjustments necessary for fair presentation. All such
adjustments are of a normal recurring nature, except for disputed items related
to the CSMI lawsuit which have been reclassified on the Statement of Income for
the nine months ended September 30, 1994.
FISCAL YEAR ENDED DECEMBER 31, 1994 COMPARED TO FISCAL YEAR ENDED
DECEMBER 31, 1993. Room revenue decreased by $1,410,463 or 8% to $17,095,304
during the year ended December 31, 1994 as compared to $18,505,767 during the
year ended December 31, 1993. This decrease is largely attributable to the
decrease of approximately 10% in the average occupancy rate from 1993 to 1994
as a result of ongoing construction and renovations at the Hotels during 1994.
The decrease in occupancy levels also contributed to the decrease in property
operating costs and expenses from $6,052,930 in 1993 to $6,003,014 in 1994.
Food and beverage revenues increased from $1,388,345 in 1993 to
$2,859,000 in 1994 due to the Partnership's ownership of restaurants in two of
the hotels in 1994 as opposed to ownership of only one in 1993.
Administrative and general expenses of $5,540,773 in 1994 and
$4,446,456 in 1993 included accruals for expenses related to disputed claims
which arose during 1994 and 1993. The hotel management agreements with CSMI, an
affiliate of the Woolley/Sweeney Partnerships, expired on October 8, 1993, at
which time representatives of CSMI denied the Partnership's representatives
access to the Partnership's Hotels. From the expiration of the management
agreements until May 19, 1994, CSMI continued to occupy the Hotels in violation
of the Partnership's rights as owners of these properties. Litigation
commenced, thereafter, in Texas state court.
The Texas state court litigation was settled by the parties. In
connection with the settlement, the parties agreed that neither CSMI nor any of
its affiliates have any interest, legal or equitable, in any of the Hotels, and
CSMI delivered possession of the Hotels to the Partnership on May 19, 1994. All
agreements which were part of the 1992 Settlement Agreement were terminated as
of such date, except for the First Amended Repurchase Agreements, which were
further amended. The Partnership agreed to pay CSMI for management services
through May 19, 1994 and to reimburse or be reimbursed by CSMI for certain
expenses subject to verification and reconciliation by an outside independent
accounting firm. The Partnership had accrued a net amount for disputed items
approximating $1,100,000 during the period October 9, 1993 through May 19,
1994.
Management of the hotels was transferred to Doubletree Partners on May
19, 1994, and the Hotels are now operating as Doubletree Guest Suites.
Management, accounting and data processing fees from May 19, 1994 through
December 13, 1994 approximated $750,000.
Certain key statistics and financial information related to the
Partnership's Hotel operations were obtained from the unaudited financial
statements of each of the hotels for 1994 as compared to 1993 as follows:
34
<PAGE> 45
<TABLE>
<CAPTION>
ADR* % of Occupancy
------------------- -------------------
1994 1993 1994 1993
---- ---- ---- ----
<S> <C> <C> <C> <C>
Fort Lauderdale, FL $82 $81 65% 75%
Tampa, FL $86 $82 63% 70%
Irving, TX $91 $89 68% 72%
</TABLE>
- - ---------------
*Average Daily Room rate.
FISCAL YEAR ENDED DECEMBER 31, 1993 COMPARED TO FISCAL YEAR ENDED
DECEMBER 31, 1992. In April 1992, the Partnership settled its disputes with the
Woolley/Sweeney Partnerships by agreeing to have the Woolley/Sweeney
Partnerships convey to the Partnership each of the Hotels' building and the
furniture, fixtures and equipment related to the Hotels. As a result, as of
April 9, 1992, the Partnership owned all the assets and related revenues
received by the Hotels. Since the 1992 Settlement Agreement terminated the
ground leases with the Woolley/Sweeney Partnerships, during fiscal year 1992,
the Partnership received neither interest under the mortgage loans nor rental
payments under the ground leases, but instead received operating income from the
Hotels.
Net income for the year ended December 31, 1993 increased to $2,703,715
from $1,396,050 in fiscal 1992. The increase is attributable to the fact that
the Partnership's 1993 results of operations represent a full year of hotel
operations, whereas 1992 operations reflect hotel activity from April 9, 1992
through December 31, 1992, a full three months less operating activity. The
variations in hotel revenues and expenses between 1993 and 1992 are
significantly impacted by this factor.
Other revenue decreased to $1,504,453 in 1993 from $1,998,077 in 1992
despite an increase in telephone and other operating revenues which are included
in other revenue to $1,359,831 in 1993 from $892,723 in 1992. Primarily, the
decrease resulted because pursuant to the 1992 Settlement Agreement with the
Woolley/Sweeney Partnerships, the Partnership also gained possession of
approximately $720,000 during 1992 which had been held in escrow, the ownership
of which previously had been contested by Woolley/Sweeney Partnerships. This
amount is included in other revenue in 1992.
Administrative and general expenses of $4,446,456 in 1993 includes
$1,500,000 related to disputed claims which arose during 1993, as discussed
above. Results of operations for 1993 also include approximately $700,000 in
legal fees and costs related to the dispute with the Woolley/Sweeney
Partnerships and affiliates.
Certain key statistics and financial information related to the
Partnership's hotel operations were obtained from the unaudited financial
statements of each of the hotels from 1993 as compared to 1992 as follows:
35
<PAGE> 46
<TABLE>
<CAPTION>
ADR* % of Occupancy
------------------- -------------------
1993 1992 1993 1992
---- ---- ---- ----
<S> <C> <C> <C> <C>
Fort Lauderdale, FL $81 $78 75% 78%
Tampa, FL $82 $81 70% 69%
Irving, TX $89 $86 72% 67%
</TABLE>
- - ---------------
*Average Daily Room rate.
INFLATION
The rate of inflation has been moderate in recent years and,
accordingly, has not had a significant impact on the Partnership's business.
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The Partnership owns three Hotels located in Irving, Texas; Ft.
Lauderdale, Florida; and Tampa, Florida. The Hotels currently operate as
Doubletree Guest Suites which provide guest rooms and group meeting room
facilities. One of the hotels owns and operates a restaurant within the hotel,
whereas the other two hotels lease the restaurant to a third-party operator. The
Partnership proposes to sell these three Hotels in a transaction with an
unaffiliated buyer. The sale of the Hotels, which represent substantially all of
the Partnership's assets, will give rise to the liquidation of the Partnership
in accordance with the Partnership Agreement. Dissolution of the Partnership is
effective upon the closing of the transaction, but the Partnership does not
terminate until the remaining assets of the Partnership have been distributed as
provided in the Partnership Agreement.
Set forth below is unaudited historical and pro forma financial
information for the Partnership as of September 30, 1995. The pro forma balance
sheet information has been prepared assuming that the sale of the Hotels and
liquidation of the Partnership occurred on September 30, 1995 and includes
estimates of transaction costs and other costs to be incurred in connection with
liquidation of the Partnership. The pro forma financial information has been
prepared assuming both a $73,250,000 sale price and a $70,000,000 sale price.
Although management believes that the transaction with the Buyer will be
consummated, in the event that the proposed sale is not successful, the General
Partner will negotiate the sale of the Hotels with another unaffiliated party,
provided the price is at least $70,000,000 in cash. The pro forma balance sheet
presented below was prepared assuming a sale price of $73,250,000. Footnote 5
illustrates the effect on the pro forma balance sheet of using a $70,000,000
sale price.
The pro forma information is based on the historical financial
information of the Partnership and should be read in conjunction with the
historical financial statements and notes of the Partnership incorporated by
reference into this Proxy Statement. In the opinion of
36
<PAGE> 47
management, all material adjustments necessary to reflect the effects of the
transactions have been made.
The pro forma information is unaudited and is not necessarily
indicative of the results which actually would have occurred if the transaction
had been consummated in the period presented, or on any particular date in the
future, nor does it purport to represent the financial position for future
periods.
UNAUDITED PRO FORMA BALANCE SHEET
<TABLE>
<CAPTION>
Historical Pro Forma
September 30, 1995 Adjustments September 30,
------------------ ----------- -------------
1995
----
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents $ 5,978,008 $ (496,497)(1) $5,481,511
Accounts receivable 766,925 -- (2) 766,925
Receivable from General Partner -- 78,274 (2) 78,274
Prepaids and other 1,260,749 -- (2) 1,260,749
Net property and equipment 46,300,276 (46,300,276)(4) --
Operating stock 333,580 (333,580)(4) --
----------- ------------ ----------
Total Assets $54,639,538 $(47,052,079) $7,587,459
=========== ============ ==========
LIABILITIES AND PARTNERS' CAPITAL
Liabilities
Distribution payable $ 1,002,104 $ -- $1,002,104
Payable to General Partner 10,101 -- 10,101
General Partner fee -- 982,620 (3) 982,620
Financial advisory fee payable -- 732,500 (3) 732,500
Accounts payable and accrued liabilities 1,293,634 500,000 (3) 1,793,634
Property taxes payable 1,066,500 -- 1,066,500
Capital lease obligations 160,472 (160,472)(3) --
----------- ------------ ----------
Total Liabilities 3,532,811 2,054,648 5,587,459
Partners' Capital
General Partner (323,889) 323,889 (4) --
Limited Partners 51,430,616 (49,430,616)(4) 2,000,000
----------- ------------ ----------
Total Liabilities and Partners' Capital $54,639,538 $(47,052,079) $7,587,459
=========== ============ ==========
</TABLE>
ADJUSTMENTS TO UNAUDITED PRO FORMA BALANCE SHEET
(1) CASH AND CASH EQUIVALENTS
The historical cash balance as of September 30, 1995 will, in part, be
used to pay the regular quarterly cash distribution of $1,000,000 to the Limited
Partners payable 45 days after
37
<PAGE> 48
the end of the quarter. The pro forma adjustment to cash reflects the estimated
cash proceeds of $73,250,000 from the sale of the Hotels net of the initial
estimated liquidating payment of approximately $73,746,000 made directly to the
Limited Partners.
(2) ACCOUNTS RECEIVABLE, RECEIVABLE FROM GENERAL PARTNER, PREPAIDS AND OTHER
ASSETS
Accounts receivable, receivable from General Partner, and prepaids and
other assets will not be transferred to the buyer in connection with the sale of
the Hotels. The receivable from the General Partner represents the General
Partner's negative capital account at September 30, 1995 which, pursuant to the
Partnership Agreement, must be contributed by the General Partner to the
Partnership as of the date of dissolution.
(3) LIABILITIES
The pro forma adjustments to liabilities reflect the accrual of costs
relating to the proposed sale of the Hotels and the liquidation of the
Partnership, the accrual of financial advisory fees and the accrual of the
General Partner's disposition fee (assuming approval thereof), net of the
liabilities related to the Hotel operations assumed by the Buyer. The General
Partner fee represents a fee generated by the General Partner for additional
services rendered to the Partnership as a result of the acquisition and
management of the Hotels following the Woolley/Sweeney Partnerships' default.
See additional discussion in the "PROPOSAL NO. 2 - GENERAL PARTNER FEE" section.
The following are the pro forma adjustments to liabilities:
<TABLE>
<S> <C>
Accrual of transaction and liquidation costs of the sale of the
Hotels and liquidation of the Partnership......................... $ 500,000
Financial advisory fee.............................................. 732,500
General Partner fee................................................. 982,620
Capital lease obligations assumed by the Buyer...................... (160,472)
----------
Pro forma adjustment to liabilities................................. $2,054,648
==========
</TABLE>
38
<PAGE> 49
(4) PARTNERS' CAPITAL
The pro forma effects of the proposed sale of the Hotels and payment of
the initial estimated liquidating distribution on partners' capital (assuming a
sales price of $73,250,000) are as follows:
<TABLE>
<S> <C>
Book Value of Assets Sold and Liabilities Assumed:
Property and equipment $46,300,276
Operating stock 333,580
Capital lease obligations (160,472)
-----------
46,473,384
Sale Proceeds 73,250,000
-----------
Gross gain from the sale of the Hotels 26,776,616
Less: Transaction costs of the proposed sale of the Hotels and cost
to liquidate the Partnership (500,000)
Financial advisory fee (732,500)
General Partner fee (982,620)
-----------
Net pro forma effect on Statement of Income $24,561,496
===========
</TABLE>
<TABLE>
<CAPTION>
General Limited
Partner Partners Total
------- -------- -----
<S> <C> <C> <C>
Net pro forma effect on Statement of Income $245,615 $ 24,315,881 $ 24,561,496
Payment of the initial estimated liquidating
distribution -- (73,746,497) (73,746,497)
General Partner contribution of deficit in
capital account 78,274 -- 78,274
-------- ------------ ------------
Pro forma effects on Partners' Capital $323,889 $(49,430,616) $(49,106,727)
======== ============ ============
</TABLE>
The pro forma balance in the Partners' Capital Accounts represents
funds to be deposited in a $2,000,000 Trust Fund established by the Partnership
immediately after closing of the proposed sale of the Hotels. The Partnership
and the Buyer have agreed that the Trust Fund will only be available to satisfy
claims of the Buyer made during the one-year period commencing upon the date the
Buyer acquires the Hotels. If, at the end of such one-year period, no claims
have been made by Buyer or if final decisions have been rendered for all
disputed claims, the remaining balance of the Trust Fund will be disbursed to
Investors. If, however, there exist disputed claims at the end of such one-year
period, no disbursements will be made from the Trust Fund until a final decision
has been reached as to all disputed claims; provided, however, that no later
than three years after the acquisition of the Hotels by the Buyer the remaining
balance of the Trust Fund will be disbursed to Investors, and the Buyer will
have no further recourse as to such disputed claims.
39
<PAGE> 50
(5) PARTNERS' CAPITAL-PRO FORMA EFFECT OF $70,000,000 SALE PRICE
The pro forma effects of the proposed sale of the Hotels and payment of
the initial estimated liquidating distribution on Partners' capital (assuming a
sales price of $70,000,000) are as follows:
<TABLE>
<S> <C>
Book Value of Assets Sold and Liabilities Assumed:
Property and equipment $46,300,276
Operating stock 333,580
Capital lease obligations (160,472)
-----------
46,473,384
Sale Proceeds 70,000,000
-----------
Gross gain from the sale of the Hotels 23,526,616
Less: Transaction costs of the proposed sale of the Hotels and cost
to liquidate the Partnership (500,000)
Financial advisory fee (700,000)
General Partner fee (982,620)
-----------
Net pro forma effect on Statement of Income $21,343,996
===========
</TABLE>
<TABLE>
<CAPTION>
General Limited
Partner Partners Total
------- -------- -----
<S> <C> <C> <C>
Net pro forma effect on Statement of Income $213,440 $ 21,130,556 $ 21,343,996
Payment of the initial estimated liquidating
distribution -- (70,561,172) (70,561,172)
General Partner contribution of deficit in
capital account 110,449 -- 110,449
-------- ------------ ------------
Pro forma effects on Partners' Capital $323,889 $(49,430,616) $(49,106,727)
======== ============ ============
</TABLE>
The pro forma balance in the Partners' Capital Accounts represents
funds to be deposited in a $2,000,000 Trust Fund established by the Partnership
immediately after closing of the proposed sale of the Hotels, which funds will
only be available to satisfy claims of a buyer made during the one-year period
commencing upon the date a buyer acquires the Hotels. If, at the end of such
one-year period, no claims have been made by a buyer or if final decisions have
been rendered for all disputed claims, the remaining balance of the Trust Fund
will be disbursed to Investors. If, however, there exist disputed claims at the
end of such one-year period, no disbursements will be made from the Trust Fund
until a final decision has been reached as to all disputed claims; provided,
however, that no later than three years after the acquisition of the Hotels by a
buyer the remaining balance of the Trust Fund will be disbursed to Investors,
and a buyer will have no further recourse as to such disputed claims.
40
<PAGE> 51
SOLICITATION OF CONSENTS
This solicitation is being made by mail on behalf of the General
Partner, but may also be made without additional remuneration by officers or
employees of the General Partner by telephone, telegraph, facsimile transmission
or personal interview. The expense of the preparation, printing and mailing of
this Consent Solicitation Statement and the enclosed Consent Card and Notice of
Consent Solicitation, and any additional material relating to the proposals to
be consented to on the Consent Date which may be furnished to Investors by the
General Partner subsequent to the furnishing of this Consent Solicitation
Statement, has been or will be borne by the Partnership as permitted by the
Partnership Agreement. The Partnership will reimburse banks and brokers who hold
Units in their name or custody, or in the name of nominees for others, for their
out-of-pocket expenses incurred in forwarding copies of the consent materials to
those persons for whom they hold such Units. Supplementary solicitations may be
made by mail, telephone or interview by officers of the Partnership or selected
securities dealers. It is anticipated that the cost of such supplementary
solicitations, if any, will not be material. In addition, the Partnership has
retained D.F. King & Co. to solicit Consents from Investors by mail, in person
and by telephone. The Partnership will pay D.F. King & Co. a fee for its
services, plus reimbursement of reasonable out-of-pocket expenses incurred in
connection with the consent solicitation, which are estimated to be
approximately $35,000.
ANNUAL REPORT AND OTHER DOCUMENTS
THE PARTNERSHIP WILL, UPON WRITTEN REQUEST AND WITHOUT CHARGE
(EXCLUDING EXHIBITS THERETO), PROVIDE BY FIRST-CLASS MAIL WITHIN ONE BUSINESS
DAY OF RECEIPT OF SUCH REQUEST TO ANY PERSON SOLICITED HEREUNDER A COPY OF THE
PARTNERSHIP AGREEMENT, THE FAIRNESS OPINION FROM LEHMAN BROTHERS, THE APPRAISAL
FROM CUSHMAN & WAKEFIELD, INC., THE TAX OPINION OF COUNSEL, THE PARTNERSHIP'S
ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1994 AND THE
PARTNERSHIP'S FORM 10-QS FOR THE PERIODS ENDING MARCH 31, 1995, JUNE 30, 1995
AND SEPTEMBER 30, 1995, AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION.
Requests should be addressed to William S. Parker, FFCA Management Company
Limited Partnership, Investors Services, at 17207 North Perimeter Drive,
Scottsdale, Arizona 85255.
OTHER MATTERS
No other business is to be presented for consideration on the Consent
Date, other than that specified in the Notice of Consent Solicitation.
NOTICE TO BANKS, BROKER-DEALERS AND
VOTING TRUSTEES AND THEIR NOMINEES
Please advise the Partnership whether other persons are the beneficial
owners of the Units for which Consents are being solicited from you, and, if so,
the number of copies of this
41
<PAGE> 52
Consent Solicitation Statement and other soliciting materials you wish to
receive in order to supply copies to the beneficial owners of the Units.
IT IS IMPORTANT THAT CONSENTS BE RETURNED PROMPTLY. INVESTORS ARE
REQUESTED TO COMPLETE, DATE AND SIGN THE ENCLOSED FORM OF CONSENT AND RETURN IT
PROMPTLY IN THE ENVELOPE PROVIDED FOR THAT PURPOSE. BY RETURNING YOUR CONSENT
PROMPTLY YOU CAN HELP THE PARTNERSHIP AVOID THE EXPENSE OF FOLLOW-UP MAILINGS.
AN INVESTOR MAY REVOKE OR REVISE A PRIOR CONSENT AND DIRECT THE INITIAL LIMITED
PARTNER TO VOTE LIMITED PARTNERSHIP INTERESTS CORRESPONDING TO THE NUMBER OF THE
INVESTOR'S UNITS AS SET FORTH IN THIS CONSENT SOLICITATION STATEMENT.
FFCA MANAGEMENT COMPANY
LIMITED PARTNERSHIP
By: /s/ Morton Fleischer
-------------------------------------
Morton Fleischer, General Partner
Scottsdale, Arizona
January 29, 1996
42
<PAGE> 53
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Public Accountants......................................... F-2
Audited Financial Statements
Balance Sheets as of December 31, 1994 and 1993............................. F-3
Statements of Income, Years ended December 31, 1994, 1993 and 1992.......... F-4
Statements of Changes in Partners' Capital, Years ended December 31, 1994,
1993 and 1992............................................................. F-5
Statements of Cash Flows, Years ended December 31, 1994, 1993 and 1992...... F-6
Notes to Audited Financial Statements....................................... F-7
Unaudited Financial Statements
Balance Sheets as of September 30, 1995 and December 31, 1994............... F-13
Statements of Income, Three and Nine months ended September 30, 1995
and 1994.................................................................. F-14
Statements of Cash Flows, Nine months ended September 30, 1995 and 1994..... F-15
Notes to Unaudited Financial Statements..................................... F-16
</TABLE>
F-1
<PAGE> 54
Report of Independent Public Accountants
To Guaranteed Hotel Investors 1985, L.P.:
We have audited the accompanying balance sheets of GUARANTEED HOTEL
INVESTORS 1985, L.P. (a Delaware limited partnership) as of December 31, 1994
and 1993, and the related statements of income, changes in partners' capital and
cash flows for each of the three years in the period ended December 31, 1994.
These financial statements are the responsibility of the partnership's general
partner. 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 principals 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 Guaranteed Hotel
Investors 1985, L.P. as of December 31, 1994 and 1993, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1994 in conformity with generally accepted accounting principles.
Phoenix, Arizona,
February 22, 1995. Arthur Andersen LLP
F-2
<PAGE> 55
GUARANTEED HOTEL INVESTORS 1985, L.P.
BALANCE SHEETS-DECEMBER 31, 1994 AND 1993
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
ASSETS
------
CURRENT ASSETS:
Cash and cash equivalents $ 5,652,192 $ 5,967,056
Accounts receivable 745,923 704,227
Deposits 82,715 780,823
Prepaids and other 677,957 294,041
----------- -----------
Total current assets 7,158,787 7,746,147
PROPERTY AND EQUIPMENT, net (Notes 3 and 4) 47,550,170 48,922,528
----------- -----------
Total assets $54,708,957 $56,668,675
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
---------------------------------
CURRENT LIABILITIES:
Distribution payable to limited partners $ 1,002,104 $ 1,002,104
Payable to general partner 10,101 10,101
Disputed liabilities (Note 8) 1,112,714 934,620
Accounts payable and accrued liabilities 1,232,650 1,670,018
Property taxes payable 661,148 656,656
Current portion of capital lease obligations (Note 4) 184,888 159,757
----------- -----------
Total current liabilities 4,203,605 4,433,256
CAPITAL LEASE OBLIGATIONS, less current portion (Note 4) 111,689 296,576
----------- -----------
Total liabilities 4,315,294 4,729,832
----------- -----------
COMMITMENTS AND CONTINGENCIES (Note 7)
PARTNERS' CAPITAL (DEFICIT):
General partner (331,020) (315,568)
Limited partners 50,724,683 52,254,411
----------- -----------
Total partners' capital 50,393,663 51,938,843
----------- -----------
Total liabilities and partners' capital $54,708,957 $56,668,675
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE> 56
GUARANTEED HOTEL INVESTORS 1985, L.P.
STATEMENTS OF INCOME (NOTE 1)
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
REVENUE:
Room $17,095,304 $18,505,767 $12,302,350
Food and beverage 2,859,000 1,388,345 1,002,882
Other revenue 1,688,809 1,504,453 1,998,077
----------- ----------- -----------
Total revenue 21,643,113 21,398,565 15,303,309
----------- ----------- -----------
EXPENSES (Note 8):
Property operating costs and expenses 6,003,014 6,052,930 4,892,774
General and administrative 5,540,773 4,446,456 3,175,992
Advertising and promotion 1,101,838 1,044,940 903,697
Utilities 1,210,982 1,192,896 824,872
Repairs and maintenance 877,951 974,542 749,070
Property taxes and insurance 1,764,143 1,787,363 1,524,262
Interest expense and other 79,736 145,644 125,127
Depreciation and amortization 2,522,384 2,822,728 1,711,465
Loss on disposition of property 47,068 227,351 --
----------- ----------- -----------
Total expenses 19,147,889 18,694,850 13,907,259
----------- ----------- -----------
NET INCOME $2,495,224 $ 2,703,715 $ 1,396,050
=========== =========== ===========
NET INCOME ALLOCATED
TO (Note 1):
General partner $ 24,952 $ 27,037 $ 13,960
Limited partners 2,470,272 2,676,678 1,382,090
----------- ----------- -----------
$ 2,495,224 $ 2,703,715 $ 1,396,050
=========== =========== ===========
Net Income Per Limited
Partnership Unit (Note 2) $12.35 $13.38 $6.91
====== ====== =====
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE> 57
GUARANTEED HOTEL INVESTORS 1985, L.P.
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
<TABLE>
<CAPTION>
General Limited
Partner Partners Total
------- -------- -----
<S> <C> <C> <C>
BALANCE, December 31, 1991 $(289,012) $55,633,143 $55,344,131
Net income 13,960 1,382,090 1,396,050
Distributions to partners, cash from operations (27,778) (3,079,737) (3,107,515)
Return of capital to limited partners -- (420,263) (420,263)
--------- ----------- -----------
BALANCE, December 31, 1992 (302,830) 53,515,233 53,212,403
Net income 27,037 2,676,678 2,703,715
Distributions to partners, cash from operations (39,775) (3,937,500) (3,977,275)
--------- ----------- -----------
BALANCE, December 31, 1993 (315,568) 52,254,411 51,938,843
Net income 24,952 2,470,272 2,495,224
Distributions to partners, cash from operations (40,404) (4,000,000) (4,040,404)
--------- ----------- -----------
BALANCE, December 31, 1994 $(331,020) $50,724,683 $50,393,663
========= =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE> 58
GUARANTEED HOTEL INVESTORS 1985, L.P.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,495,224 $ 2,703,715 $ 1,396,050
Adjustments to net income:
Depreciation and amortization 2,522,384 2,822,728 1,711,465
Loss on disposition of property 47,068 227,351 --
Change in assets and liabilities:
Increase in accounts receivable (41,696) (11,259) (692,968)
Decrease (increase) in deposits 698,108 (435,926) (344,897)
Increase in prepaids and other (383,916) (163,198) (130,843)
Increase in disputed liabilities 178,094 934,620 --
Increase (decrease) in accounts payable and accrued
liabilities (437,368) 539,890 1,130,128
Increase (decrease) in property taxes payable 4,492 157,904 (1,196,964)
----------- ----------- -----------
Net cash provided by operating activities 5,082,390 6,775,825 1,871,971
----------- ----------- -----------
CASH FLOWS FOR INVESTING ACTIVITIES:
Additions or improvement of property (1,197,094) (2,713,872) (88,455)
----------- ----------- -----------
CASH FLOWS FOR FINANCING ACTIVITIES:
Partner distributions declared (Note 1) (4,040,404) (3,977,275) (3,107,515)
Increase (decrease) in distributions payable to partners -- 64,131 (52,530)
Return of capital to limited partners declared -- -- (420,263)
Payments on capital lease obligations (159,756) (208,561) (216,851)
----------- ----------- -----------
Net cash used in financing activities (4,200,160) (4,121,705) (3,797,159)
----------- ----------- -----------
NET DECREASE IN CASH (314,864) (59,752) (2,013,643)
AND CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS, 5,967,056 6,026,808 8,040,451
beginning of year ----------- ----------- -----------
CASH AND CASH EQUIVALENTS, end of year $ 5,652,192 $ 5,967,056 $ 6,026,808
=========== =========== ===========
CASH PAID DURING THE YEAR FOR INTEREST $ 76,312 $ 108,655 $ 91,340
</TABLE>
Noncash Financing Activities: In April 1992, mortgage loans receivable of
$44,623,020 were converted into property and equipment upon settlement
with the hotel owners. Also, at that time, capital lease obligations of
$881,745 were assumed upon obtaining possession of the related leased
equipment.
The accompanying notes are an integral part of these statements.
F-6
<PAGE> 59
GUARANTEED HOTEL INVESTORS 1985, L.P.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND 1993
1) ORGANIZATION AND OPERATIONS:
Guaranteed Hotel Investors 1985, L.P. (the "Partnership") was formed on
July 22, 1985 under the Delaware Revised Uniform Limited Partnership Act to
acquire three parcels of land located in Irving, Texas; Fort Lauderdale,
Florida; and Tampa, Florida on which three hotels are situated. The Partnership
leased each of the parcels to the hotel owners (the "Woolley/Sweeney
Partnerships") under separate ground leases and made separate participating,
first mortgage loans for the permanent financing of the hotel buildings and the
hotel furniture, fixtures and equipment.
During 1991, the Woolley/Sweeney Partnerships failed to comply with the
terms of their lease and financing agreements with the Partnership. In order to
obtain control of the hotel assets and, among other things, avoid prolonged
litigation, the Partnership entered into and executed a settlement agreement on
April 24, 1992 with the Woolley/Sweeney Partnerships. This agreement provided
that the Woolley/Sweeney Partnerships convey to the Partnership the hotels and
all personal property then owned by the Woolley/Sweeney Partnerships related to
the hotels. As a result, the Partnership no longer receives interest and rent
payments under the mortgage and lease agreements related to the hotels, but owns
the hotels and receives the actual hotel operating income (since April 9, 1992),
therefore, 1992 results of operations represent less than a full year of hotel
revenue and expenses. Management agreements were also entered into and executed
by the Partnership with Crown Sterling Management, Inc. ("CSMI"), an affiliate
of the Woolley/Sweeney Partnerships. The agreements provided for management of
the hotels for an eighteen-month period, which expired on October 8, 1993 with
no provision for extension (see Note 8). The management fee under the agreements
was equal to 3% of revenue, as defined, and approximated $445,000 for the period
from January 1, 1993 through October 8, 1993 and $373,000 in 1992.
The management of the hotels was transitioned to Doubletree Partners on
May 19, 1994, and the hotels currently operate as Doubletree Guest Suites which
provide guest rooms and group meeting room facilities. Two of the hotels own and
operate a restaurant within the hotel, whereas the other hotel leases the
restaurant to a third party operator. Management, accounting and data processing
fees paid to Doubletree Partners for the period from May 19, 1994 through
December 31, 1994 approximated $750,000.
Investors acquired units of assigned limited partnership interest (the
"limited partnership units") in the Partnership from FFCA Investor Services
Corporation 85-A (the "Initial Limited Partner"), a Delaware corporation
wholly-owned by Perimeter Center Management Company. Holders of the units have
all of the economic benefits and substantially the same rights and powers as
limited partners, therefore, they are referred to herein as "limited partners."
The general partner of the Partnership is FFCA Management Company, L.P. (the
"General
F-7
<PAGE> 60
Partner"), an affiliate of Perimeter Center Management Company. The Partnership
will expire December 31, 2047, or sooner, in accordance with the terms of the
Partnership agreement.
The Partnership agreement provides that all profits, losses and cash
distributions be allocated 99% to the limited partners and 1% to the General
Partner. The following is a reconciliation of net income to cash distributions
from operations as defined in the Partnership agreement:
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Net income $ 2,495,224 $ 2,703,715 $1,396,050
Adjustments to reconcile net income to cash
distributions declared:
Depreciation and amortization 2,522,384 2,822,728 1,711,465
Loss on disposition of property 47,068 227,351 --
Creation of cash reserves (1,024,272) (1,776,519) --
----------- ----------- ----------
Cash distributions declared from operations $ 4,040,404 $ 3,977,275 $3,107,515
=========== =========== ==========
</TABLE>
2) SIGNIFICANT ACCOUNTING POLICIES:
FINANCIAL STATEMENTS - The financial statements of the Partnership are
prepared on the accrual basis of accounting.
CASH AND CASH EQUIVALENTS - Investment securities that are highly
liquid and have maturities of three months or less at the date of purchase are
classified as cash equivalents. Cash equivalents include United States Treasury
securities of $4,006,266 and $4,918,866 at December 31, 1994 and 1993,
respectively. Short-term investments are recorded at cost plus accreted
discount, which approximates market value.
DEPRECIATION - Depreciation on buildings, building improvements,
furniture and equipment is provided using the straight-line method based upon
the following estimated useful lives:
<TABLE>
<S> <C>
Buildings and improvements 5-34 years
Furniture and equipment 2-15 years
</TABLE>
NET INCOME PER LIMITED PARTNERSHIP UNIT - Net income per limited
partnership unit is based on 200,000 units held by limited partners.
3) PROPERTY AND EQUIPMENT:
Property and equipment was recorded at its fair value on the settlement
date (see Note 1). There are no encumbrances on the property and equipment. The
following is an analysis of the
F-8
<PAGE> 61
Partnership's investment in property and equipment by major class at December
31, 1994 and 1993:
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Land and improvements $ 5,396,153 $ 5,396,153
Buildings and improvements 40,870,254 40,581,272
Furniture and equipment 7,684,026 6,990,782
----------- -----------
53,950,433 52,968,207
Less-Accumulated depreciation and amortization (6,750,120) (4,303,587)
----------- -----------
47,200,313 48,664,620
Operating stock 349,857 257,908
----------- -----------
$47,550,170 $48,922,528
=========== ===========
</TABLE>
4) CAPITAL LEASE OBLIGATIONS:
In connection with the settlement agreement reached with the
Woolley/Sweeney Partnerships, the Partnership obtained equipment under capital
lease obligations totalling $881,745 at April 9, 1992. Future minimum lease
payments under capital lease obligations as of December 31, 1994, are as
follows:
<TABLE>
<CAPTION>
Year Ending December 31,
- - ------------------------
<S> <C>
1995 $216,104
1996 119,513
--------
Total minimum lease payments 335,617
Less-amount representing interest (14.44%-15.00%) 39,040
--------
Present value of net minimum lease payments 296,577
Less-current portion of capital lease obligations 184,888
--------
Capital lease obligations-long term $111,689
========
</TABLE>
For the years ended December 31, 1994, 1993 and 1992, amortization
expense and accumulated amortization for equipment under capital leases are as
follows:
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Amortization expense $113,000 $311,000 $234,000
Accumulated amortization 777,000 664,000 353,000
</TABLE>
F-9
<PAGE> 62
5) INCOME TAXES:
The Partnership is not directly subject to income taxes; rather, each
partner is subject to income taxes on his distributable share of taxable income.
The Partnership tax returns and the amount of distributable partnership profits
or losses are subject to examination by federal and state taxing authorities. If
examinations by taxing authorities result in changes to distributable
partnership profits or losses, the tax liabilities of the partners could be
changed accordingly.
The following is a reconciliation of net income for financial reporting
purposes to income (loss) reported for federal income tax purposes for the years
ended December 31, 1994, 1993 and 1992:
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Net income for financial reporting purposes $2,495,224 $2,703,715 $ 1,396,050
Differences for tax purposes in:
Loss on mortgage loans receivable and land -- -- (43,234,717)
Interest and rental income -- -- 2,185,581
Depreciation expense (338,061) (212,185) (61,207)
Nondeductible expenses -- -- 10,298
Gain on sale of property (5,051) (106,633) --
Disputed liabilities (Note 8) (588,474) 1,701,195 --
Deferred income 270,544 -- --
Bad debt reserves 44,279 -- --
---------- ---------- ------------
Taxable income (loss) to partners $1,878,461 $4,086,092 $(39,703,995)
========== ========== ============
</TABLE>
For federal income tax reporting purposes, taxable income (loss) to partners is
reported on the accrual basis of accounting and is classified as follows:
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Ordinary income (loss) $1,923,061 $4,404,918 $(39,703,995)
Long-term capital loss (44,600) (318,826) --
---------- ---------- ------------
$1,878,461 $4,086,092 $(39,703,995)
========== ========== ============
</TABLE>
At December 31, 1994, the tax bases of the Partnership's assets and
liabilities exceed the amounts recorded for financial reporting purposes by
$2,800,599. This difference results primarily from differences in the treatment
of valuation reserves, the disputed liabilities and the depreciation methods for
financial reporting and tax reporting purposes.
6) TRANSACTIONS WITH RELATED PARTIES:
An affiliate of the General Partner incurs expenses on behalf of the
Partnership for maintenance of the books and records, and for computer,
investor, legal and other services
F-10
<PAGE> 63
performed for the Partnership (including certain legal services related to the
settlement discussed in Note 1 and the disputed liabilities discussed in Note
8). These expenses are reimbursable in accordance with the Partnership agreement
and are less than the amount which the Partnership would have paid to
independent parties for comparable services. The Partnership reimbursed the
affiliate $77,662 in 1994, $263,224 in 1993 and $184,894 in 1992 for such
expenses.
7) COMMITMENTS AND CONTINGENCIES:
Employees and dependents of CSMI were covered by a self-insured group
health plan (the Plan) with loss limits provided by aggregate and stop loss
insurance. The Plan was funded by each participating Crown Sterling Suites hotel
based on the number of covered employees working at each hotel. The Partnership
reimbursed CSMI for its share of expenses related to this Plan through October
8, 1993 (see Note 8).
In July 1994, the Partnership received a total of $1,425,000 from
Doubletree Partners to be used for the purposes of management assumption, brand
conversion and renovation of the hotels. If the Partnership sells the hotels
during years 1 through 5 of the management agreement and Doubletree Partners is
not retained by the new owners as manager of the hotels, all of the $1,425,000
is to be repaid to Doubletree Partners as a sale termination fee, and if the
sale occurs in years 6 through 10, fifty percent of the amount is to be repaid.
No liability has been established in the financial statements related to this
contingency because management is of the opinion that the Partnership will not
incur the fee or that, in the event of a disposition of the Hotels, the
purchaser would assume the related liability.
8) CONTINGENCY - DISPUTED COSTS AND LIABILITIES:
The hotel management agreements with CSMI expired on October 8, 1993,
at which time representatives of CSMI denied the Partnership's representatives
access to the Partnership's hotels. From the expiration of the management
agreements until May 19, 1994, CSMI continued to occupy the hotels in violation
of the Partnership's rights as owners of these properties. Litigation commenced,
thereafter, in Texas state court.
The Texas state court litigation has been settled by the parties. In
connection with the settlement, the parties agreed that neither CSMI nor any of
its affiliates have any interest, legal or equitable, in any of the hotels, and
CSMI delivered possession of the hotels to the Partnership on May 19, 1994. All
agreements which were part of the 1992 Settlement Agreement were terminated as
of such date, except for the repurchase agreements, which were further amended.
The repurchase agreements grant the Partnership an option to require the
Woolley/Sweeney Partnerships to repurchase the hotels from the Partnership on or
after October 20, 2001 and on or before April 20, 2002 at a specified price. The
Partnership agreed to pay CSMI for management services through May 19, 1994 and
to reimburse or be reimbursed by CSMI for certain expenses subject to
verification and reconciliation by an outside independent accounting firm. The
independent accounting firm's report, in summary, concluded that no amount was
owed by the Partnership to CSMI. CSMI has disputed these findings and filed a
motion to set
F-11
<PAGE> 64
aside the accounting firm's report, which motion is still pending. The
Partnership has accrued a net amount for disputed items approximating $1,100,000
during the period October 9, 1993 through May 19, 1994; however, as noted above,
the amount of ultimate liability, if any, with respect to these disputed items
is uncertain and could result in an amount substantially lower than that
reflected in the accompanying financial statements.
F-12
<PAGE> 65
GUARANTEED HOTEL INVESTORS 1985, L.P.
BALANCE SHEETS
SEPTEMBER 30, 1995 AND DECEMBER 31, 1994
(UNAUDITED)
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
---- ----
<S> <C> <C>
ASSETS
------
CURRENT ASSETS:
Cash and cash equivalents $ 5,978,008 $ 5,652,192
Accounts receivable 766,925 745,923
Other receivables 860,756 --
Prepaids and other 399,993 760,672
----------- -----------
Total current assets 8,005,682 7,158,787
----------- -----------
PROPERTY AND EQUIPMENT:
Land and improvements 5,396,153 5,396,153
Buildings and improvements 41,156,584 40,870,254
Furniture and equipment 8,127,884 7,684,026
----------- -----------
54,680,621 53,950,433
Less - Accumulated depreciation and amortization (8,380,345) (6,750,120)
----------- -----------
46,300,276 47,200,313
Operating stock 333,580 349,857
----------- -----------
Total assets $54,639,538 $54,708,957
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
---------------------------------
CURRENT LIABILITIES:
Distribution payable to limited partners $ 1,002,104 $ 1,002,104
Payable to general partner 10,101 10,101
Disputed liabilities (Note 1) -- 1,112,714
Accounts payable and accrued liabilities 1,293,634 1,232,650
Property taxes payable 1,066,500 661,148
Current portion of capital lease obligations 140,324 184,888
----------- -----------
Total current liabilities 3,512,663 4,203,605
CAPITAL LEASE OBLIGATIONS, less current portion 20,148 111,689
----------- -----------
Total liabilities 3,532,811 4,315,294
----------- -----------
CONTINGENCIES (Note 1)
PARTNERS' CAPITAL (DEFICIT):
General partner (323,889) (331,020)
Limited partners 51,430,616 50,724,683
----------- -----------
Total partners' capital 51,106,727 50,393,663
----------- -----------
Total liabilities and partners' capital $54,639,538 $54,708,957
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-13
<PAGE> 66
GUARANTEED HOTEL INVESTORS 1985, L.P.
STATEMENTS OF INCOME
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
9/30/95 9/30/94 9/30/95 9/30/94
------- ------- ------- -------
<S> <C> <C> <C> <C>
REVENUE:
Room $4,171,739 $3,388,871 $13,857,553 $13,084,438
Food and beverage 466,419 839,785 2,149,271 1,805,592
Other revenue 1,186,930 372,313 2,147,607 1,311,177
---------- ---------- ----------- -----------
Total revenue 5,825,088 4,600,969 18,154,431 16,201,207
---------- ---------- ----------- -----------
EXPENSES (Note 1):
Property operating costs and
expenses 1,641,869 1,908,679 5,473,020 3,988,008
General and administrative 663,244 773,469 2,337,459 4,565,448
Advertising and promotion 513,995 372,337 1,648,739 597,876
Utilities 298,084 332,636 885,526 926,654
Repairs and maintenance 268,573 284,538 812,917 603,918
Property taxes and insurance 409,644 435,661 1,261,815 1,357,647
Interest expense and other 28,659 28,400 87,856 66,935
Depreciation and amortization 608,440 609,879 1,841,023 1,874,228
Loss on sale or disposition of
property 59,742 3,146 62,709 9,653
---------- ---------- ----------- -----------
Total expenses 4,492,250 4,748,745 14,411,064 13,990,367
---------- ---------- ----------- -----------
NET INCOME (LOSS) $1,332,838 $ (147,776) $ 3,743,367 $ 2,210,840
========== ========== =========== ===========
NET INCOME (LOSS)
ALLOCATED TO:
General partner $ 13,328 $ (1,478) $ 37,434 $ 22,108
Limited partners 1,319,510 (146,298) 3,705,933 2,188,732
---------- ---------- ----------- -----------
$1,332,838 $ (147,776) $ 3,743,367 $ 2,210,840
========== ========== =========== ===========
NET INCOME (LOSS) PER
LIMITED PARTNERSHIP
UNIT (based on 200,000 units $6.60 $(.73) $18.53 $10.94
outstanding) ===== ===== ====== ======
</TABLE>
The accompanying notes are an integral part of these statements.
F-14
<PAGE> 67
GUARANTEED HOTEL INVESTORS 1985, L.P.
STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
(UNAUDITED)
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,743,367 $ 2,210,840
Adjustments to net income:
Depreciation and amortization 1,841,023 1,874,228
Loss on sale or disposition of property 62,709 9,653
Change in assets and liabilities:
Increase in accounts receivable, trade (21,002) (296,071)
Increase in other receivables (860,756) --
Decrease in prepaids and other 360,679 476,092
Increase (decrease) in disputed liabilities (1,112,714) 208,468
Increase in accounts payable and accrued liabilities 60,984 59,913
Increase in property taxes payable 405,352 432,344
----------- -----------
Net cash provided by operating activities 4,479,642 4,975,467
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property additions and improvements (1,020,288) (1,042,412)
Proceeds from sale of property 16,593 4,450
Decrease (increase) in operating stock 16,277 (80,312)
----------- -----------
Net cash used in investing activities (987,418) (1,118,274)
----------- -----------
CASH FLOWS FOR FINANCING ACTIVITIES:
Distributions to partners (3,030,303) (3,030,303)
Payments on capital lease obligations (136,105) (117,605)
----------- -----------
Net cash used in financing activities (3,166,408) (3,147,908)
----------- -----------
NET INCREASE IN CASH 325,816 709,285
AND CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS, 5,652,192 5,967,056
beginning of period ----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 5,978,008 $ 6,676,341
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-15
<PAGE> 68
GUARANTEED HOTEL INVESTORS 1985, L.P.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1995
(UNAUDITED)
1) CONTINGENCIES:
DISPUTED LIABILITIES - In connection with the Texas state court
litigation settlement, the Partnership agreed to pay Crown Sterling Management
("CSMI") for management services through May 19, 1994 and to reimburse or be
reimbursed by CSMI for certain expenses subject to verification and
reconciliation by an outside independent accounting firm. The independent
accounting firm's report, in summary, concluded that no amount was owed by the
Partnership to CSMI. CSMI disputed these findings and filed a motion to set
aside the accounting firm's report. On June 10, 1995, the District Court
disallowed a major portion of the accounting firm's report and ordered that the
Partnership pay CSMI $772,043, which the Partnership had previously recorded as
a liability. After depositing approximately $850,000 into an escrow account with
the Texas State Court to cover the liability to CSMI, including other costs, the
Partnership was granted its motion for a new trial on September 8, 1995.
Thereafter, the Partnership began negotiations with CSMI related to property
taxes on the Hotels that the Partnership paid in 1991 which otherwise should
have been paid by the Woolley/Sweeney Partnership (the "Advanced Taxes"). The
1992 Settlement Agreement provided that, under certain circumstances, the
Woolley/Sweeney Partnerships would be obligated to reimburse the Partnership for
the Advanced Taxes in 1996. CSMI has agreed not to require the payment of the
$772,043 to CSMI in exchange for the Partnership's agreement not to seek
reimbursement of the Advanced Taxes. Accordingly, the Partnership reduced its
liability by $772,043 which reduction is reflected as other revenue in the
accompanying Statement of Income. Amounts recoverable from the Texas State Court
escrow account related to settlement of this dispute are included in other
receivables in the accompanying balance sheet. This concludes all outstanding
items of dispute with CSMI.
CONTRACT TERMINATION FEE - During 1994, Doubletree Partners, the
Hotel's management company, spent $1,425,000 for purposes of management
assumption, brand conversion, and renovation of the three hotels owned by the
Partnership in connection with the management agreements between Doubletree
Partners and the Partnership. The management agreements provide that if the
Partnership sells the hotels during years 1 through 5 of the agreements and
Doubletree Partners is not retained by the new owners as manager of the hotels,
all of the $1,425,000 is to be reimbursed to Doubletree Partners as a sale
termination fee, and if the sale occurs in years 6 through 10, fifty percent of
the amount is to be reimbursed. No liability has been established in the
financial statements related to this contingency because the Purchase Agreement
provides that the Buyer will either assume the management agreements and obtain
the Partnership's release with respect thereto, or pay the sale termination fee.
F-16
<PAGE> 69
CONSENT CARD
THIS CONSENT IS SOLICITED ON BEHALF OF
FFCA MANAGEMENT COMPANY LIMITED PARTNERSHIP
FOR GUARANTEED HOTEL INVESTORS 1985, L.P.
The undersigned Investor of Units representing interests in Guaranteed
Hotel Investors 1985, L.P. (the "Partnership"), a Delaware limited partnership,
hereby directs FFCA Investor Services Corporation 85-A, to consent to the
Proposals, as designated below, the Limited Partnership Interests held by FFCA
Investor Services Corporation 85-A, according to the number of Units held of
record by the undersigned.
THIS CONSENT CARD WHEN PROPERLY EXECUTED WILL DIRECT THE CONSENT OF
FFCA INVESTOR SERVICES CORPORATION 85-A IN THE MANNER HEREIN INDICATED BY THE
UNDERSIGNED. IF PROPERLY EXECUTED AND NO DIRECTION IS MADE, THE HOLDERS OF THIS
CONSENT CARD WILL DIRECT FFCA INVESTOR SERVICES CORPORATION 85-A TO CONSENT FOR
EACH OF THE PROPOSALS SET FORTH ON THE CONSENT CARD.
Please mark boxes /x/ in ink. Sign, date and return this Consent Card promptly,
using the enclosed envelope.
1. Proposal to sell Partnership Hotels and dissolve the Partnership as
described in the Consent Solicitation Statement.
/ / FOR / / AGAINST / / ABSTAIN
2. Proposal to authorize payment of fee to General Partner as described in
the Consent Solicitation Statement.
/ / FOR / / AGAINST / / ABSTAIN
The undersigned hereby acknowledges receipt of the Notice of Consent
Solicitation, dated January 29, 1996 and the Consent Solicitation Statement
furnished therewith.
Please sign and date this consent card on the reverse side and mail in
the enclosed envelope.
<PAGE> 70
Please sign exactly as name appears hereon. When Units are held by
joint tenants, both should sign. Executors, administrators, trustees and other
fiduciaries, and persons signing on behalf of corporations or partnerships,
should so indicate when signing.
Dated , 1996
--------------------------------------
-------------------------------------------------
Authorized Signature
-------------------------------------------------
Title, if any
-------------------------------------------------
Authorized Signature
-------------------------------------------------
Title, if any
To save the Partnership additional vote solicitation expenses, please
sign, date and return this Consent Card promptly, using the enclosed envelope.
