<PAGE>
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. 2)
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
<TABLE>
<S> <C>
/ / Preliminary Proxy Statement / / Confidential, For Use of
the Commission Only (as permit-
ted by Rule 14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Soliciting Material Pursuant to Rule
14a-11(c) or Rule 14a-12
</TABLE>
UNION SQUARE HOTEL PARTNERS, L.P.
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
UNION SQUARE HOTEL PARTNERS, L.P.
(NAME OF PERSON(S) FILING PROXY STATEMENT)
Payment of Filing Fee (Check the appropriate box):
/ / No fee required.
/X/ Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which the transaction applies: N/A
(2) Aggregate number of securities to which transaction applies: N/A
(3) Per unit price or other underlying value of transaction computed pursuant to
Exchange Act Rule 0-11(a)(Set forth the amount on which the filing fee is
calculated and state how it was determined): N/A
(4) Proposed maximum aggregate value of transaction: $126,900,000(purchase
price)
(5) Total fee paid: $25,380
/X/ Fee paid previously with preliminary materials: $25,380
/ / 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 offset was paid previously.
Identify the previous filing by registration statement number, the form or
schedule and the date of its filing.
(1) Amount previously paid: N/A
(2) Form, Schedule or Registration Statement No.: N/A
(3) Filing Party: N/A
(4) Date Filed: N/A
<PAGE>
UNION SQUARE HOTEL PARTNERS, L.P.
3 WORLD FINANCIAL CENTER, 29TH FLOOR
NEW YORK, NEW YORK 10285
January 10, 1997
Dear Unitholders:
A Special Meeting of Union Square Hotel Partners, L.P., a Delaware limited
partnership formerly known as Shearson Union Square Associates, L.P. (the
"Partnership"), will be held at 10:00 a.m. local time, on February 14, 1997, at
3 World Financial Center, 26th Floor, New York, New York 10285 (including any
adjournments or postponements thereof, the "Special Meeting"). The enclosed
Proxy Statement contains important information concerning the matters to be
voted upon at the Special Meeting and should be reviewed carefully. Your vote is
important. I urge you to complete, sign, date and return the enclosed proxy card
in the enclosed postage-paid envelope. Returning a signed proxy card will not
prevent you from attending the Special Meeting or voting in person, but it will
assure that your vote is counted if you are unable to attend the Special
Meeting.
At the Special Meeting you will be asked to consider a proposal to approve
the sale of the Partnership's principal asset, the real property located at 345
Stockton Street, San Francisco, California and the related improvements and
personalty commonly known as the "Grand Hyatt San Francisco" (collectively, the
"Hotel"), to an affiliate of California Hyatt Corporation (the operator of the
Hotel), for $126.9 million in cash and the assumption of certain debts and
obligations. This sale, as fully described in the Partnership's accompanying
Proxy Statement, which you are urged to read, is referred to herein as the
"Transaction."
In view of the Partnership's aggregate indebtedness, the net proceeds from
the Transaction would not be sufficient to both repay the Partnership's existing
debt and make distributions to Unitholders. Any distributions are possible only
because the General Partner has entered into agreements with certain of the
Partnership's lenders that will permit the Partnership to distribute to
Unitholders an estimated $9 to $12 million, or between $1.25 to $1.67 per Unit,
assuming that the Transaction is completed on or prior to March 31, 1997.
As you know, the Partnership has suffered continuing losses which, combined
with the Partnership's increasing aggregate indebtedness and the imminent
maturity of the Partnership's three secured loans have raised serious
uncertainty about the Partnership's ability to continue as a going concern.
Although the Partnership has received limited extensions of the maturity of
certain of its indebtedness to provide time for the consummation of the
Transaction, the General Partner believes that if the Unitholders fail to
approve the Transaction, a bankruptcy of the Partnership or a foreclosure of the
Hotel is likely, and in either of such events, it is unlikely the Unitholders
will receive any cash distribution in respect of their Units. Upon completion of
the Transaction, the Partnership will be dissolved, and the General Partner
intends to make liquidating distributions in accordance with the Partnership
Agreement.
Schroder Wertheim & Co. Incorporated, as investment bankers, have given
their opinion that the allocation of certain of the proceeds from the
Transaction between the Partnership and one of its major secured debtholders, an
affiliate of the General Partner, is fair, from a financial point of view, to
the Unitholders, and in that context, the amount of the allocation is at least
as favorable to the Partnership as might have been obtained if the allocation
had been made with an unaffiliated lender in similar circumstances.
THE GENERAL PARTNER HAS CAREFULLY REVIEWED THE VARIOUS ALTERNATIVES
AVAILABLE TO THE PARTNERSHIP, AND HAS DETERMINED THAT THE TRANSACTION REPRESENTS
THE BEST COURSE OF ACTION FOR, AND THAT THE TRANSACTION IS IN THE BEST INTERESTS
OF, THE PARTNERSHIP AND THE UNITHOLDERS. ACCORDINGLY, THE GENERAL PARTNER HAS
APPROVED THE TRANSACTION AND RECOMMENDS THAT UNITHOLDERS USE THE ENCLOSED PROXY
CARD TO VOTE FOR APPROVAL OF THE TRANSACTION.
<PAGE>
The affirmative vote of the holders of a majority of outstanding Units is
required to direct Union Square Depositary Corp., the "assignor limited partner"
under the Partnership Agreement, to approve the Transaction. Not voting will
have the same effect as voting against the proposal, so I once again urge you to
complete, sign, and date the enclosed proxy card and return it in the enclosed
postage-paid envelope at your earliest convenience. If you have any questions,
or would like more information regarding the Proxy Statement, please call the
Partnership's Solicitation Agent for this proxy solicitation, D.F. King & Co.,
Inc. at (800) 347-4750.
Sincerely,
UNION SQUARE/GP CORP.
General Partner
[LOGO]
By: Jeffrey C. Carter
President and
Chief Financial Officer
2
<PAGE>
PRELIMINARY COPY
DRAFT
UNION SQUARE HOTEL PARTNERS, L.P.
3 WORLD FINANCIAL CENTER, 29TH FLOOR
NEW YORK, NEW YORK 10285
NOTICE OF SPECIAL MEETING OF UNITHOLDERS
TO BE HELD ON FEBRUARY 14, 1997
To the Unitholders:
A Special Meeting of Union Square Hotel Partners, L.P., a Delaware limited
partnership formerly known as Shearson Union Square Associates, L.P. (the
"Partnership"), will be held at 10:00 a.m. local time, on February 14, 1997, at
3 World Financial Center, 26th Floor, New York, New York 10285 (including any
adjournments or postponements thereof, the "Special Meeting"), for the following
purposes:
1. To consider a proposal to approve the sale of the Partnership's
principal asset, the real property located at 345 Stockton Street, San
Francisco, California and the related improvements and personalty commonly
known as the "Grand Hyatt San Francisco" (collectively, the "Hotel"),
pursuant to a Purchase and Sale Agreement and Joint Escrow Instructions,
dated as of November 4, 1996, providing for (x) the sale of the Hotel by the
Partnership to HT-Hotel Equities, Inc. ("HT-Hyatt"), an affiliate of
California Hyatt Corporation (the operator of the Hotel), subject to certain
conditions, for $126,900,000 in cash and the assumption by HT-Hyatt of the
Partnership's outstanding nonrecourse indebtedness in favor of Hyatt
Corporation, which indebtedness is secured by a third deed of trust on the
Hotel, and (y) the assumption by HT-Hyatt of all obligations of the
Partnership under the lease arrangement pursuant to which California Hyatt
Corporation operates the Hotel (collectively, the "Transaction"), all as
more fully described in the enclosed Proxy Statement; and
2. To transact such other business as may properly come before the
Special Meeting.
Only Unitholders of record at the close of business on January 10, 1997,
shall be entitled to notice of the Special Meeting and to direct the vote at the
Special Meeting of Union Square Depositary Corp., a Delaware corporation, which
serves as the "assignor limited partner" (the "Assignor Limited Partner").
Unitholders will not be entitled to dissenters' rights of appraisal under
Delaware law or the Second Amended and Restated Agreement of Limited Partnership
of the Partnership in connection with the Transaction. The affirmative vote of
the holders of a majority of outstanding Units is required to direct the
Assignor Limited Partner to approve the Transaction.
Information regarding the Transaction and related matters is contained in
the enclosed Proxy Statement and the annexes thereto, which are incorporated by
reference herein and form a part of this notice.
<PAGE>
Please complete, sign, and date the enclosed proxy card and return it
promptly in the enclosed envelope, whether or not you plan to attend the Special
Meeting. It is important that your interests be represented at the Special
Meeting. Returning a signed proxy card will not prevent you from attending the
Special Meeting or directing the vote of the Assignor Limited Partner in person,
but it will assure that your vote is counted if you are unable to attend the
Special Meeting.
By Order of the General Partner,
UNION SQUARE/GP CORP.
General Partner
[LOGO]
Jeffrey C. Carter
President and
Chief Financial Officer
New York, New York
January 10, 1997
<PAGE>
PRELIMINARY COPY
THESE MATERIALS CONSTITUTE PRELIMINARY PROXY MATERIALS FILED WITH RESPECT TO
THE FORTHCOMING SPECIAL MEETING (AS DEFINED BELOW) OF UNION SQUARE HOTEL
PARTNERS, L.P. CERTAIN INFORMATION IS PRESENTED AS IT IS EXPECTED TO EXIST
WHEN (AND IF) DEFINITIVE PROXY MATERIALS ARE MAILED TO UNITHOLDERS AND WILL
BE REVISED TO REFLECT ACTUAL FACTS AT THAT TIME.
UNION SQUARE HOTEL PARTNERS, L.P.
PROXY STATEMENT
SPECIAL MEETING OF UNION SQUARE HOTEL PARTNERS, L.P.
TO BE HELD ON FEBRUARY 14, 1997
This Proxy Statement and the accompanying Annual Report on Form 10-K,
Quarterly Report on Form 10-Q and form of proxy are being mailed to holders
("Unitholders") of the economic and certain other rights attributable to the
limited partnership interests (each, a "Unit") in Union Square Hotel Partners,
L.P., formerly known as Shearson Union Square Associates L.P. (the
"Partnership"), in connection with the solicitation by Union Square/GP Corp.
(the "General Partner"), a Delaware corporation and the general partner of the
Partnership, of proxies for use at a special meeting of Unitholders of the
Partnership to be held at 10:00 a.m. local time, on February 14, 1997, at 3
World Financial Center, 26th Floor, New York, New York 10285 (including any
adjournments or postponements thereof, the "Special Meeting").
At the Special Meeting, Unitholders will, in accordance with the provisions
of the Second Amended and Restated Agreement of Limited Partnership of the
Partnership (the "Partnership Agreement"), have the opportunity to direct Union
Square Depositary Corp. (the "Assignor Limited Partner") to (i) vote upon a
proposal to approve the sale of the Partnership's principal asset, the real
property located at 345 Stockton Street, San Francisco, California and the
related improvements and personalty commonly known as the "Grand Hyatt San
Francisco" (collectively, the "Hotel"), and (ii) to transact such other business
as may properly come before the Special Meeting. On November 5, 1996, the
Partnership entered into a Purchase and Sale Agreement and Joint Escrow
Instructions (the "Purchase and Sale Agreement"), providing for (x) the sale of
the Hotel by the Partnership to HT-Hotel Equities, Inc. ("HT-Hyatt"), an
affiliate of California Hyatt Corporation ("California Hyatt"), the operator of
the Hotel, subject to certain conditions, for $126,900,000 in cash and the
assumption by HT-Hyatt of the Partnership's outstanding nonrecourse indebtedness
in favor of Hyatt Corporation (the "Third Mortgage Note"), which indebtedness is
secured by a third deed of trust on the Hotel (the "Third Mortgage") and (y) the
assumption by HT-Hyatt of all obligations of the Partnership under the lease
arrangement (the "Operating Lease"), pursuant to which California Hyatt operates
the Hotel (collectively, the "Transaction"), all as more fully described in this
Proxy Statement.
If the Transaction is approved at the Special Meeting, upon completion of
the Transaction, the Partnership will be dissolved, and the General Partner
intends to make distributions in liquidation thereof in accordance with the
terms of the Partnership Agreement. See "THE TRANSACTION--The Liquidation of the
Partnership." Such distributions will be made only after (i) satisfaction or
discharge of all debts, liabilities and obligations of the Partnership, (ii)
payment of other expenses of the Transaction and of the dissolution and
liquidation of the Partnership, and (iii) the establishment of such reserve as
the General Partner deems necessary for ascertained but as yet unpaid
Partnership liabilities, for estimated Partnership liabilities, and for
contingent (whether known or unknown) Partnership liabilities, which reserve
will be determined only after the completion of the Transaction (the "Reserve").
The General Partner estimates that proceeds available for liquidating
distributions to Unitholders will be approximately $9 million to $12 million, or
$1.25 to $1.67 per Unit, assuming that the Transaction is completed on or prior
to March 31, 1997. See "THE TRANSACTION--The Liquidation of the Partnership."
Certain Unitholders that are non-residents of the State of California will be
subject to California withholding which will reduce the cash distribution paid
to such Unitholders accordingly. See "THE TRANSACTION--Certain Federal Income
Tax Consequences." The General Partner anticipates that any liquidating
distributions will be paid within 120 days of completion of the Transaction. The
actual amount of net proceeds to be derived from the Transaction will not be
known at the time of the Special Meeting, and no assurance may be given that
either the obligations of the Partnership or the Reserve will not exceed current
expectations or that the amount of liquidating distributions will be equal to
the estimates specified herein.
Enclosed with this Proxy Statement is a Notice of the Special Meeting,
together with a proxy for your signature. Failure to return a properly executed
and dated proxy card and failure to vote in person at the Special Meeting will
have the same effect as a vote "AGAINST" the Transaction. Any proxy given
pursuant to this solicitation may be revoked by the person giving it any time
before it is voted at the Special Meeting by (i) executing and returning a proxy
bearing a later date, (ii) filing written notice of such revocation with the
General Partner stating that the proxy is revoked or (iii) attending the Special
Meeting and directing in person the vote of the Assignor Limited Partner. Units
represented by properly executed proxies received prior to or at the Special
Meeting that have not been revoked will be voted in accordance with the
instructions indicated in the proxies. If no instructions are indicated on a
properly executed proxy, the Units represented by such proxy will be voted by
the Assignor Limited Partner "FOR" approval of the Transaction.
This Proxy Statement is accompanied by the Partnership's latest Annual
Report on Form 10-K, the Partnership's latest Quarterly Report on Form 10-Q and
a form of proxy, each of which is first being mailed to Unitholders on or about
January 10, 1997.
Under the Partnership Agreement, no business may be transacted at the
Special Meeting except as set forth in the notice of the Special Meeting
accompanying this Proxy Statement or as properly brought before the meeting by
or at the direction of the General Partner. Unitholders representing a majority
of outstanding Units shall constitute a quorum for conducting business at the
Special Meeting. If any other matters are properly presented to the Special
Meeting for consideration (such as consideration of a motion to adjourn the
Special Meeting to another time or place including, without limitation, for the
purpose of soliciting additional proxies), the Assignor Limited Partner will
have discretion to vote on such matters in accordance with its best judgment. As
of the date hereof, the General Partner knows of no such other matters.
THE DATE OF THIS PROXY STATEMENT IS JANUARY 10, 1997.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
SUMMARY.............................. 1
THE SPECIAL MEETING.................. 6
General............................ 6
Record Date and Outstanding Units;
Voting Rights.................... 6
Quorum; Vote Required.............. 6
Voting and Revocation of Proxies... 6
Solicitation of Proxies............ 6
THE TRANSACTION...................... 7
Overview........................... 7
Background of the Transaction...... 8
Recommendation of General Partner;
Reasons for the Transaction...... 9
Opinion of the Partnership's
Financial Advisor................ 11
The Liquidation of the
Partnership...................... 13
Certain Federal Income Tax
Consequences..................... 15
Gain On Sale..................... 16
Depreciation Recapture......... 16
Section 1231 Gain.............. 16
Transaction Proceeds and
Cancellation of Unsecured
Notes........................ 16
Cash Distributions............... 16
Passive Activity Losses.......... 17
California Income Tax............ 17
Exempt Employee Trusts and
Individual Retirement
Accounts..................... 17
Estimated Taxable Gain and
Income......................... 17
Accounting Treatment............... 18
Reason for Obtaining Unitholder
Approval......................... 18
Absence of Dissenters' Rights of
Appraisal........................ 18
Regulatory Matters................. 18
THE PURCHASE AND SALE AGREEMENT...... 19
The Purchase and Sale.............. 19
Prorations and Apportionments...... 19
Representations and Warranties..... 20
Title.............................. 20
Conditions Precedent............... 20
Assignment......................... 20
Risk of Loss; Condemnation......... 21
Fifth Amendment to Operating
Lease............................ 21
Termination........................ 21
THE ALLOCATION AND RELEASE
AGREEMENT.......................... 22
The Allocation..................... 22
Extension of Maturity of
Second Mortgage Note............. 22
Conditions Precedent............... 23
THE CONSENT AND RELEASE AGREEMENT.... 23
INTERESTS OF CERTAIN PERSONS IN THE
TRANSACTION........................ 23
Lehman Brothers Inc. and Related
Entities......................... 24
D.F. King & Co., Inc............... 24
PRO FORMA FINANCIAL DATA............. 25
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS.................. 29
ACCOUNTANTS.......................... 29
INCORPORATION OF CERTAIN DOCUMENTS BY
REFERENCE.......................... 29
OTHER MATTERS........................ 29
ANNEXES:
A-- Purchase and Sale Agreement and
Joint Escrow Instructions
B--Allocation and Release Agreement
C--Consent and Release Agreement
D-- Opinion of Schroder Wertheim &
Co. Incorporated
E-- Second Amended and Restated
Agreement of Limited Partnership
</TABLE>
i
<PAGE>
SUMMARY
THE FOLLOWING IS A SUMMARY OF CERTAIN INFORMATION CONTAINED ELSEWHERE IN
THIS PROXY STATEMENT AND IS PRESENTED HEREIN SOLELY TO FURNISH LIMITED
INTRODUCTORY INFORMATION REGARDING THE TRANSACTION AND THE PARTIES THERETO. THIS
SUMMARY IS NOT INTENDED TO BE COMPLETE AND IS QUALIFIED IN ITS ENTIRETY BY THE
MORE DETAILED INFORMATION CONTAINED IN THIS PROXY STATEMENT AND THE ANNEXES
HERETO, TO WHICH REFERENCE IS MADE FOR A COMPLETE STATEMENT OF THE MATTERS
DISCUSSED BELOW. UNITHOLDERS ARE URGED TO READ THIS PROXY STATEMENT, INCLUDING
THE ANNEXES HERETO, IN THEIR ENTIRETY AND TO CONSIDER THEM WITH CARE. UNLESS
OTHERWISE DEFINED HEREIN, CAPITALIZED TERMS USED IN THIS SUMMARY HAVE THE
RESPECTIVE MEANINGS ASCRIBED TO THEM ELSEWHERE IN THE PROXY STATEMENT.
THIS PROXY STATEMENT CONTAINS FORWARD-LOOKING STATEMENTS. DISCUSSIONS
CONTAINING SUCH FORWARD-LOOKING STATEMENTS MAY BE FOUND IN THE MATERIAL SET
FORTH UNDER "SUMMARY," "THE TRANSACTION" AND "PRO FORMA FINANCIAL DATA" AS WELL
AS WITHIN THE PROXY STATEMENT GENERALLY. IN ADDITION, WHEN USED IN THIS PROXY
STATEMENT, THE WORDS "BELIEVES," "ANTICIPATES," "EXPECTS," AND SIMILAR
EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS. SUCH STATEMENTS
ARE SUBJECT TO A NUMBER OF RISKS AND UNCERTAINTIES. ACTUAL RESULTS IN THE FUTURE
COULD DIFFER MATERIALLY FROM THOSE DESCRIBED IN THE FORWARD-LOOKING STATEMENTS
AS A RESULT OF THE FACTORS SET FORTH IN THE PROXY STATEMENT GENERALLY. THE
PARTNERSHIP FURTHER CAUTIONS UNITHOLDERS THAT THE DISCUSSION OF THESE FACTORS
MAY NOT BE EXHAUSTIVE. THE PARTNERSHIP UNDERTAKES NO OBLIGATION TO PUBLICLY
RELEASE THE RESULT OF ANY REVISIONS TO THESE FORWARD-LOOKING STATEMENTS THAT MAY
BE MADE TO REFLECT ANY FUTURE EVENTS OR CIRCUMSTANCES.
THE SPECIAL MEETING
The Special Meeting will be held on February 14, 1997, at 3 World Financial
Center, 26th Floor, New York, New York 10285, commencing at 10:00 a.m. local
time. The purpose of the Special Meeting is to consider a proposal to approve
the Transaction and to transact such other business as may properly come before
the Special Meeting. Only Unitholders of record at the close of business on
January 10, 1997 (the "Record Date"), shall be entitled to notice of, and to
direct the vote of the Assignor Limited Partner at, the Special Meeting. As of
the Record Date, there were approximately 5,768 Unitholders of record with
7,174,100 Units issued and outstanding. Each Unitholder shall be entitled to
direct the Assignor Limited Partner to cast one vote per Unit held of record by
such Unitholder. The presence at the Special Meeting, in person or by proxy, of
Unitholders representing a majority of outstanding Units is required to
constitute a quorum for the transaction of business. In order for the
Transaction to be approved, Unitholders representing a majority of the
outstanding Units must direct the Assignor Limited Partner to approve the
Transaction. In determining whether the Transaction has received the requisite
number of affirmative votes, abstentions and broker non-votes will have the same
effect as a vote against the Transaction. All properly executed proxies that are
not revoked will be voted at the Special Meeting in accordance with the
instructions contained therein. If a Unitholder executes and returns a proxy and
does not specify otherwise, the Units represented by such proxy will be voted by
the Assignor Limited Partner "FOR" approval of the Transaction. A Unitholder who
has executed and returned a proxy may revoke it at any time before it is voted
at the Special Meeting by (i) executing and returning a proxy bearing a later
date, (ii) filing written notice of such revocation with the General Partner
stating that the proxy is revoked or (iii) attending the Special Meeting and
directing in person the vote of the Assignor Limited Partner.
THE PARTNERSHIP
The Partnership was formed in June 1986. The General Partner of the
Partnership (formerly named Shearson Union Square/GP Corp.) is an affiliate of
Lehman Brothers Inc. ("Lehman"), formerly named Shearson Lehman Brothers Inc.
See "THE PARTNERSHIP" and "INTERESTS OF CERTAIN PERSONS IN THE TRANSACTION." The
Partnership was formed to acquire the Hotel, a 693-room hotel located on
Stockton Street between Post Street and Sutter Street in the Union Square area
of San Francisco. The Hotel includes 22,000 square feet of meeting rooms,
conference and banquet facilities, two full-service restaurants and one lounge.
During the period of the Partnership's ownership, the Hotel has
1
<PAGE>
been operated under the long-term Operating Lease by California Hyatt, a
subsidiary of Hyatt Corporation ("Hyatt").
The principal executive offices of the Partnership are located at 3 World
Financial Center, 29th Floor, New York, New York 10285 and its telephone number
is (212) 526-3237.
THE TRANSACTION
OVERVIEW
Subject to receiving the requisite approval of the Assignor Limited Partner,
as directed by Unitholders holding a majority of outstanding Units, the
Partnership will sell the Hotel to HT-Hyatt for a purchase price in cash of
$126,900,000 (the "Purchase Price"), and the assumption by HT-Hyatt of the
Partnership's approximately $3,900,000 of outstanding nonrecourse indebtedness
in favor of Hyatt under the Third Mortgage Note, which indebtedness is secured
by the Third Mortgage, and HT-Hyatt will assume all the obligations of the
Partnership with respect to the Operating Lease. The Partnership has agreed to
an amendment to the Operating Lease to increase the early termination fee
provided therein in the event the Transaction is not consummated under certain
circumstances (including a failure to obtain Unitholder approval thereof). See
"THE PURCHASE AND SALE AGREEMENT."
The proceeds of the Transaction, after payment of transaction costs and the
making of closing adjustments, will be applied as follows: first, toward
repayment in full of a first deed of trust note held by Bank of Nova Scotia
("BNS"), which was scheduled to mature on January 2, 1997 but has been extended
to April 2, 1997 to provide time for the consummation of the Transaction (the
"First Mortgage Note") and which is secured by a first deed of trust on the
Hotel (the "First Mortgage"); next, to repay (in accordance with the terms of
the Allocation and Release Agreement described below) amounts due to Capital
Growth Mortgage Investors, L.P. ("Capital Growth") with respect to (a) a second
deed of trust note held by Capital Growth (the "Second Mortgage Note"), which
indebtedness is secured by a second deed of trust on the Hotel (the "Second
Mortgage"), and (b) two unsecured promissory notes held by Capital Growth (the
"Capital Growth Unsecured Notes"); and finally, after the Partnership has paid
all of its expenses and satisfied or reserved for all of its other obligations,
the General Partner intends to make liquidating distributions to Unitholders and
the General Partner. See "THE TRANSACTION--The Liquidation of the Partnership"
and "THE ALLOCATION AND RELEASE AGREEMENT."
Following the payment by the Partnership to BNS on January 2, 1997 of the
minimum quarterly interest payment of approximately $1,333,000 and a $2,000,000
accrued interest payment required pursuant to the terms of the extension
referred to above, the full satisfaction of the First Mortgage Note will require
a payment in the approximate amount of $86,381,000, plus all accrued and unpaid
interest to the date of repayment. After transaction costs and adjustments are
deducted and the First Mortgage Note is repaid, the remaining proceeds that the
Partnership expects to receive from the sale of the Hotel will be insufficient
to both retire in full the Second Mortgage Note and the Capital Growth Unsecured
Notes and to also make liquidating distributions to the Unitholders and the
General Partner. As a result, and in consideration of the Partnership's efforts
and undertakings in connection with the sale of the Hotel, Capital Growth has
agreed to accept a reduced amount in satisfaction of the Partnership's
obligations to Capital Growth. Pursuant to an Allocation and Release Agreement
(the "Allocation and Release Agreement") between the Partnership and Capital
Growth, and subject to the conditions of that agreement, Capital Growth will
accept $30,000,000 (subject to adjustment under certain circumstances) in full
satisfaction of the obligations evidenced by the Second Mortgage Note and the
Capital Growth Unsecured Notes and for costs incurred in connection therewith
(irrespective of the actual amounts of such costs). Absent the Allocation and
Release Agreement, the amounts that would have been due at January 2, 1997 under
the Second Mortgage Note and the Capital Growth Unsecured Notes would have been
approximately $42,184,000 and $4,645,000, respectively. In addition, the
Partnership will pay up to an additional $250,000 to reimburse Capital Growth
for its cost in obtaining a fairness opinion in connection with the
2
<PAGE>
Transaction. The opinion is required under the partnership agreement of Capital
Growth because CG Realty Funding, Inc. ("CG Realty"), the general partner of
Capital Growth, is an affiliate of the General Partner. See "THE ALLOCATION AND
RELEASE AGREEMENT."
Pursuant to a Consent and Release Agreement (the "Consent and Release
Agreement") among Lehman Lending Corp., formerly known as Shearson Lending Corp.
("Lehman Lending"), Lehman Brothers Holdings Inc., formerly known as Shearson
Lehman Brothers Holdings Inc. ("Holdings"), and the Partnership, upon the
consummation of the Transaction and the payment to Capital Growth in accordance
with the Allocation and Release Agreement, Lehman Lending and Holdings shall
cause all of the Partnership's obligations under two outstanding unsecured notes
(collectively, the "Lehman Unsecured Notes") held by those parties, in the
original principal amounts of $1,000,000 and $10,000,000, respectively, to be
fully and unconditionally released and forgiven. Further, after making the
payments described above, the Partnership shall have the absolute right to
retain any and all remaining proceeds from the Transaction, free from any claim
of Lehman Lending or Holdings. See "THE CONSENT AND RELEASE AGREEMENT."
INTERESTS OF CERTAIN PERSONS IN THE TRANSACTION
Certain affiliates of Holdings, including the General Partner, Lehman,
Lehman Lending and CG Realty, have certain interests in the Transaction,
including interests of Lehman Lending in the First Mortgage Note. See "INTERESTS
OF CERTAIN PERSONS IN THE TRANSACTION."
THE LIQUIDATION OF THE PARTNERSHIP
The Partnership Agreement provides that upon the disposition of all or
substantially all of the assets of the Partnership, as is contemplated by the
Transaction, the Partnership shall be dissolved and its business affairs
wound-up.
Upon such dissolution and after (i) satisfaction or discharge of all the
debts, liabilities and obligations of the Partnership, (ii) payment of other
expenses of the Transaction and of the dissolution and liquidation, and (iii)
the establishment of the Reserve, distributions in liquidation of the
Partnership shall be made in the manner set forth in the Partnership Agreement,
a copy of which is attached hereto as Annex E. The General Partner estimates
that amounts available for liquidating distributions to Unitholders will be
approximately $9 million to $12 million, or $1.25 to $1.67 per Unit, assuming
that the Transaction is completed on or prior to March 31, 1997. The General
Partner believes that if the Unitholders fail to approve the Transaction, a
bankruptcy of the Partnership or a foreclosure of the Hotel is likely, and in
either of such events, it is unlikely the Unitholders will receive any
distribution in respect of their Units. The General Partner anticipates that
liquidating distributions will be paid within 120 days of the completion of the
Transaction. The actual amount of net proceeds to be derived from the
Transaction will not be known at the time of the Special Meeting, and no
assurance may be given that either the obligations of the Partnership or the
Reserve will not exceed current expectations or that the amount of liquidating
distributions will be equal to the estimates specified herein. See "THE
TRANSACTION--The Liquidation of the Partnership."
3
<PAGE>
Set forth below is a summary of all per Unit distributions previously made
by the Partnership:
<TABLE>
<CAPTION>
DOLLAR AMOUNT
DISTRIBUTED
YEAR ENDED DECEMBER 31, PER $10 UNIT*
- - - - ------------------------------------------------ ---------------
<S> <C>
1986.......................................... --
1987.......................................... $ .80
1988.......................................... .20
1989.......................................... --
1990.......................................... --
1991.......................................... .10**
1992.......................................... .30**
1993.......................................... .40**
1994.......................................... --
1995.......................................... --
1996.......................................... --
-----
Total..................................... $ 1.80
-----
-----
</TABLE>
- - - - ------------------------
* Represents the $10 per Unit price paid by investors in the Partnership's
1986 Initial Offering.
** These distributions represented payments in settlement of a class action
suit and were not made by the Partnership.
OPINION OF THE PARTNERSHIP'S FINANCIAL ADVISOR
On November 1, 1996, Schroder Wertheim & Co. Incorporated ("Schroder")
delivered its written opinion to the General Partner to the effect that the
allocation of sales proceeds to be made between the Partnership and Capital
Growth (the "Allocation") pursuant to the Allocation and Release Agreement is
fair, from a financial point of view, to the Unitholders and, in that context,
the amount of the Allocation is at least as favorable to the Partnership as
might have been obtained if the Allocation had been made with an unaffiliated
lender in similar circumstances. See "THE TRANSACTION--The Opinion of the
Partnership's Financial Advisor." A copy of the Schroder opinion, which sets
forth the assumptions made, matters considered and limits on the review
undertaken, is attached hereto as Annex D. THE SCHRODER OPINION SHOULD BE READ
CAREFULLY AND IN ITS ENTIRETY BY UNITHOLDERS.
RECOMMENDATION OF THE GENERAL PARTNER
The General Partner has determined that the Transaction represents the best
course of action for, and that the Transaction is in the best interests of, the
Partnership and the Unitholders. Accordingly, the General Partner has approved
the Transaction and recommends that Unitholders use the enclosed proxy card to
direct the Assignor Limited Partner to vote "FOR" approval of the Transaction.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The Transaction will constitute a taxable event and will result in the
Partnership and the Unitholders recognizing gain, the majority of which will be
ordinary income from the recapture of depreciation. In addition, the Partnership
intends to treat as capital gain the unpaid amount of the nonrecourse Second
Mortgage Note that is discharged in the Transaction, and to treat the portion of
proceeds to be received by the Partnership for its undertakings and efforts in
connection with the Transaction as ordinary income. Unitholders may generally
use all previously suspended losses from the Partnership, along with any other
current or suspended passive losses, to offset income and gain recognized as a
result of the Transaction and the liquidation of the Partnership.
4
<PAGE>
ESTIMATED TAXABLE GAIN AND INCOME
Based upon the description of the Transaction contained in this Proxy
Statement and assuming the Transaction is consummated and the liquidation of the
Partnership occurs on or before March 31, 1997, the Partnership's independent
accountants have advised the Partnership that Unitholders will recognize gain
for Federal income tax purposes in 1997 of approximately $6.09 per Unit, net of
syndication costs. Most of the gain, approximately $5.47 per Unit, will be
characterized as ordinary income as a result of the recapture of prior
depreciation deductions and the amounts received under the Allocation and
Release Agreement for the Partnership's undertakings and efforts in connection
with the Transaction. The balance of such gain is expected to constitute
"Section 1231" gain, which should generally be treated as long-term capital
gain. Such income and gain may be offset, in part, by each Unitholder's
allocable share of the ordinary loss recognized by the Partnership in 1997 prior
to the Transaction, which is expected to be approximately $0.22 per Unit
(assuming no consummation of the Transaction until March 31, 1997), as well as
any prior suspended passive losses from the Partnership or other investments as
noted above.
THE ESTIMATES OF TAXABLE INCOME AND GAIN PROVIDED HEREIN ARE HYPOTHETICAL
AMOUNTS BASED UPON A NUMBER OF ASSUMPTIONS WHICH MAY NOT BE CORRECT FOR ANY
GIVEN UNITHOLDER, ARE PRELIMINARY, AND ARE FOR ILLUSTRATIVE PURPOSES ONLY. IN
ADDITION, THESE ESTIMATES ARE BASED ON UNAUDITED INFORMATION REGARDING THE
PARTNERSHIP'S RESULTS OF OPERATIONS AND FINANCIAL CONDITION AS OF SEPTEMBER 30,
1996, AND PROJECTIONS OF SUCH RESULTS OF OPERATION AND FINANCIAL CONDITION
THROUGH THE ANTICIPATED CLOSING OF THE TRANSACTION, WHICH MAY NOT BE COMPLETE IN
A NUMBER OF MATERIAL RESPECTS. THUS, THE ACTUAL INCOME AND GAIN RECOGNIZED BY
ANY UNITHOLDER CANNOT BE DETERMINED WITH CERTAINTY, IS LIKELY TO VARY MATERIALLY
FOR ANY SPECIFIC UNITHOLDER, PARTICULARLY A UNITHOLDER WHO ACQUIRED ITS UNITS
SUBSEQUENT TO THE PARTNERSHIP'S 1986 INITIAL OFFERING, AND MAY BE SIGNIFICANTLY
GREATER OR LESS THAN THAT DESCRIBED HEREIN. RULINGS AND OPINIONS HAVE NOT AND
WILL NOT BE REQUESTED FROM THE INTERNAL REVENUE SERVICE OR PROVIDED BY COUNSEL
TO THE PARTNERSHIP WITH RESPECT TO THE MATTERS DISCUSSED HEREIN. CONSEQUENTLY,
UNITHOLDERS ARE STRONGLY URGED TO CONSULT THEIR TAX ADVISORS REGARDING THE TAX
CONSEQUENCES OF THE TRANSACTION IN LIGHT OF THEIR PARTICULAR CIRCUMSTANCES AND
INCOME TAX SITUATION. See "THE TRANSACTION--Certain Federal Income Tax
Consequences."
5
<PAGE>
THE SPECIAL MEETING
GENERAL
The Special Meeting will be held on February 14, 1997, at 3 World Financial
Center, 26th Floor, New York, New York 10285, commencing at 10:00 a.m. local
time. The purpose of the Special Meeting is to (i) consider a proposal to
approve the Transaction, and (ii) transact such other business as may properly
come before the Special Meeting.
RECORD DATE AND OUTSTANDING UNITS; VOTING RIGHTS
Only Unitholders of record at the close of business on January 10, 1997, the
Record Date, shall be entitled to notice of and to direct the vote of the
Assignor Limited Partner at the Special Meeting. As of the Record Date, there
were approximately 5,766 Unitholders of record with 7,174,100 Units issued and
outstanding. Each Unitholder shall be entitled to direct the Assignor Limited
Partner to cast one vote per Unit owned by such Unitholder. Neither the General
Partner nor any of its affiliates shall be permitted to direct the vote of any
Units, but any individual officer, director or stockholder of the General
Partner or its affiliates who holds any Units in an individual capacity shall be
entitled to direct the vote of the Units held in such individual capacity.
QUORUM; VOTE REQUIRED
The presence at the Special Meeting, in person or by proxy, of Unitholders
representing a majority of outstanding Units is required to constitute a quorum
for the transaction of business. In order for the Transaction to be approved,
Unitholders representing a majority of the outstanding Units must direct the
Assignor Limited Partner to approve the Transaction. In determining whether the
Transaction has received the requisite number of affirmative votes, abstentions
and broker non-votes will have the same effect as a vote against the
Transaction.
VOTING AND REVOCATION OF PROXIES
All properly executed proxies that are not revoked will be voted at the
Special Meeting in accordance with the instructions contained therein. If a
Unitholder executes and returns a proxy and does not specify otherwise, the
Units represented by such proxy will be voted by the Assignor Limited Partner
"FOR" approval of the Transaction. A Unitholder who has executed and returned a
proxy may revoke it at any time before it is voted at the Special Meeting by (i)
executing and returning a proxy bearing a later date, (ii) filing written notice
of such revocation with the General Partner stating that the proxy is revoked or
(iii) attending the Special Meeting and directing in person the vote of the
Assignor Limited Partner.
SOLICITATION OF PROXIES
Proxies are being solicited hereby by the General Partner. The Partnership
will bear the cost of the solicitation of proxies from the Unitholders. In
addition to solicitation by mail, directors, officers, employees and agents of
the General Partner may solicit proxies from Unitholders in person, by telephone
or facsimile, or by other means of communication. Such directors, officers,
employees and agents will not be additionally compensated for such solicitation
but may be reimbursed for the reasonable out-of-pocket expenses incurred in
connection therewith. The Partnership will make arrangements with custodians,
nominees and fiduciaries for forwarding of solicitation materials to the
beneficial owners of Units held of record by such persons, and the Partnership
will reimburse such custodians, nominees and fiduciaries for the reasonable
out-of-pocket expenses incurred by them in connection therewith.
The Partnership has retained D.F. King & Co., Inc. ("King") to assist in the
solicitation of proxies, for which King will receive reasonable and customary
compensation, which is not anticipated to exceed $50,000, plus out-of-pocket
expenses.
6
<PAGE>
THE TRANSACTION
OVERVIEW
Subject to receiving requisite approval of the Transaction by the Assignor
Limited Partner, as directed by Unitholders representing a majority of
outstanding Units, the Partnership will sell the Hotel to HT-Hyatt for a
purchase price in cash of $126,900,000, and the assumption by HT-Hyatt of the
Partnership's approximately $3,900,000 of outstanding nonrecourse indebtedness
in favor of Hyatt under the Third Mortgage Note, which indebtedness is secured
by the Third Mortgage, and HT-Hyatt will assume all of the obligations of the
Partnership with respect to the Operating Lease. See "THE PURCHASE AND SALE
AGREEMENT."
Upon completion of the Transaction, the Partnership will dissolve and the
General Partner intends to make liquidating distributions in accordance with the
provisions of the Partnership Agreement. The General Partner estimates that such
distributions to Unitholders will be approximately $9 million to $12 million, or
$1.25 to $1.67 per Unit, and distributions to the General Partner will be
approximately $90,000 to $120,000, reflecting the General Partner's 1% economic
interest in the Partnership. See "THE TRANSACTION--The Liquidation of the
Partnership."
The proceeds of the Transaction, after payment of transaction costs and the
making of closing adjustments, will be applied as follows: first, toward
repayment in full of the First Mortgage Note; next, to repay (in accordance with
the terms of the Allocation and Release Agreement) amounts due to Capital Growth
with respect to (a) the Second Mortgage Note and (b) the Capital Growth
Unsecured Notes; and finally, after the Partnership has paid all of its
expenses, and satisfied or reserved for all of its other obligations, the
General Partner intends to make liquidating distributions to Unitholders and the
General Partner. See "THE TRANSACTION--The Liquidation of the Partnership" and
"THE ALLOCATION AND RELEASE AGREEMENT."
Following the payment by the Partnership to BNS on January 2, 1997 of the
minimum quarterly interest payment of approximately $1,333,000 and a $2,000,000
accrued interest payment required pursuant to the terms of the extension
referred to below, the full satisfaction of the First Mortgage Note will require
a payment in the approximate amount of $86,381,000, plus all accrued and unpaid
interest to the date of repayment. On December 31, 1996, to provide time to
consummate the Transaction, BNS agreed to extend the maturity date of the First
Mortgage Note to April 2, 1997 in consideration for, among other things, a
$165,000 extension fee and the reimbursement of up to $6,000 of out-of-pocket
expenses. During the extension period, interest on the First Mortgage Note will
accrue at varying floating rates which are expected to be lower in the aggregate
than the previously existing 9.699% interest rate. On January 2, 1997, the
Partnership paid BNS the required extension fee.
After transaction costs and adjustments are deducted and the First Mortgage
Note is repaid, the remaining proceeds that the Partnership expects to receive
from the sale of the Hotel will be insufficient to both retire in full the
Second Mortgage Note and the Capital Growth Unsecured Notes and to make
liquidating distributions to the Unitholders and the General Partner. As a
result, and in consideration of the Partnership's efforts and undertakings in
connection with the sale of the Hotel, Capital Growth has agreed to accept a
reduced amount in satisfaction of the Partnership's obligations to Capital
Growth. Pursuant to the Allocation and Release Agreement, and subject to the
conditions of that agreement, Capital Growth will accept $30,000,000 (subject to
adjustment under certain circumstances) in full satisfaction of the obligations
evidenced by the Second Mortgage Note and the Capital Growth Unsecured Notes and
for costs and expenses incurred in connection therewith (irrespective of the
actual amounts of such costs). Absent the Allocation and Release Agreement, the
amounts that would have been due at January 2, 1997 under the Second Mortgage
Note and the Capital Growth Unsecured Notes would have been approximately
$42,184,000 and $4,645,000, respectively. In addition, the Partnership will pay
up to an additional $250,000 to reimburse Capital Growth for its cost in
obtaining a fairness opinion in connection with the Transaction. The opinion is
required under the partnership agreement of Capital Growth because
7
<PAGE>
CG Realty, the general partner of Capital Growth, is an affiliate of the General
Partner. See "THE ALLOCATION AND RELEASE AGREEMENT."
Pursuant to the Consent and Release Agreement, upon the consummation of the
Transaction and the payment to Capital Growth in accordance with the Allocation
and Release Agreement, Lehman Lending and Holdings shall cause all of the
Partnership's obligations under the Lehman Unsecured Notes to be fully and
unconditionally released and forgiven. Further, after making the payments
described above, the Partnership shall have the absolute right to retain any and
all remaining proceeds from the Transaction, free from any claim of Lehman
Lending or Holdings. See "THE CONSENT AND RELEASE AGREEMENT."
Certain affiliates of Holdings, including the General Partner, Lehman,
Lehman Lending and CG Realty, have certain interests in the Transaction,
including interests of Lehman Lending in the First Mortgage Note. See "INTERESTS
OF CERTAIN PERSONS IN THE TRANSACTION."
BACKGROUND OF THE TRANSACTION
The Partnership has suffered continuing losses which, combined with the
Partnership's increasing aggregate indebtedness and the imminent maturity of the
Partnership's three secured loans, have raised serious uncertainty about the
Partnership's ability to continue as a going concern. The General Partner
believes that the prinicipal causes of these losses include the highly
competitive market in which the Hotel competes and the adverse market conditions
which have until recently adversely affected properties such as the Hotel. For a
more detailed discussion of the reasons for such losses, please refer to the
Partnership's Annual Report on Form 10-K for the year ended December 31, 1995, a
copy of which has been mailed herewith. The General Partner, as part of its
ongoing oversight and planning, has from time-to-time explored various
alternatives that might be available with respect to the impending maturity of
the Partnership's debt, including a sale or other disposition of the Hotel.
After receiving several unsolicited offers to purchase the Hotel, the General
Partner interviewed in March 1996 a number of real estate advisory firms to
explore the Partnership's strategic alternatives, including selling or
refinancing the Hotel. In May 1996, the Partnership retained Eastdil Realty
Company, L.L.C. ("Eastdil") as its exclusive sales agent.
During late May and early June 1996, the General Partner met with
representatives of Eastdil on a number of occasions to discuss various
alternatives that might be available to the Partnership to increase the
Partnership's value, including selling the Hotel or refinancing the
Partnership's existing indebtedness. The General Partner concluded that no
opportunity to refinance the Partnership's entire indebtedness was reasonably
available and that the equity markets for hotel properties represented an
attractive opportunity relative to the possibilities likely to be afforded by
the debt markets, particularly given that the aggregate amount of the
Partnership's indebtedness that would have had to be refinanced was estimated to
substantially exceed the value of the Hotel. In these circumstances the General
Partner reached the view that a refinancing would not result in any current
proceeds to Unitholders. The General Partner determined to further review
available sales alternatives and directed Eastdil to prepare marketing
materials.
In June 1996, Eastdil presented the General Partner with a list of more than
30 potential purchasers to whom Eastdil proposed to make formal presentations.
After reviewing the list, the General Partner authorized Eastdil to, and during
the month of June 1996 Eastdil did, make formal presentations to such potential
purchasers. Personal presentations were made to high-net worth investors in
Southeast Asia, as well as to domestic hotel companies and fund sponsors. All
presentations to prospective purchasers were completed in late June and early
July. The presentations were well-received by investors, given the strength in
the lodging markets and pent-up demand for well-located San Francisco hotels.
On August 8, 1996, the General Partner met with representatives of Eastdil
to discuss the status of Eastdil's marketing efforts. At that meeting, Eastdil
indicated that in response to a late July request by
8
<PAGE>
Eastdil for proposals, it had received 10 indications of interest to purchase
the Hotel from qualified investors, including U.S. and Asia-based hotel
companies, fund managers, and high-net worth individuals. Eastdil then reviewed
with the General Partner the degree of interest expressed by, and the financial
capacity of, each prospective purchaser.
After considering the information presented by Eastdil at the August 8, 1996
meeting, the General Partner determined that further discussions should continue
with the three prospective purchasers that made the highest offers and directed
Eastdil to present counter-offers to, and requests for additional bids from,
each of such prospective purchasers. After reviewing the additional bids that
were received, the General Partner determined that the bid presented by Hyatt
was most likely to result in the Partnership receiving the largest amount of net
proceeds from among the three top offers. Thereafter, the General Partner
directed Eastdil to pursue negotiations with Hyatt with respect to a sale of the
Hotel.
On August 23, 1996, the General Partner was able to obtain a formal offer
from Hyatt to purchase the Hotel for a total consideration of $132 million in
cash. On August 29, 1996, the Partnership and Hyatt entered into a letter
agreement (the "Exclusivity Agreement") pursuant to which the parties agreed to
negotiate exclusively with one another for a period of 30 days. Concurrently
therewith, the Partnership and Hyatt executed a Fourth Amendment to Operating
Lease which granted the Partnership greater flexibility in providing notice to
Hyatt of any early termination of the Operating Lease by the Partnership, and
eliminated the requirement that the Partnership place into an escrow account
within 10 days of giving any such termination notice, the fee for terminating
the Operating Lease prior to its stated expiration date (the "Early Termination
Fee"). On September 6, 1996, the General Partner sent a letter to the
Unitholders announcing the execution of the Exclusivity Agreement without naming
HT-Hyatt as the prospective purchaser.
During the 30-day exclusivity period commencing on August 30, 1996, the
General Partner presented Hyatt with a draft purchase and sale agreement and the
parties proceeded to negotiate the terms of a definitive purchase and sale
agreement. During this period, Hyatt continued to conduct and completed its
formal due diligence review of the Hotel. On September 30, 1996, the exclusivity
period expired but the parties determined to continue their negotiations. After
completing its due diligence review, Hyatt requested a reduction of $7.0 to $8.0
million in the offered purchase price, based upon, among other reasons, Hyatt's
claimed inability to cost-effectively utilize and expand the retail space at the
Hotel and the physical condition of the Hotel. Ultimately, the parties reached
agreement on a reduction of $5.1 million in the original purchase price,
resulting in Hyatt's revised offer of $126.9 million (which continued to
represent a larger amount of net proceeds to the Partnership than the other two
top offers). On November 5, 1996, the Partnership and HT-Hyatt entered into the
Purchase and Sale Agreement. The Partnership has subsequently received informal
inquiries from time-to-time on behalf of other parties regarding their possible
interest in purchasing the Hotel. No such inquiry has resulted in meaningful
discussions regarding additional offers for the Hotel.
RECOMMENDATION OF GENERAL PARTNER; REASONS FOR THE TRANSACTION
The General Partner has determined that the Transaction represents the best
course of action for, and that the Transaction is in the best interests of, the
Partnership and Unitholders. Accordingly, the General Partner has approved the
Transaction and recommends that the Unitholders use the enclosed proxy card to
direct the Assignor Limited Partner to vote "FOR" approval of the Transaction.
In the course of reaching its determination, the General Partner consulted
with its legal and financial advisors, and considered the following factors:
FACTORS FAVORING APPROVAL
(i) certain terms and conditions of the Purchase and Sale Agreement, the
Allocation and Release Agreement, and the Consent and Release Agreement;
9
<PAGE>
(ii) the fact that the Units have been trading during the past five
months most commonly at $0.02 per Unit, with the highest trade reported at
$0.15 per Unit;
(iii) the financial condition, results of operations, cash flows,
business and prospects of the Partnership, including the Partnership's
continually increasing levels of aggregate indebtedness and the imminent
maturity of the Partnership's three secured loans;
(iv) a review of the possible alternatives to a sale of the Hotel,
including the prospects of continuing to hold the Hotel, the value to
Unitholders of such alternatives, and the timing and likelihood of actually
achieving additional value from those alternatives;
(v) the fact that HT-Hyatt's obligations under the Purchase and Sale
Agreement are not subject to a financing condition;
(vi) the scope and detail of the negotiating process with Hyatt that led
to the finalization of the principal terms of the Transaction;
(vii) the fact that California Hyatt currently operates the Hotel and, as
a result of its familiarity with the Hotel, the Partnership was able to
limit the representations and warranties given to HT-Hyatt in the Purchase
and Sale Agreement;
(viii) the General Partner's view of the current hotel acquisition market;
(ix) the fact that the secured debt collateralized by the Hotel (the
First Mortgage Note, the Second Mortgage Note and the Third Mortgage Note)
was scheduled to mature on January 2, 1997, and the relatively poor
prospects for refinancing all such secured indebtedness on acceptable terms,
if at all (BNS later agreed to extend the maturity of the First Mortgage
Note until April 2, 1997 to provide time to consummate the Transaction, and
Capital Growth has agreed not to exercise any foreclosure or bankruptcy
remedies with respect to the Second Mortgage Note prior to March 31, 1997
unless BNS first commences foreclosure proceedings); and
(xi) the fact that the price the Partnership would have to pay to
terminate the Operating Lease pursuant to which California Hyatt presently
leases and operates the Hotel, if a purchaser other than Hyatt required such
a termination prior to purchasing the Hotel, will increase considerably in
the future under the terms thereof.
FACTORS NOT FAVORING APPROVAL
(i) certain terms and conditions of the Purchase and Sale Agreement, the
Allocation and Release Agreement, and the Consent and Release Agreement,
particularly the limited indemnities and releases provided by the
Partnership and the inclusion of deadlines for consummation of the
Transaction; and
(ii) the fact that, following the sale of the Hotel, the Unitholders
would no longer be able to participate in any increase in value of the
Hotel.
The General Partner consulted with its advisors and concluded, based on the
foregoing, that the positive factors outweighed the negative factors as set
forth above. The foregoing discussion of the factors considered by the General
Partner is not intended to be exhaustive. In view of the wide variety of factors
considered in connection with its evaluation of the sale of the Hotel, the
General Partner did not find it practical to, and did not, quantify or otherwise
attempt to assign relative weights to the foregoing factors or determine that
any factor was of particular importance. Rather, the General Partner viewed its
position and recommendation as being based on the totality of the information
presented to and considered by it.
In considering the recommendation of the General Partner with respect to the
Transaction, Unitholders should be aware that the General Partner and certain of
its affiliates may be deemed to have
10
<PAGE>
certain interests in addition to, or potentially different from, the interests
of Unitholders. See "INTERESTS OF CERTAIN PERSONS IN THE TRANSACTION."
OPINION OF THE PARTNERSHIP'S FINANCIAL ADVISOR
On November 1, 1996, Schroder delivered its written opinion, as investment
bankers, to the Partnership to the effect that the Allocation is fair, from a
financial point of view, to the Unitholders and, in that context, the Allocation
is at least as favorable to the Partnership as might have been obtained if the
Allocation had been made with an unaffiliated lender in similar circumstances. A
copy of the Schroder opinion is attached hereto as Annex D and incorporated
herein by reference. UNITHOLDERS ARE URGED TO READ CAREFULLY AND IN ITS ENTIRETY
THE OPINION OF SCHRODER, WHICH SETS FORTH THE ASSUMPTIONS MADE, MATTERS
CONSIDERED, AND LIMITS ON THE REVIEW UNDERTAKEN. SCHRODER HAS CONSENTED TO THE
REFERENCES TO, AND THE INCLUSION OF, ITS OPINION IN THIS PROXY STATEMENT.
Schroder's opinion to the Partnership addresses only the fairness, from a
financial point of view, of the Allocation and does not constitute a
recommendation to any Unitholder of the Partnership as to how such Unitholder
should direct the vote of the Assignor Limited Partner.
Schroder was retained by the General Partner, on behalf of the Partnership,
to independently negotiate the Allocation with an independent advisor to Capital
Growth (the "Capital Growth Advisor") without involvement or participation by
the General Partner or the Partnership. The General Partner selected Schroder in
part because Schroder is a nationally-recognized investment banking firm. The
Allocation resulted from the direct negotiations between Schroder and the
Capital Growth Advisor and thereafter was submitted to the General Partner for
its approval on behalf of the Partnership. As part of the negotiation with the
Capital Growth Advisor, Schroder was authorized by the General Partner to
divulge to the Capital Growth Advisor the Purchase Price and other terms of the
Transaction. The Allocation and Release Agreement entered into by Capital Growth
and the General Partner reflects the results of Schroder's negotiation with the
Capital Growth Advisor and Schroder's recommendation to the General Partner.
Pursuant to certain letter agreements dated September 18, 1996, between the
Partnership and Schroder, the Partnership paid Schroder an aggregate fee of
$250,000. The Partnership also agreed to reimburse Schroder for its
out-of-pocket expenses and to indemnify and hold Schroder harmless against
certain liabilities, including liabilities under the federal securities laws or
arising out of or in connection with the rendering of services under its
engagement. In the event such indemnification is not available, the Partnership
agreed to contribute to the settlement, loss or expenses involved in the
proportion that the relevant financial interest of the Partnership and the
Unitholders bear to Schroder's relevant financial interest. Additionally,
Holdings agreed to irrevocably and unconditionally guarantee to Schroder the
financial obligations of the Partnership in connection with Schroder's
engagement. The terms of the fee arrangement with Schroder, which the General
Partner believes are customary in transactions of this nature, were negotiated
at arm's length between Schroder and the General Partner.
In arriving at its opinion, Schroder has, among other things: (i) reviewed
the Annual Reports on Form 10-K filed by the Partnership with the Securities and
Exchange Commission (the "Commission") for the fiscal years ended December 31,
1992 through December 31, 1995 with respect to the Partnership; (ii) reviewed
the Quarterly Reports on Form 10-Q filed by the Partnership with the Commission
for the fiscal quarters ended March 31, 1996 and June 30, 1996; (iii) reviewed
such legal documentation as Schroder deemed necessary, including, without
limitation, the Second Mortgage Note and the Capital Growth Unsecured Notes;
(iv) reviewed certain internal financial statements and financial operating data
concerning the Partnership and the Hotel prepared, respectively, by the General
Partner and management of the Hotel; (v) reviewed and discussed with the General
Partner certain financial information, including financial forecasts (which had
been publicly disclosed in connection with the Partnership's 1986 Initial
Offering), estimated cash balances at closing, business conditions, earnings,
assets of the Partnership,
11
<PAGE>
prepared by the General Partner or its advisors, and the Partnership's
reasonably available sale alternatives; (vi) discussed with the General Partner
the past and current relationship between the Partnership and Capital Growth;
(vii) discussed the prices and trading activity of the Units with the General
Partner; (viii) reviewed the final Allocation and Release Agreement, dated as of
November 1, 1996; and (ix) performed such other analyses and reviewed and
analyzed such other information as Schroder deemed appropriate.
ANALYSIS OF CERTAIN OTHER PUBLICLY TRADED INSOLVENT COMPANIES AND THEIR
LIQUIDATING VALUE UPON SALE. Schroder reviewed the liquidating value of the
equity position in eight bankruptcies, reorganizations, and insolvent company
asset sales over the last five years (none of which operated hotels, but three
of which had substantial real estate holdings) and found that the Allocation
compares favorably to the amounts received by equity holders in situations
viewed by Schroder to be similar to the Transaction.
UNIT PRICE TRADING HISTORY. Schroder reviewed the history of trading prices
for Partnership units over the last five months prior to the announcement of the
Transaction (the only period for which the Partnership tracked trading prices of
the Units). During this time, Units traded most commonly at $0.02 per Unit, with
the highest trade reported at $0.15 per Unit.
FORECLOSURE ANALYSIS. Schroder analyzed the possible results that could
occur if the Partnership defaulted on the First Mortgage Note, the Second
Mortgage Note and the Third Mortgage Note on January 2, 1997, and foreclosure
proceedings commenced.
In rendering its opinion, Schroder assumed and relied upon the accuracy and
completeness of all information supplied or otherwise made available to it by
the Partnership or obtained by Schroder from other sources, and upon the
assurance of the General Partner that the General Partner is unaware of any
information or facts that would make the information provided to Schroder
incomplete or misleading. Schroder was not obligated to independently verify
such information, did not undertake an independent appraisal of the assets or
liabilities (contingent or otherwise) of the Partnership or the Hotel and has
not been furnished with any such appraisals.
Schroder's opinion is necessarily based upon economic, market and other
conditions as they exist on, and the information made available to Schroder as
of, the date of its opinion. Schroder has no obligation to advise any person of
any change in any fact or matter affecting its opinion which may come or be
brought to its attention after that date. Schroder believes that its analyses
must be considered as a whole and that selecting portions of its analyses and of
the factors considered by it, without considering all analyses and factors,
could create a misleading view of the processes underlying its opinion. The
preparation of a fairness opinion is a complex process and not necessarily
susceptible to partial analyses or summary description.
The opinion expressed by Schroder does not constitute a recommendation by
Schroder as to any action the Partnership, the General Partner or any Unitholder
should take in connection with the Transaction. Such opinion relates solely to
the fairness, from a financial point of view, of the Allocation. Schroder
expresses no opinion as to the structure, terms or effect of any other aspect of
the Transaction.
12
<PAGE>
THE LIQUIDATION OF THE PARTNERSHIP
The Partnership Agreement provides that upon the disposition of all or
substantially all of the assets of the Partnership, as is contemplated by the
Transaction, the Partnership shall be dissolved and its business affairs
wound-up. The Partnership Agreement requires that upon any dissolution of the
Partnership, before any liquidating distribution may be made, the Partnership
must satisfy, or set aside for payment of, all debts, liabilities and
obligations of the Partnership including expenses of the Transaction and of
dissolution and liquidation. In order to facilitate the prompt distribution of
assets in liquidation to the Unitholders, the Partnership intends to establish
the Reserve. The Reserve will be utilized for ascertained but as yet unpaid
Partnership liabilities, estimated Partnership liabilities, and contingent,
(whether known or unknown) Partnership liabilities, and will be determined only
after completion of the Transaction. The General Partner does not believe that
the amount of the Reserve to be established will significantly exceed the amount
of the foregoing liabilities and any additional costs of administering the
Partnership. However, it is possible that the amount of the Reserve may be
greater or less than the ultimate amount of such liabilities and costs. To the
extent that, in the opinion of the General Partner, the cost of distributing any
residual from the Reserve would exceed the value of such residual, the General
Partner intends to retain indefinitely any such residual.
Pursuant to the Partnership Agreement, 99% of the amount available for
distributions will be distributed to the Unitholders in proportion to the number
of Units held by each Unitholder, and the remaining 1% of such amount shall be
distributed to the General Partner. The General Partner estimates that amounts
available for distribution to Unitholders will be approximately $9 million to
$12 million, or $1.25 to $1.67 per Unit, and the amounts available for
distribution to the General Partner will be approximately $90,000 to $120,000,
reflecting the General Partner's 1% economic interest in the Partnership,
assuming that the Transaction is completed on or prior to March 31, 1997. The
General Partner believes that if the Unitholders fail to approve the Transaction
a bankruptcy of the Partnership or a foreclosure of the Hotel is likely, and in
either of such events, it is unlikely the Unitholders will receive any
distribution in respect of their Units. The estimates are based upon the factors
set forth below. THERE CAN BE NO ASSURANCES AS TO THE ACTUAL AMOUNTS DISTRIBUTED
OR AS TO THE AMOUNTS SET FORTH BELOW. ACTUAL AMOUNTS MAY DIFFER MATERIALLY FROM
THOSE SET FORTH BELOW.
13
<PAGE>
ESTIMATED SOURCES AND USES FOR THE TRANSACTION
(IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)
<TABLE>
<CAPTION>
SOURCES USES
- - - - ------------------------------ ------------------------------------
<S> <C> <C> <C>
Purchase Price (1)............ $ 126,900 Repayment in full of First Mortgage
Note (2)........................... $ 86,381
Cash generated from Repayment of the Second Mortgage
operations, including cash on Note and the Capital Growth
hand......................... $ 1,131-4,731 Unsecured Notes (in accordance with
the terms of the Allocation and
Release Agreement) (3)............. $ 30,250
Estimated costs and expenses of the
Transaction and the liquidation and
dissolution of the Partnership
including the Reserve (4).......... $ 2,400-3,000
Total Sources................. $ 128,031-131,631 Total Uses.......................... $ 119,031-119,631
------------------- -------------------
Estimated Net Distributable Amount (5)................................................... $ 9,000-12,000
Estimated Distribution to the General Partner............................................ $ 90-120
Estimated Distribution to the Unitholders................................................ $ 8,910-11,880
Total Distribution per $10 Unit (6)...................................................... $ 1.25-1.67
-------------------
-------------------
</TABLE>
- - - - ------------------------------
(1) Assumes that no adjustments to the Purchase Price were made pursuant to the
Purchase and Sale Agreement
(2) Reflects the approximate outstanding balance as of January 2, 1997 after
payment of an aggregate of approximately $3,333,000 of accrued interest
thereon, and assumes that any interest payments made after such date would
reduce cash generated from Partnership operations.
(3) Includes $250,000 for reimbursement of the cost incurred by Capital Growth
in obtaining its fairness opinion. See "THE ALLOCATION AND RELEASE
AGREEMENT."
(4) Reflects the General Partner's current estimate of closing costs of the
Transaction, together with anticipated expenses in connection with the
dissolution and liquidation of the Partnership and the Reserve. The amount
of expenses actually incurred will depend in part upon the timing of the
dissolution and could increase significantly if the dissolution is delayed
for any reason.
(5) The actual amount of cash available for distribution will vary substantially
depending upon, among other things, the timing of the dissolution, actual
results of operations for the period prior to dissolution, the amount of the
FF&E Reserve (as defined in the Purchase and Sale Agreement), and the amount
of interest that will accrue on the First Mortgage Note following January 2,
1997.
(6) Assumes 7,174,100 Units issued and outstanding and reflects the $10 per Unit
price paid by investors in the Partnership's 1986 Initial Offering.
14
<PAGE>
Set forth below is a summary of all per Unit distributions previously made
by the Partnership:
<TABLE>
<CAPTION>
DOLLAR AMOUNT
DISTRIBUTED
YEAR ENDED DECEMBER 31, PER $10 UNIT*
- - - - ------------------------------------------------ ---------------
<S> <C>
1986.......................................... --
1987.......................................... $ .80
1988.......................................... .20
1989.......................................... --
1990.......................................... --
1991.......................................... .10**
1992.......................................... .30**
1993.......................................... .40**
1994.......................................... --
1995.......................................... --
1996.......................................... --
-----
Total..................................... $ 1.80
-----
-----
</TABLE>
- - - - ------------------------------
* Represents the $10 per Unit price paid by investors in the Partnership's
1986 Initial Offering.
** These distributions represented payments in settlement of a class action
suit and were not made by the Partnership.
The General Partner anticipates that liquidating distributions will be paid
within 120 days of completion of the Transaction. The actual amount of net
proceeds to be derived from the Transaction will not be known at the time of the
Special Meeting, and no assurance may be given that either the obligations of
the Partnership or the Reserve will not exceed current expectations or that the
amount of liquidating distributions will be equal to the estimates specified
herein.
Upon the consummation of the liquidation, the Partnership will file a
certificate of dissolution with the Secretary of State of the State of Delaware
in accordance with Section 17-203 of the Delaware Revised Uniform Limited
Partnership Act. After the filing of the certificate of dissolution, the
Partnership will no longer be authorized to undertake partnership actions other
than those necessary for winding-up the Partnership's affairs.
Various laws for the protection of creditors may apply to the liquidation.
In this regard, it should be noted that if a court were to find that the
Partnership failed to fund sufficiently the Reserve, or that the liquidating
distribution to Unitholders rendered the Partnership insolvent, the liquidating
distributions to Unitholders may be deemed to be "fraudulent conveyances" or
impermissible dividends or distributions under applicable law, and therefore may
be subject to claims of certain creditors of the Partnership, if such creditors
have not been paid by either of such entities. In the event that such a claim is
asserted after the liquidation and dissolution of the Partnership, there is a
risk that persons who were Unitholders on the distribution record date will be
ordered by a court to turn over to the Partnership's creditors all or a portion
of the liquidating distributions they received from the Partnership.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The material Federal income tax issues associated with the Unitholders'
investment in the Partnership have generally been addressed in the Partnership's
Offering Prospectus, dated August 18, 1986. The following is a summary of the
material Federal income tax consequences of the Transaction to individual
Unitholders, but is not intended as personal tax advice. This summary is based
on the Federal income tax law currently in effect, which is subject to change,
possibly with retroactive effect. Except to the limited extent described below,
this summary does not discuss all aspects of Federal income taxation which may
be important to particular Unitholders in light of their individual investment
circumstances, including certain types of holders subject to special tax rules
(E.G., corporations, financial institutions, broker-dealers, insurance
companies, partnerships, tax-exempt organizations, and foreign taxpayers) and
Unitholders who acquired their Units subsequent to the Partnership's 1986
Initial Offering. In addition, except to the
15
<PAGE>
limited extent described below, this summary does not address state, local or
foreign tax consequences. No rulings have been or will be requested from the
Internal Revenue Service (the "Service"), and no opinions have been or will be
provided by counsel to the Partnership, with respect to any of the matters
discussed herein. Moreover, because the treatment of the tax issues relating to
certain aspects of the Transaction is unclear under current law, there can be no
assurance that the Service would not take positions contrary to those described
below and that a court would not sustain the Service's position, in which case a
Unitholder may realize different tax consequences. UNITHOLDERS ARE URGED TO
CONSULT THEIR TAX ADVISORS REGARDING THE SPECIFIC FEDERAL, STATE, LOCAL, AND
FOREIGN INCOME AND OTHER TAX CONSEQUENCES OF THE TRANSACTION.
GAIN ON SALE
The Transaction will constitute a taxable event and will result in the
Partnership and the Unitholders recognizing gain, the majority of which will be
ordinary income from the recapture of depreciation, as described below. The
aggregate amount of gain from the Transaction will be equal to the excess of (a)
the amount of any cash received by Partnership plus the amount of any
nonrecourse indebtedness to which the Hotel is subject that is discharged or
assumed by the transferee as a result of the Transaction (the "Amount Realized")
over (b) the Partnership's adjusted tax basis in the Hotel at the time of the
Transaction. The Partnership intends to include in the Amount Realized and treat
as capital gain the unpaid balance of the Second Mortgage Note that is
discharged in the Transaction, because the Second Mortgage Note is nonrecourse.
It is possible, however, that the Service might assert that a portion of the
gain realized by the Partnership should instead be treated as ordinary income
from the cancellation of indebtedness to the extent that the Second Mortgage
Note was unpaid and discharged in the Transaction.
DEPRECIATION RECAPTURE. In general, because the Partnership elected to take
depreciation deductions with respect to the real property as "section 1245
recovery property" on an accelerated basis, the depreciation deductions on the
real property are required to be recaptured as ordinary income. In addition, a
taxpayer must generally recapture as ordinary income the gain on the sale of
personal property.
SECTION 1231 GAIN. Except with respect to the portions of the gain that are
treated as ordinary income, as discussed herein, the gain recognized by the
Partnership is expected to constitute "Section 1231" gain. Each Unitholder will
then net its "Section 1231" gains and losses from all sources, including its
allocable share of such gains and losses recognized by the Partnership. To the
extent that net "Section 1231" gains exceed net "Section 1231" losses, such
gains and losses will generally be treated as long-term capital gains or losses,
as the case may be. To the extent that "Section 1231" gains do not exceed
"Section 1231" losses, such gains and losses will be treated as ordinary gains
and losses.
TRANSACTION PROCEEDS AND CANCELLATION OF UNSECURED NOTES. The Partnership
intends to treat as ordinary income the portion of the proceeds from the
Transaction that is allocable to amounts to be received by the Partnership under
the Allocation and Release Agreement for the Partnership's undertakings and
efforts in connection with the Transaction. This treatment is consistent with
the Partnership's position that the Amount Realized upon consummation of the
Transaction and treated as capital gain includes the unpaid amount of the Second
Mortgage Note that is discharged as a result of the Transaction, as discussed
above. If the Service were to assert that the unpaid amount of the Second
Mortgage Note constituted ordinary income from the cancellation of indebtedness
to the Partnership, then it is likely that the Service would treat the portion
of the Transaction proceeds received by the Partnership under the Allocation and
Release Agreement as gain realized from the Transaction. Unitholders should
consult their tax advisors regarding the potential tax treatment of the
Transaction proceeds. The ordinary cancellation of indebtedness income generated
by the discharge of the Capital Growth Unsecured Notes and the Lehman Unsecured
Notes will be allocated solely to the General Partner.
CASH DISTRIBUTIONS
Under the Partnership Agreement, cash distributions from the Transaction and
the liquidation of the Partnership will be distributed 99% to the Unitholders
and 1% to the General Partner as described above. Although income and gain will
be allocated to the Unitholders as a result of the Transaction and the
liquidation of the Partnership, no gain will be recognized by a Unitholder as a
result of the distribution of
16
<PAGE>
proceeds, except to the extent that the cash distributed exceeds a Unitholder's
adjusted tax basis in his Unit. A Unitholder with an adjusted tax basis
remaining in its Unit following the cash distributions will recognize a capital
loss (long-term or short-term depending on the Unitholder's holding period)
which can be used to offset net "Section 1231" gains that are not treated as
ordinary income (or any other capital gains from other sources).
PASSIVE ACTIVITY LOSSES
Upon the consummation of the Transaction, Unitholders may generally use all
current and previously suspended losses from the Partnership, along with any
other current or suspended passive losses, to offset income and gain recognized
as a result of the Transaction and the liquidation of the Partnership without
regard to the passive activity limitations. To the extent that a Unitholder's
previously suspended losses from the Partnership exceeds the income and gain
recognized as a result of the Transaction and the liquidation of the
Partnership, such previously suspended losses may also be used by the Unitholder
to offset any other income.
CALIFORNIA INCOME TAX
Unitholders may also be subject to state or local taxes with respect to the
income and gain from the Partnership, and should consult their tax advisors
regarding the applicability of any such taxes. The State of California generally
requires partnerships to withhold California state income taxes at the rate of
7% from distributions attributable to a taxable nonresident partner's California
source income. Based on projections, the Partnership has determined that
withholding is required on distributions arising from the Transaction. Any
amount withheld from distributions made to a nonresident Unitholder may be
claimed as a credit against, or refunded if in excess of, such Unitholder's
California income tax liability. The California nonresident withholding
requirement does not apply to IRAs, Keoghs, other tax-exempt entities or to any
partners deemed to be California residents. Unitholders who are not residents of
California should consult their tax advisors regarding the filing of nonresident
tax returns in the State of California and any applicable tax credit that may be
available in their state.
EXEMPT EMPLOYEE TRUSTS AND INDIVIDUAL RETIREMENT ACCOUNTS
Tax-exempt organizations, including employee benefit plans, although not
generally subject to Federal income tax, are subject to tax on certain income
derived from a trade or business carried on by the organization which is
unrelated to its exempt activities. Such unrelated business taxable income
generally includes gain from the sale by a partnership of "debt-financed
property" (as defined under Section 514 of the Internal Revenue Code of 1986, as
amended) that is allocable to tax-exempt partners. Because the Hotel, as held by
the Partnership, is considered to be debt-financed property for Federal income
tax purposes, income and gain from the sale thereof will generally constitute
unrelated business taxable income to tax-exempt Unitholders. Accordingly,
tax-exempt Unitholders should consult their tax advisors regarding the
application of the unrelated business taxable income rules to their allocable
share of income and gain resulting from the Transaction and the liquidation of
the Partnership.
ESTIMATED TAXABLE GAIN AND INCOME
Based upon the description of the Transaction contained in this Proxy
Statement and assuming the Transaction is consummated and the liquidation of the
Partnership occurs on or before March 31, 1997, the Partnership's independent
accountants have advised the Partnership that Unitholders will recognize gain
for Federal income tax purposes in 1997 of approximately $6.09 per Unit, net of
syndication costs. Most of the gain, approximately $5.47 per Unit, will be
characterized as ordinary income as a result of the recapture of prior
depreciation deductions and the amounts received under the Allocation and
Release Agreement for the Partnership's undertakings and efforts in connection
with the Transaction. The balance of such gain is expected to constitute
"Section 1231" gain, which should generally be treated as long-term capital
gain. Such income and gain may be offset, in part, by each Unitholder's
allocable share of the ordinary loss recognized by the Partnership in 1997 prior
to the Transaction, which is expected to be
17
<PAGE>
approximately $0.22 per Unit, as well as any prior suspended passive losses from
the Partnership or other investments as noted above (assuming no consummation of
the Transaction until March 31, 1997).
THE ESTIMATES OF TAXABLE INCOME AND GAIN PROVIDED HEREIN ARE HYPOTHETICAL
AMOUNTS BASED UPON A NUMBER OF ASSUMPTIONS WHICH MAY NOT BE CORRECT FOR ANY
GIVEN UNITHOLDER, ARE PRELIMINARY, AND ARE FOR ILLUSTRATIVE PURPOSES ONLY. IN
ADDITION, THESE ESTIMATES ARE BASED ON UNAUDITED INFORMATION REGARDING THE
PARTNERSHIP'S RESULTS OF OPERATIONS AND FINANCIAL CONDITION AS OF SEPTEMBER 30,
1996, AND PROJECTIONS OF SUCH RESULTS OF OPERATION AND FINANCIAL CONDITION
THROUGH THE ANTICIPATED CLOSING OF THE TRANSACTION, WHICH MAY NOT BE COMPLETE IN
A NUMBER OF MATERIAL RESPECTS. THUS, THE ACTUAL INCOME AND GAIN RECOGNIZED BY
ANY UNITHOLDER CANNOT BE DETERMINED WITH CERTAINTY, IS LIKELY TO VARY MATERIALLY
FOR ANY SPECIFIC UNITHOLDER, PARTICULARLY A UNITHOLDER WHO ACQUIRED ITS UNITS
SUBSEQUENT TO THE INITIAL OFFERING, AND MAY BE SIGNIFICANTLY GREATER OR LESS
THAN THAT DESCRIBED HEREIN. CONSEQUENTLY, UNITHOLDERS ARE STRONGLY URGED TO
CONSULT THEIR TAX ADVISORS REGARDING THE TAX CONSEQUENCES OF THE TRANSACTION IN
LIGHT OF THEIR PARTICULAR CIRCUMSTANCES AND INCOME TAX SITUATION.
ACCOUNTING TREATMENT
Under generally accepted accounting principles, the Transaction will result
in a gain for the Partnership as determined by the net sales proceeds less the
book basis of the real estate. Net sales proceeds are derived by subtracting
direct costs to dispose of the Hotel from the agreed upon gross sales price. The
agreed upon gross sales price for the Hotel has been determined to be
$126,900,000 in cash plus HT-Hyatt's assumption of the Third Mortgage Note. The
book basis of the real estate is the historical acquisition cost of the Hotel,
plus capital additions, less accumulated depreciation through September 30,
1996. In accordance with generally accepted accounting principles, the
Partnership has classified the real estate as held for sale as of September 30,
1996, thus, triggering the cessation of depreciation expense.
Under generally accepted accounting principles, the Partnership will record
a gain on forgiveness of indebtedness equal to the difference between the
Partnership's total indebtedness as of the date of sale of the Hotel and the
cash paid in settlement of such indebtedness. Total indebtedness is comprised of
the mortgage loan payable, accrued interest payable, deferred interest payable
and notes and loans payable to affiliates.
REASON FOR OBTAINING UNITHOLDER APPROVAL
The General Partner is submitting the Transaction for approval by the
Unitholders because such approval is required pursuant to the terms of the
Purchase and Sale Agreement. The voting rights of Unitholders are set forth in
Section 11.4 of the Partnership Agreement, a copy of which is attached hereto as
Annex E.
ABSENCE OF DISSENTERS' RIGHTS OF APPRAISAL
Unitholders are not entitled to dissenters' rights of appraisal under the
Delaware Revised Uniform Partnership Act or the Partnership Agreement in
connection with the matters to be voted on at the Special Meeting.
REGULATORY MATTERS
The Partnership is not aware of any federal or state regulatory approvals
that would be required in connection with the Transaction.
18
<PAGE>
THE PURCHASE AND SALE AGREEMENT
THE FOLLOWING IS A SUMMARY OF MATERIAL PROVISIONS OF THE PURCHASE AND SALE
AGREEMENT, A COPY OF WHICH IS ATTACHED HERETO AS ANNEX A AND INCORPORATED HEREIN
BY REFERENCE. THIS SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE
PURCHASE AND SALE AGREEMENT, AND UNITHOLDERS SHOULD READ THAT AGREEMENT
CAREFULLY IN ITS ENTIRETY. CAPITALIZED TERMS USED BUT NOT DEFINED IN THIS PROXY
STATEMENT SHALL HAVE THE MEANINGS SET FORTH IN THE PURCHASE AND SALE AGREEMENT,
AND ARE USED HEREIN WITH THE SAME MEANINGS.
THE PURCHASE AND SALE
The Purchase and Sale Agreement provides that the Partnership will sell to
HT-Hyatt all of its right, title and interest in and to the Real Property
(including the Hotel), Personal Property, Contracts, Permits, Miscellaneous
Property Assets and the Operating Lease in exchange for a total purchase price
of $126,900,000 in cash, and the assumption by HT-Hyatt of the Partnership's
outstanding indebtedness under the Third Mortgage Note in favor of Hyatt, which
indebtedness is secured by the Third Mortgage on the Hotel. The Partnership will
also assign, and HT-Hyatt will assume, all rights and interests in certain
intangibles, permits, and contracts to which the Partnership is a party, that
relate to the management and operation of the Hotel, including but not limited
to the Operating Lease.
HT-Hyatt has delivered $10,000,000 to the Escrow Holder as a Deposit to be
held in Escrow in certain interest bearing instruments and/or accounts. The
Deposit is not refundable to HT-Hyatt, except under certain circumstances
described below. The balance of the Purchase Price will be paid by HT-Hyatt to
the Partnership upon the Closing of the Transaction. The Partnership and
HT-Hyatt shall each pay one-half of the expenses associated with the Escrow, and
one-half of all documentary transfer and sales taxes relating to the
Transaction. The Partnership shall also pay the premium for the Owner's Title
Policy, the cost of the Survey and reasonable certification thereto and the cost
of removing all title exceptions that are not Permitted Exceptions. HT-Hyatt
shall pay for the cost of any endorsements to the Owner's Title Policy. Except
as just noted, and subject to certain specified exceptions, the Partnership and
HT-Hyatt shall each bear their own expenses in connection with the negotiation,
consummation and performance of the transactions contemplated by the Purchase
and Sale Agreement. If the sale of the Hotel is not consummated because the
Purchase and Sale Agreement is terminated by the Partnership as a result of a
material uncured breach by HT-Hyatt, the Escrow Holder has been instructed to
pay to the Partnership the Deposit, along with any accrued interest, as
liquidated damages. In such event, HT-Hyatt will then also bear all escrow and
title company cancellation charges. The Partnership and HT-Hyatt have agreed
that such liquidated damages will be the Partnership's exclusive remedy for the
non-occurrence of the Transaction if due to HT-Hyatt's material uncured breach
of the Purchase and Sale Agreement; however, the Partnership retains all
available rights and remedies in the event the Transaction does not occur under
other conditions. If the sale of the Hotel is consummated, the remaining balance
of the Purchase Price, subject to any adjustments and prorations required by the
Purchase and Sale Agreement, will be paid to the Partnership upon the Closing.
PRORATIONS AND APPORTIONMENTS
Generally, payments to be made to the owner of the Hotel under the Operating
Lease, and all other income and expenses in connection with the ownership,
operation and maintenance of the Hotel not accounted for in the calculation of
the amounts due under the Operating Lease, will be prorated between the
Partnership and HT-Hyatt as of the Closing Date. In addition, the Partnership
will retain that portion of certain reserves maintained by California Hyatt for
replacement of furniture, fixtures and equipment at the Hotel equal to: (i)
$896,454, plus (ii) all amounts contributed to such reserves and attributable to
the period from October 1, 1996, through October 31, 1996, plus (iii) 50% of all
amounts to be deposited into such reserves pursuant to the terms of the
Operating Lease and attributable to the period between November 1, 1996, and the
Closing Date. The remaining 50% of the reserves attributable to the period
between November 1, 1996, and the Closing Date may be expended by California
Hyatt in accordance with
19
<PAGE>
the terms of the Operating Lease and any budgets approved pursuant thereto, and
any portion thereof that is not so expended by California Hyatt will be
transferred to HT-Hyatt without any adjustment to the Purchase Price.
REPRESENTATIONS AND WARRANTIES
The Purchase and Sale Agreement provides that HT-Hyatt is purchasing the
Hotel from the Partnership with limited representations and warranties on an "as
is, where is" basis, "with all faults." Each of the Partnership and HT-Hyatt is
making customary representations and warranties regarding its organization and
authority to execute and deliver all documents required to be executed and
delivered and the enforceability thereof. In addition, the Partnership is making
certain additional customary representations and warranties regarding subleases,
existing contracts, violations of law, legal proceedings, pending zoning changes
and condemnation actions, permits and certain liens.
The representations and warranties of the Partnership and HT-Hyatt will
survive for a period of one year. HT-Hyatt has agreed that the Partnership shall
not be liable for any misrepresentations or breaches of warranties of which
HT-Hyatt and/or California Hyatt had knowledge prior to the Closing. Neither the
Partnership nor HT-Hyatt shall have any right to pursue remedies against the
other for any misrepresentation or breach of warranty unless and until the
claiming party's actual damages in respect thereof exceed $100,000 (the
aforesaid amount being a threshold for enforcement and not a deductible from
liability).
TITLE
The Partnership shall have no liability to HT-Hyatt based on any defect in
the title to the Real Property actually acquired by HT-Hyatt. The issuance of
the Owner's Title Policy in the amount of the Purchase Price by the Title
Company shall be conclusive evidence of delivery of title acceptable to HT-
Hyatt, and HT-Hyatt's sole recourse for such defect shall be to exercise its
rights under that policy.
CONDITIONS PRECEDENT
In addition to customary conditions precedent to Closing, the Partnership
has agreed to remove or otherwise insure against specified encumbrances on title
appearing on a preliminary title report (the "PTR"). HT-Hyatt has agreed to
accept certain other matters of title reflected on the PTR as Permitted
Exceptions, to be responsible for removing others, and to waive the right to
disapprove title with respect to any matter relating to the Third Mortgage and
the Third Mortgage Note, regardless of its assumption of that obligation. The
Purchase and Sale Agreement also requires the Partnership to solicit the
approval of the Unitholders for the Transaction, and to deliver to the Escrow
Holder on or before March 24, 1997, a notice of the vote obtained.
ASSIGNMENT
HT-Hyatt may sell, assign, encumber, convey or otherwise transfer
(collectively, "Transfer") its rights and obligations under the Purchase and
Sale Agreement under certain circumstances specified therein, including, without
limitation: (i) the transferee's assumption in writing of all of the obligations
of HT-Hyatt under the Purchase and Sale Agreement and related documents; (ii) no
less than 25% of the ownership interests in the transferee being owned by
certain affiliates of the owners of HT-Hyatt ("HT-Hyatt Affiliates"); (iii) the
obligations of the transferee being guaranteed by a Partnership-approved
HT-Hyatt Affiliate if less than 51% of the ownership interests in the transferee
are owned by an HT-Hyatt Affiliate; (iv) an increase in the Purchase Price under
the Purchase and Sale Agreement under certain limited circumstances specified
therein; and (v) HT-Hyatt's remaining primarily liable to perform its
obligations under the Purchase and Sale Agreement.
20
<PAGE>
RISK OF LOSS; CONDEMNATION
The Partnership shall retain the entire risk of loss or damage by
earthquake, flood, landslide, fire, hurricane, tornado or other casualty until
the Closing. If the Hotel sustains damage and the estimated cost to repair such
damage exceeds, in the aggregate, $2.5 million, HT-Hyatt shall have the right to
terminate the Purchase and Sale Agreement. If the damage does not exceed such
amount, HT-Hyatt shall be obligated to complete the Transaction, but shall be
entitled to receive all insurance proceeds in respect of such damages and a
credit against the Purchase Price in the amount of any applicable insurance
deductible.
If any or all of the Hotel is taken by condemnation or eminent domain (or
becomes the subject of a pending taking that has not yet been consummated),
HT-Hyatt shall have the right to terminate the Purchase and Sale Agreement if,
in HT-Hyatt's reasonable opinion, such taking or pending taking materially
interferes or would materially interfere with the economic operation of the
Hotel. If such a taking or pending taking occurs but HT-Hyatt elects not to
terminate, the Partnership shall assign to HT-Hyatt all of its right, title and
interest in and to any condemnation awards that may be payable to the
Partnership on account of such taking, and no adjustment to the Purchase Price
shall be made in respect thereof.
FIFTH AMENDMENT TO OPERATING LEASE
In connection with the execution of the Purchase and Sale Agreement, the
Partnership has agreed to an amendment to the Operating Lease (the "Fifth
Amendment"), which would increase the Early Termination Fee (as defined therein)
from $14,575,000 to $16,032,500 for the period January 1, 1997, to December 31,
1997 (both dates inclusive), and from $16,032,500 to $17,635,750 for the period
January 1, 1998, to January 2, 1999 (both dates inclusive). The Fifth Amendment
will be null and void if the Transaction is completed, or if the Transaction is
terminated for various reasons other than the Partnership's material uncured
default under the Purchase and Sale Agreement, but will become effective if the
Purchase and Sale Agreement is terminated as a result of: (i) a material uncured
breach by the Partnership under the Purchase and Sale Agreement; (ii) the
Unitholders vote to disapprove the Transaction; or (iii) the Unitholders'
failure to vote on the Transaction by March 24, 1997, and the election by
HT-Hyatt or the Partnership to terminate the Purchase and Sale Agreement on
account thereof.
TERMINATION
The Purchase and Sale Agreement automatically terminates if the Transaction
is disapproved by the Unitholders. If neither approval nor disapproval of the
Transaction has been obtained from the Unitholders by March 24, 1997, the
Purchase and Sale Agreement may be terminated by either the Partnership or
HT-Hyatt. Upon any such termination, the Escrow Holder has been instructed to
return the Deposit to HT-Hyatt and the Fifth Amendment shall become effective.
The Purchase and Sale Agreement may also be terminated by either the
Partnership or HT-Hyatt in the event of a material uncured breach of the
Purchase and Sale Agreement by the other party. If the Partnership elects to
terminate as a result of a material uncured breach by HT-Hyatt, the Escrow
Holder has been instructed to pay the Deposit to the Partnership and the Fifth
Amendment shall be null and void. If HT-Hyatt elects to terminate as a result of
a material uncured breach by the Partnership, the Escrow Holder has been
instructed to return the Deposit to HT-Hyatt and the Fifth Amendment shall
become effective.
If the Purchase and Sale Agreement is terminated under certain other
circumstances (including a material casualty or condemnation affecting the
Hotel) or by reason of the failure of any material conditions precedent to
either the Partnership's or HT-Hyatt's obligation to close the Transaction
through no fault of either party, the Escrow Holder has been instructed to
return the Deposit to HT-Hyatt, the
21
<PAGE>
Fifth Amendment shall be null and void and the Purchase and Sale Agreement shall
be of no further force or effect, except for those provisions that specifically
survive such termination.
THE ALLOCATION AND RELEASE AGREEMENT
THE FOLLOWING IS A SUMMARY OF MATERIAL PROVISIONS OF THE ALLOCATION AND
RELEASE AGREEMENT, A COPY OF WHICH IS ATTACHED HERETO AS ANNEX B AND
INCORPORATED HEREIN BY REFERENCE. THIS SUMMARY IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO THE ALLOCATION AND RELEASE AGREEMENT, AND UNITHOLDERS SHOULD READ
THAT AGREEMENT CAREFULLY IN ITS ENTIRETY. CAPITALIZED TERMS USED BUT NOT DEFINED
IN THIS PROXY STATEMENT SHALL HAVE THE MEANINGS SET FORTH IN THE ALLOCATION AND
RELEASE AGREEMENT, AND ARE USED HEREIN WITH THE SAME MEANINGS.
In order to avoid costly and time-consuming foreclosure proceedings,
litigation and/or bankruptcy proceedings, and in consideration of the
Partnership's undertaking of, and efforts with respect to, the Transaction,
Capital Growth has agreed to accept the Pay-Off Amount (as described below) in
full satisfaction of, among other items, the Second Mortgage Note and the
Capital Growth Unsecured Notes, and in consideration of the Partnership's
efforts and expenses in connection with the Transaction, to allow the
Partnership to retain any net proceeds from the Transaction in excess of the
Pay-Off Amount. Accordingly, pursuant to the Allocation and Release Agreement,
the net proceeds from the Transaction (after payment of transaction costs, the
making of closing adjustments, and the repayment in full of the First Mortgage
Note) will first be used for the repayment (in accordance with the terms of the
Allocation and Release Agreement) of the Second Mortgage Note and the Capital
Growth Unsecured Notes and the excess will be retained by the Partnership, as
summarized below. The Allocation and Release Agreement, however, is contingent,
and is only effective upon the Closing of the Transaction. The Allocation and
Release Agreement automatically terminates if the Closing of the Transaction has
not occurred on or prior to March 31, 1997.
THE ALLOCATION
Under the terms of the Allocation and Release Agreement, and subject to the
conditions of that agreement, Capital Growth will receive the Pay-Off Amount,
consisting of: (i) $30,000,000 (subject to adjustment under certain
circumstances as provided in the Allocation and Release Agreement) in full
satisfaction of the Second Mortgage Note, the Capital Growth Unsecured Notes and
all costs and expenses incurred by Capital Growth in connection with the
transactions contemplated thereby (irrespective of the actual amount of such
costs and expenses) plus, (ii) reimbursement from the Partnership for the cost
incurred by Capital Growth in obtaining a fairness opinion in connection
therewith up to a maximum of $250,000. The opinion is required under the
partnership agreement of Capital Growth because CG Realty, the general partner
of Capital Growth, is an affiliate of the General Partner. In consideration of
the Partnership's undertakings and expenses in connection with the Transaction,
the Partnership will be entitled to retain any and all proceeds remaining after
payment of transaction costs, the making of closing adjustments, repayment in
full of the First Mortgage Note and payment of the Pay-Off Amount.
EXTENSION OF MATURITY OF SECOND MORTGAGE NOTE
The First Mortgage Note and the Second Mortgage Note were each scheduled to
be due and payable on January 2, 1997. On December 31, 1996, in order to provide
time for the consummation of the Transaction, BNS agreed to extend the maturity
date of the First Mortgage Note to April 2, 1997. See "THE
TRANSACTION--Overview." Capital Growth has also agreed to temporarily defer
foreclosure proceedings on the Second Mortgage Note and to not initiate
bankruptcy proceedings until March 31, 1997, unless BNS initiates foreclosure
proceedings on the First Mortgage prior to such date. Capital Growth's
obligation to refrain from initiating foreclosure proceedings will expire upon
termination of the Purchase and Sale Agreement.
22
<PAGE>
CONDITIONS PRECEDENT
The Allocation and Release Agreement is conditioned upon each other
unsecured lender of the Partnership forgiving the Partnership's debt in its
favor, and requires that the Partnership obtain (i) a general release of the
Partnership, the General Partner and its affiliates from the Partnership's
unsecured lenders and the consent of the Partnership's unsecured lenders to the
provisions of the Allocation and Release Agreement, including, without
limitation, to the retention by the Partnership of a portion of the net proceeds
from the Transaction; (ii) an unconditional general release of Capital Growth,
its general partner and affiliates from the Partnership; and (iii) unconditional
general releases of Capital Growth, its general partner and affiliates from each
unsecured lender of the Partnership. Capital Growth is required to provide
unconditional general releases to the Partnership, the General Partner, their
affiliates and each other unsecured lender of the Partnership.
THE CONSENT AND RELEASE AGREEMENT
THE FOLLOWING IS A SUMMARY OF MATERIAL PROVISIONS OF THE CONSENT AND RELEASE
AGREEMENT, A COPY OF WHICH IS ATTACHED HERETO AS ANNEX C AND INCORPORATED HEREIN
BY REFERENCE. THIS SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE
CONSENT AND RELEASE AGREEMENT, AND UNITHOLDERS SHOULD READ THAT AGREEMENT
CAREFULLY IN ITS ENTIRETY. CAPITALIZED TERMS USED BUT NOT DEFINED IN THIS PROXY
STATEMENT SHALL HAVE THE MEANINGS SET FORTH IN THE CONSENT AND RELEASE
AGREEMENT, AND ARE USED HEREIN WITH THE SAME MEANINGS.
The Consent and Release Agreement by and among Lehman Lending, Holdings and
the Partnership provides for the consent of Lehman Lending and Holdings to the
terms and provisions of the Allocation and Release Agreement and for the release
and forgiveness of (i) an unsecured note held by Lehman Lending in the original
principal amount of $1,000,000 originally made by the Partnership in favor of
Shearson Lending Corp., which note would mature and become due and payable upon
the sale of the Hotel (the "Lehman Lending Note"), and (ii) an unsecured note
held by Holdings in the original principal amount of $10,000,000, originally
made by the Partnership in favor of Shearson Lehman Brothers Holdings Inc. (the
"Holdings Note").
Pursuant to the terms of the Consent and Release Agreement, upon
consummation of the Transaction and the payments to Capital Growth in accordance
with the Allocation and Release Agreement, Lehman Lending and Holdings shall
cause all of the Partnership's unsecured debt obligations under the Lehman
Lending Note and the Holdings Note, respectively, and under each of the
respective loan documents executed in connection therewith, to be fully and
unconditionally released and forgiven, giving the Partnership the absolute right
to retain any and all remaining proceeds of the Transaction free from any claim
of Lehman Lending or Holdings. The satisfaction and release of these obligations
shall be no later than March 31, 1997, and shall be conducted concurrently with
the Closing of the Transaction. In order to permit the Partnership sufficient
time in which to consummate the Transaction, Lehman Lending and the Partnership
extended the maturity date of the Lehman Lending Note until March 31, 1997.
As a condition precedent to the terms of the Consent and Release Agreement,
the Partnership must obtain (i) a fully executed Allocation and Release
Agreement with Capital Growth, (ii) a general release of the Partnership, the
General Partner and its affiliates from Capital Growth, and (iii) a general
release of Lehman Lending and Holdings from Capital Growth.
INTERESTS OF CERTAIN PERSONS IN THE TRANSACTION
In considering the recommendation of the General Partner with respect to the
Transaction, Unitholders should be aware that the General Partner and certain of
its affiliates may be deemed to have certain interests in the Transaction that
are in addition to or potentially different from the interests of Unitholders.
23
<PAGE>
LEHMAN BROTHERS INC. AND RELATED ENTITIES
The General Partner of the Partnership is Union Square GP/Corp., formerly
Shearson Union Square/ GP Corp., a Delaware corporation and an affiliate of
Holdings. All of the officers and directors of the General Partner are employees
of Lehman. The general partner of Capital Growth is CG Realty Funding, Inc.,
formerly Shearson Lehman Realty Funding, Inc., a Delaware corporation which is
also an affiliate of Holdings. All of the officers and directors of CG Realty
are employees of Lehman. Holdings is the ultimate parent corporation and
beneficial owner of 100% of the issued and outstanding stock of Lehman, Lehman
Lending, the General Partner and CG Realty.
Upon completion of the Transaction, the General Partner will receive
liquidating distributions of approximately $90,000 to $120,000, reflecting the
General Partner's 1% economic interest in the Partnership. See "THE
TRANSACTION--The Liquidation of the Partnership."
Upon completion of the Transaction, and the payment in full of the First
Mortgage Note held by BNS, Lehman Lending will receive payment in full of its
$15,000,000 subordinate principal participation and its $6,957,286 subordinate
deferred interest participation in such note, including interest accrued on such
participations in the amount of approximately $7,721,000 as of December 31,
1996. In consideration of the Partnership's undertaking and efforts in
connection with the Transaction, Lehman Lending and Holdings have also agreed to
forgive repayment by the Partnership of the Lehman Lending Note and the Holdings
Note, respectively (the aggregate outstanding balance of which as of December
31, 1996 would be approximately $14,250,000). See "THE CONSENT AND RELEASE
AGREEMENT."
Upon completion of the Transaction, Capital Growth will, pursuant to the
Allocation and Release Agreement, receive $30,000,000 in full satisfaction of
the Second Mortgage Note (the outstanding balance of which as of December 31,
1996, would be approximately $42,184,000), the Capital Growth Unsecured Notes
(the total outstanding balance of which as of December 31, 1996 would be
approximately $4,645,000) and all costs and expenses incurred by Capital Growth
in connection with the Allocation and Release Agreement (irrespective of the
actual amount of such costs and expenses). Capital Growth will also receive
reimbursement of up to an additional $250,000 for the cost of obtaining a
fairness opinion from the Capital Growth Advisor. See "THE ALLOCATION AND
RELEASE AGREEMENT." The opinion is required under the partnership agreement of
Capital Growth because CG Realty, the general partner of Capital Growth, is an
affiliate of the General Partner. Under the terms of Capital Growth's
Partnership Agreement, CG Realty, as the general partner, has a 1% economic
interest in Capital Growth, which would result in a distribution to CG Realty of
approximately $300,000, assuming Capital Growth distributed to its limited
partners and CG Realty the full $30 million to be received pursuant to the
Allocation and Release Agreement.
Lehman Brothers Realty Corp., a wholly-owned subsidiary of Holdings, is
acting as a co-broker in connection with the sale of the Hotel, but will not, in
accordance with the terms of the Partnership Agreement, receive any compensation
therefor.
D.F. KING & CO., INC.
The Partnership has retained King to assist in the solicitation of proxies,
for which King will receive reasonable and customary compensation, which is not
anticipated to exceed $50,000, plus out-of-pocket expenses.
24
<PAGE>
PRO FORMA FINANCIAL DATA
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma financial information gives effect to the
Transaction. The pro forma financial information is presented for illustrative
purposes only, and therefore, is not necessarily indicative of the operating
results and financial position that might have been achieved had the Transaction
occurred as of an earlier date, nor are they necessarily indicative of operating
results and financial position which may occur in the future. A pro forma
unaudited balance sheet is provided as of September 30, 1996, giving effect to
the Transaction as though it had been consummated on that date.
UNION SQUARE HOTEL PARTNERS, L.P.
PRO FORMA BALANCE SHEET
AS OF SEPTEMBER 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
SEPT 30,
1996
SEPT 30, 1996 PRO FORMA (ADJUSTED)
(UNAUDITED) ADJUSTMENTS (F)
-------------- ----------------- ------------
<S> <C> <C> <C>
ASSETS
Property held for disposition................................... $ 96,076,204 $ (96,076,204)(a) $ 0
Cash and cash equivalents....................................... 3,469,909 124,486,000(a)
(119,700,000)(b)
1,977,749(e) 10,233,658
Replacement reserve receivable.................................. 903,639 (903,639)(e) 0
Rent receivable................................................. 1,074,110 (1,074,110)(e) 0
Deferred charges, net of accumulated amortization of $4,195,084
in 1996 and $3,849,203 in 1995................................ 400,946 (251,245)(a)
(149,701)(d) 0
-------------- ----------------- ------------
TOTAL ASSETS.................................................... $ 101,924,808 $ (91,691,150) $ 10,233,658
-------------- ----------------- ------------
LIABILITIES AND PARTNERS' CAPITAL/(DEFICIT)
Liabilities:
Accounts payable and accrued expenses......................... $ 42,720 $ 42,720
Due to affiliates............................................. 24,133 24,133
Mortgage loan payable......................................... 70,000,000 (70,000,000)(b) 0
Accrued interest.............................................. 12,560,535 (10,027,930)(b)
(2,532,605)(c) 0
Deferred interest............................................. 9,672,070 (9,672,070)(b) 0
Notes and loans -- affiliate.................................. 56,484,017 (30,000,000)(b)
(26,484,017)(c) 0
Loan payable -- Hyatt......................................... 3,772,578 (3,772,578)(a) 0
-------------- ----------------- ------------
Total liabilities......................................... $ 152,556,053 $ (152,489,200) $ 66,853
Partners' Capital/(Deficit):
General Partner............................................... $ (1,189,532) $ 319,311(a)
973,386(c)
(1,497)(d) 101,668
Limited Partners.............................................. (49,441,713) 31,611,818(a)
28,043,236(c)
(148,204)(d) 10,065,137
-------------- ----------------- ------------
Total Partners' Capital/(Deficit)......................... $ (50,631,245) $ 60,798,050 $ 10,166,805
-------------- ----------------- ------------
TOTAL LIABILITIES AND PARTNERS' CAPITAL/(DEFICIT)............... $ 101,924,808 $ (91,691,150) $ 10,233,658
-------------- ----------------- ------------
</TABLE>
25
<PAGE>
UNION SQUARE HOTEL PARTNERS, L.P.
NOTES TO PRO FORMA FINANCIAL DATA
(UNAUDITED)
The unaudited pro forma balance sheet as of September 30, 1996 reflects the
sale of the Hotel pursuant to the Purchase and Sale Agreement entered into by
the Partnership on November 5, 1996. The sale price of the Hotel is $126,900,000
in cash and the assumption of approximately $3.8 million of debt owed to an
affiliate of the prospective buyer, subject to certain conditions described in
the Purchase and Sale Agreement. The costs to sell the Hotel have been estimated
by the General Partner and are expected to range between $2.4 and $3.0 million,
which amount includes the Reserve. The Partnership expects to use the proceeds
from the sale to pay the First Mortgage Note secured by the First Mortgage in
full, estimated to be $89.7 million as of December 31, 1996. (On January 2,
1997, the Partnership reduced such balance due by making an aggregate of
approximately $3,333,000 of accrued interest payments.) In addition, the
Partnership has entered into an Allocation and Release Agreement whereby Capital
Growth, the holder of the Second Mortgage Note secured by the Second Mortgage
and the Capital Growth Unsecured Notes, has agreed to accept $30 million in full
satisfaction of all of the Partnership's obligations to Capital Growth. The
remaining indebtedness of the Partnership will be forgiven, resulting in income
to the extent of the remaining outstanding indebtedness, net of unamortized
deferred charges, and as estimated by the General Partner, after satisfaction of
remaining Partnership liabilities.
The remaining cash in the Partnership is assumed to be distributed in
accordance with the Partnership Agreement which states that 99% will be
distributed to the Unitholders and 1% distributed to the General Partner,
reflecting the General Partner's 1% economic interest in the Partnership.
NOTES TO PRO FORMA ADJUSTMENTS:
(a) To record the sale of the Hotel reflecting the removal of the property held
for disposition and related deferred charges, the receipt of net sale
proceeds, the assumption of the loan payable to Hyatt and the allocation of
the gain to the General Partners and Unitholders as follows:
<TABLE>
<S> <C>
Sales price................................................... $126,900,000
Estimated closing costs....................................... 2,414,000
-----------
Net cash proceeds............................................. 124,486,000
Assumption of loan payable to Hyatt........................... 3,772,578
Net sales proceeds............................................ 128,258,578
Property held for disposition................................. (96,076,204)
Deferred charges.............................................. (251,245)
-----------
Gain on sale.................................................. $31,931,129
-----------
-----------
Allocated as follows:
Unitholders................................................... $31,611,818
General Partner............................................... 319,311
-----------
$31,931,129
-----------
-----------
</TABLE>
(b) To reflect the payment of the mortgage indebtedness, pursuant to the
agreements discussed herein, as follows:
<TABLE>
<S> <C>
Mortgage loan payable......................................... $70,000,000
Accrued interest.............................................. 10,027,930
Deferred interest............................................. 9,672,070
Notes and loans--affiliate.................................... 30,000,000
-----------
$119,700,000
-----------
-----------
</TABLE>
26
<PAGE>
(c) To reflect the debt forgiveness and related allocation to the General
Partner and Unitholders as follows:
<TABLE>
<S> <C>
Notes and loans--affiliate.................................... $26,484,017
Accrued interest.............................................. 2,532,605
-----------
$29,016,622
-----------
-----------
Allocated as follows:
Unitholders................................................... $28,043,236
General Partner............................................... 973,386
-----------
$29,016,622
-----------
-----------
</TABLE>
(d) To reflect the write-off of deferred charges associated with the mortgages,
notes and loans totalling $149,701 and the related allocation to the General
Partner and Unitholders as follows:
<TABLE>
<S> <C>
Unitholders................................................... $ 148,204
General Partner............................................... 1,497
-----------
$ 149,701
-----------
-----------
</TABLE>
(e) To reflect the collection of the rent receivable and the receipt of the
Partnership's portion of the replacement reserve from Hyatt.
(f) The remaining cash net of accounts payable and accrued expenses and due to
affiliates, will be distributed to the General Partner and Unitholders in
accordance with the ending capital balances.
27
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
To the knowledge of the General Partner, as of the Record Date, there were
approximately 5,766 Unitholders of record with 7,174,100 Units issued and
outstanding, and no officer or director of the General Partner owned any Units.
Pursuant to the Partnership Agreement, the General Partner holds a 1% interest
in each item of Partnership income, gain, loss, deduction or credit.
ACCOUNTANTS
Representatives of Coopers & Lybrand L.L.P. are expected to be present at
the Special Meeting to respond to appropriate questions and to make a statement
if they so desire.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission by the Partnership
pursuant to the Exchange Act are incorporated by reference in this Proxy
Statement.
1. Annual Report on Form 10-K for the year ended December 31, 1995.
2. Quarterly Report on Form 10-Q for the quarter ended March 31, 1996.
3. Quarterly Report on Form 10-Q for the quarter ended June 30, 1996.
4. Quarterly Report on Form 10-Q for the quarter ended September 30,
1996.
5. Current Report on Form 8-K dated September 6, 1996.
6. Current Report on Form 8-K dated November 8, 1996.
All documents and reports filed by the Partnership pursuant to Sections
13(a) or 15(d) of the Exchange Act subsequent to the date of this Proxy
Statement and prior to the Special Meeting shall be deemed to be incorporated by
reference in this Proxy Statement and to be a part hereof from the date of
filing of such documents or reports. Any statement contained in a document
incorporated or deemed to be incorporated by reference herein shall be deemed to
be modified or superseded for purposes of this Proxy Statement to the extent
that a statement contained herein or in any other subsequently filed document
which also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of this
Proxy Statement.
This Proxy Statement incorporates documents by reference which are not
presented herein or delivered herewith. A copy of any or all documents
incorporated by reference herein (other than exhibits thereto which are not
specifically incorporated by reference herein) will be provided without charge
to each person to whom this Proxy Statement is delivered upon oral or written
request within one business day of receipt of such request to D.F. King & Co.,
Inc., 77 Water Street, New York, New York 10005, telephone number (800)
347-4750. In order to ensure timely delivery of the documents, any such request
should be made not later than January 31, 1997.
OTHER MATTERS
The General Partner knows of no other business to be presented for
consideration, other than the matters described in the Notice of Special
Meeting.
28
<PAGE>
ANNEX A
PURCHASE AND SALE AGREEMENT
AND JOINT ESCROW INSTRUCTIONS
DATED AS OF NOVEMBER 4, 1996
BETWEEN
UNION SQUARE HOTEL PARTNERS, L.P.
A DELAWARE LIMITED PARTNERSHIP
AS SELLER
AND
HT-HOTEL EQUITIES, INC.
A DELAWARE CORPORATION
AS BUYER
<PAGE>
TABLE OF CONTENTS
<TABLE>
<C> <S> <C>
ARTICLE I
EFFECTIVE DATE......................................................................... 1
ARTICLE II
DEFINITIONS............................................................................ 2
ARTICLE III
PROPERTY SUBJECT TO AGREEMENT.......................................................... 4
ARTICLE IV
PURCHASE PRICE, PAYMENT OF PURCHASE PRICE AND LIQUIDATED DAMAGES....................... 5
4.1 PURCHASE PRICE.............................................................. 5
4.2 PAYMENT OF PURCHASE PRICE; DEPOSIT.......................................... 6
4.3 ALLOCATION OF PURCHASE PRICE................................................ 6
4.4 INVESTMENT OF DEPOSIT....................................................... 6
4.5 LIQUIDATED DAMAGES.......................................................... 6
ARTICLE V
"AS IS, WHERE IS" SALE................................................................. 8
5.1 "AS IS, WHERE IS" SALE...................................................... 8
5.2 INSPECTION.................................................................. 9
ARTICLE VI
TITLE TO PROPERTY; APPROVALS........................................................... 10
6.1 TITLE....................................................................... 10
6.2 APPROVAL OF TITLE........................................................... 10
6.3 PERSONAL PROPERTY AND CONTRACTS, PERMITS AND MISCELLANEOUS PROPERTY
ASSETS.................................................................... 11
6.4 APPROVAL OF OTHER MATTERS................................................... 11
ARTICLE VII
BUYER'S CONDITIONS PRECEDENT TO CLOSING................................................ 11
7.1 OWNER'S TITLE POLICY........................................................ 11
7.2 SELLER'S NON-FOREIGN AFFIDAVIT.............................................. 11
7.3 SELLER'S ORGANIZATIONAL DOCUMENTS........................................... 11
7.4 COMPLIANCE BY SELLER........................................................ 12
7.5 REPRESENTATIONS AND WARRANTIES.............................................. 12
7.6 LIMITED PARTNER APPROVAL.................................................... 12
7.7 COVENANT TO SATISFY CONDITIONS.............................................. 12
ARTICLE VIII
SELLER'S CONDITIONS PRECEDENT TO CLOSING............................................... 12
8.1 LIMITED PARTNER VOTE........................................................ 12
8.2 BUYER'S ORGANIZATIONAL DOCUMENTS............................................ 14
8.3 ESTOPPEL BY OPERATOR........................................................ 14
8.4 COMPLIANCE BY BUYER......................................................... 14
8.5 REPRESENTATIONS AND WARRANTIES.............................................. 14
8.6 COVENANT TO SATISFY CONDITIONS.............................................. 14
ARTICLE IX
ESCROW AND CLOSING..................................................................... 15
9.1 DEPOSIT WITH ESCROW HOLDER AND ESCROW INSTRUCTIONS.......................... 15
9.2 CLOSING..................................................................... 15
9.3 DELIVERIES BY SELLER........................................................ 15
</TABLE>
<PAGE>
<TABLE>
<C> <S> <C>
9.4 DELIVERIES BY BUYER......................................................... 16
9.5 OTHER INSTRUMENTS; REVISED DELIVERIES....................................... 17
9.6 PRORATIONS AND APPORTIONMENTS............................................... 17
9.7 COSTS AND EXPENSES.......................................................... 18
9.8 CLOSE OF ESCROW............................................................. 18
9.9 NOTIFICATION; CLOSING STATEMENTS............................................ 19
ARTICLE X
REPRESENTATIONS, WARRANTIES, AND COVENANTS............................................. 20
10.1 BUYER'S REPRESENTATIONS AND WARRANTIES...................................... 20
10.2 SELLER'S REPRESENTATIONS AND WARRANTIES..................................... 20
10.3 CONTINUATION AND SURVIVAL OF REPRESENTATIONS AND WARRANTIES; LIMITATIONS ON
LIABILITY THEREFOR........................................................ 21
ARTICLE XI
POSSESSION............................................................................. 22
ARTICLE XII
OPERATION OF THE PROPERTY.............................................................. 22
ARTICLE XIII
LOSS BY CASUALTY; CONDEMNATION......................................................... 22
13.1 DAMAGE OR DESTRUCTION....................................................... 22
13.2 CONDEMNATION................................................................ 23
ARTICLE XIV
MISCELLANEOUS.......................................................................... 23
14.1 NOTICES..................................................................... 23
14.2 BROKERS AND FINDERS......................................................... 24
14.3 ASSIGNMENT.................................................................. 24
14.4 SUCCESSORS AND ASSIGNS...................................................... 26
14.5 AMENDMENTS.................................................................. 26
14.6 INTERPRETATION.............................................................. 26
14.7 GOVERNING LAW............................................................... 26
14.8 ENTIRE AGREEMENT............................................................ 26
14.9 ATTORNEYS' FEES AND COSTS................................................... 26
14.10 TIME OF THE ESSENCE......................................................... 26
14.11 CONFIDENTIALITY............................................................. 26
14.12 NO WAIVER................................................................... 27
14.13 FURTHER ACTS................................................................ 27
14.14 EXHIBITS.................................................................... 27
14.15 COUNTERPARTS................................................................ 27
14.16 NO INTENT TO BENEFIT THIRD PARTIES.......................................... 27
14.17 PERFORMANCE DUE ON DAY OTHER THAN BUSINESS DAY.............................. 27
14.18 EXPENSES OF PURCHASE AND SALE............................................... 27
14.19 SEVERABILITY................................................................ 27
14.20 NO RECORDING................................................................ 28
14.21 QUITCLAIM................................................................... 28
14.22 TERMINATION OF AGREEMENT.................................................... 28
14.23 WAIVER OF KNOWN DEFAULTS.................................................... 29
</TABLE>
ii
<PAGE>
PURCHASE AND SALE AGREEMENT
AND JOINT ESCROW INSTRUCTIONS
This PURCHASE AND SALE AGREEMENT AND JOINT ESCROW INSTRUCTIONS (this
"AGREEMENT") is made as of November 4, 1996, between UNION SQUARE HOTEL
PARTNERS, L.P., a Delaware limited partnership ("SELLER"), and HT-HOTEL
EQUITIES, INC., a Delaware corporation ("BUYER"), for the purpose of setting
forth the agreement of the parties and of instructing FIRST AMERICAN TITLE
INSURANCE COMPANY ("ESCROW HOLDER") with respect to the transactions
contemplated by this Agreement.
RECITALS
A. Seller is the owner of certain real property located at 345 Stockton
Street, San Francisco, California, as more particularly described in Exhibit A
attached hereto and incorporated herein by reference, upon which is located
certain improvements commonly known as the "Grand Hyatt San Francisco,"
consisting of a 687 key hotel building (695 keys including the six (6) general
manager rooms and two (2) business plan center rooms), and which also contains
meeting rooms and banquet facilities, a three-story commercial building, and
service areas (the "HOTEL").
B. Seller is the owner of certain items of personal property located in and
used in the operation of the Hotel, including, but not limited to furniture and
furnishings, hotel equipment, uniforms and kitchenware.
C. The Hotel is leased to and operated by California Hyatt Corporation
("OPERATOR") pursuant to that certain Agreement and Lease, dated January 4,
1973, as amended by First Amendment to Lease dated as of August 29, 1986, Second
Amendment to Lease dated as of May 1, 1989, Third Amendment to Lease dated as of
June 30, 1992, and Fourth Amendment to Lease dated as of August 29, 1996, the
landlord's interest in such lease having been assigned by mesne assignments to
Seller (as so amended and assigned, and as such lease may hereafter be further
amended, the "OPERATING LEASE").
D. Buyer desires to purchase the Property (as hereinafter defined) and
assume the landlord's interest in the Operating Lease from Seller, and Seller
desires to sell the Property and assign the landlord's interest in the Operating
Lease to Buyer, on the terms and conditions set forth herein.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing and the mutual agreements
set forth herein, and other valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, Seller and Buyer agree as follows:
ARTICLE I
EFFECTIVE DATE
This Agreement shall be effective (the "EFFECTIVE DATE") when a fully
executed copy of this Agreement (or a fully executed copy in counterparts) is
deposited with Escrow Holder. Escrow Holder is hereby instructed to immediately
notify in writing each party to this Agreement of the Effective Date.
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ARTICLE II
DEFINITIONS
The following terms and references shall have the meanings indicated below:
(1) "ADJUSTMENTS" shall have the meaning ascribed thereto in Section 9.6(b)
of this Agreement.
(2) "AGREEMENT" shall have the meaning ascribed thereto in the introductory
paragraph of this Agreement.
(3) "ASSIGNMENT AND ASSUMPTION OF CONTRACTS" shall have the meaning ascribed
thereto in Article III of this Agreement.
(4) "ASSIGNMENT AND ASSUMPTION OF OPERATING LEASE" shall have the meaning
ascribed thereto in Article III of this Agreement.
(5) "BALANCE" shall have the meaning ascribed thereto in Section 4.2(b) of
this Agreement.
(6) "BILL OF SALE" shall have the meaning ascribed thereto in Article III of
this Agreement.
(7) "BROKER" shall have the meaning ascribed thereto in Section 14.2(a) of
this Agreement.
(8) "BUYER" shall have the meaning ascribed thereto in the introductory
paragraph of this Agreement.
(9) "CLOSING" means the consummation of the transactions contemplated by
this Agreement.
(10) "CLOSING DATE" means the date the Grant Deed is recorded.
(11) "CLOSING STATEMENTS" shall have the meaning ascribed thereto in Section
9.8(a) of this Agreement.
(12) "CONDEMNATION NOTICE" shall have the meaning ascribed thereto in
Section 13.2 of this Agreement.
(13) "CONTRACTS" shall have the meaning ascribed thereto in Article III of
this Agreement.
(14) "DEPOSIT" shall have the meaning ascribed thereto in Section 4.2(a) of
this Agreement.
(15) "DOCUMENTS" shall have the meaning ascribed thereto in Section 6.4(b)
of this Agreement.
(16) "EFFECTIVE DATE" shall have the meaning ascribed thereto in Article I
of this Agreement.
(17) "EQUIPMENT LEASE" means a personal property lease entered into by
Seller and covering any items that, if not leased, would constitute Personal
Property.
(18) "ESCROW" shall have the meaning ascribed thereto in Section 9.1 of this
Agreement.
(19) "ESCROW HOLDER" shall have the meaning ascribed thereto in the
introductory paragraph of this Agreement.
(20) "ESTOPPEL AGREEMENT" shall have the meaning ascribed thereto in Section
8.3 of this Agreement.
(21) "EXCLUDED REPORTS" shall have the meaning ascribed thereto in Section
5.2(c) of this Agreement.
(22) "FF&E" means furniture, trade fixtures, equipment, machinery,
appliances, fittings, and other removable articles of personal property of every
kind and nature that are owned by Seller and used exclusively in the operation
of the Hotel. FF&E shall exclude any personal property owned or leased by the
Operator.
(23) "FF&E RESERVES" means all of Seller's funds, reserves, escrows, and
accounts for the replacement and repair of FF&E which are held in trust for
Seller by Operator, including, without limitation, the "Fund for Replacement of
and Additions to Furnishings and Equipment" and the "Reserve for Replacement of
Operating Equipment," as such terms are defined in the Operating Lease.
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(24) "FIFTH AMENDMENT" shall have the meaning ascribed thereto in Section
9.3(f) of this Agreement.
(25) "GRANT DEED" shall have the meaning ascribed thereto in Article III of
this Agreement.
(26) "HOLIDAY" shall have the meaning ascribed thereto in Section 14.17 of
this Agreement.
(27) "HOTEL" shall have the meaning ascribed thereto in Recital A of this
Agreement.
(28) "HYATT LOAN" means the non-recourse loan from Hyatt Corporation to
Seller governed by that certain Loan Agreement dated May 1, 1989 (as amended)
and evidenced by that certain Amended and Restated Promissory Note dated June
30, 1992 executed by Seller and payable to Hyatt Corporation in the original
principal amount of $3,217,733, which promissory note is secured by that certain
Third Deed of Trust, Assignment of Rents, Security Agreement and Fixture Filing,
dated as of May 1, 1989 to First American Title Insurance Company, a California
corporation, as trustee, for the benefit of Hyatt Corporation and encumbering
the Property (as such deed of trust has heretofore been amended and
supplemented) and by that certain Third Assignment of Lessor's Interest in
Leases, dated as of May 1, 1989 (as such assignment has heretofore been amended
and supplemented) by Seller to Hyatt Corporation. In connection with the
transactions contemplated hereby, Buyer shall assume the obligations of the
borrower under the Hyatt Loan and shall cause Hyatt Corporation to release
Seller from any and all obligations in connection with the Hyatt Loan.
(29) "IMPROVEMENTS" shall have the meaning ascribed thereto in Article III
of this Agreement.
(30) "INFORMATION" shall have the meaning ascribed thereto in Section 5.1(d)
of this Agreement.
(31) "LAND" shall have the meaning ascribed thereto in Article III of this
Agreement.
(32) "LIMITED PARTNER APPROVAL" shall have the meaning set forth in Section
8.1(a) hereof.
(33) "LIMITED PARTNERS" means, collectively, the limited partners and unit
holders of Seller.
(34) "LIMITED PARTNER VOTE" shall have the meaning set forth in Section
8.1(a) hereof.
(35) "LIMITED PARTNER VOTE NOTICE" shall have the meaning set forth in
Section 8.1(b) hereof.
(36) "LIQUOR LICENSES" means any government licenses, permits, or other
authorizations for the sale and/or service of liquor, wine, beer, or other
alcoholic beverage at the Hotel.
(37) "MEETING" shall have the meaning set forth in Section 8.1(a) hereof.
(38) "MEETING NOTICE" shall have the meaning set forth in Section 8.1(b)
hereof.
(39) "MISCELLANEOUS PROPERTY ASSETS" shall have the meaning ascribed thereto
in Article III of this Agreement.
(40) "OPERATING LEASE" shall have the meaning ascribed thereto in Recital C
of this Agreement.
(41) "OPERATOR" shall have the meaning ascribed thereto in Recital C of this
Agreement.
(42) "OWNER'S TITLE POLICY" shall have the meaning ascribed thereto in
Section 6.1 of this Agreement.
(43) "PERMITS" shall have the meaning ascribed thereto in Article III of
this Agreement.
(44) "PERMITTED EXCEPTIONS" shall have the meaning ascribed thereto in
Section 6.1 of this Agreement.
(45) "PERSONAL PROPERTY" shall have the meaning ascribed thereto in Article
III of this Agreement.
(46) "POSTPONEMENT NOTICE" shall have the meaning set forth in Section
8.1(b) hereof.
(47) "PRITZKER AFFILIATE" shall mean and include (i) any one or more of the
direct lineal descendants, natural or adoptive, of Nicholas J. Pritzker,
deceased, or their respective current or former spouses, (ii) any one or more
trusts, the principal beneficiaries of which are one or more of the persons
described in
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clause (i) above, and (iii) any general or limited partnership, corporation or
limited liability company, one hundred percent (100%) of the voting securities
or ownership interests in which are owned, directly or indirectly, by one or
more of the persons or entities described in clauses (i) or (ii) above.
(48) "PRITZKER TRANSFEREE" shall mean and include any general or limited
partnership, corporation or limited liability company, at least fifty-one
percent (51%) of the voting securities or ownership interests in which are
owned, directly or indirectly, by a Pritzker Affiliate.
(49) "PROPERTY" shall have the meaning ascribed thereto in Article III of
this Agreement.
(50) "PRORATION ESCROW" shall have the meaning ascribed thereto in Section
9.6(d) of this Agreement.
(51) "PROTECTED MARKS" shall mean all trademarks, service marks, trade
names, logos, designs, and all goodwill appurtenant thereto, owned by Hyatt
Corporation, a Delaware corporation, or any direct or indirect parent or
subsidiary of Hyatt (including Operator), or other corporation under common
control with Hyatt Corporation, or which may be owned by lessees under
Subleases.
(52) "PROTECTED NAME" shall mean the name "Hyatt", and any variations
thereof or derivations thereof, whether used alone or in combination with one or
more other words or names.
(53) "PROXY MATERIALS" shall have the meaning set forth in Section 8.1(c)
hereof.
(54) "PTR" shall have the meaning ascribed thereto in Section 6.2(a) of this
Agreement.
(55) "PURCHASE PRICE" shall have the meaning ascribed thereto in Section 4.1
of this Agreement.
(56) "REAL PROPERTY" shall have the meaning ascribed thereto in Article III
of this Agreement.
(57) "SELLER" shall have the meaning ascribed thereto in the introductory
paragraph of this Agreement.
(58) "SELLER'S NON-FOREIGN AFFIDAVIT" shall have the meaning ascribed
thereto in Section 7.1 of this Agreement.
(59) "SELLER'S PARTNERSHIP AGREEMENT" shall mean that certain Second Amended
and Restated Agreement of Limited Partnership of Shearson Union Square
Associates Limited Partnership, dated as of September 1, 1986.
(60) "SUBLEASE" means any space lease, license, concession, or other such
arrangement for the use of space within the Hotel, other than the transient use
of guest rooms, banquet rooms, dining rooms, conference rooms, or other
facilities in the Hotel by Hotel guests in the ordinary course of Hotel
business, including, without limitation, those subleases set forth on Exhibit
A-1 attached hereto.
(61) "SURVEY" shall have the meaning ascribed thereto in Section 6.2 of this
Agreement.
(62) "TITLE COMPANY" shall have the meaning ascribed thereto in Section 6.1
of this Agreement.
(63) "TRANSFER" shall have the meaning ascribed thereto in Section 14.3(a)
of this Agreement.
ARTICLE III
PROPERTY SUBJECT TO AGREEMENT
Seller hereby agrees to sell to Buyer, and Buyer hereby agrees to purchase
from Seller, subject to the terms and conditions set forth herein, all of
Seller's right, title and interest in and to the following (collectively, the
"PROPERTY"):
(a) LAND--that certain land described in Exhibit A attached hereto, and
all appurtenant rights, privileges, and easements thereto (collectively, the
"LAND"). The Land and the Improvements (collectively, the "REAL PROPERTY")
shall be conveyed from Seller to Buyer pursuant to a Grant Deed
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(the "GRANT DEED") substantially in the form of Exhibit B attached hereto
and incorporated herein by reference.
(b) IMPROVEMENTS--those certain buildings, structures, fixtures, and
other improvements, including, without limitation, the Hotel, located on the
Land (collectively, the "IMPROVEMENTS").
(c) PERSONAL PROPERTY--that certain personal property located at and
used exclusively for the operation, maintenance, and management of the Hotel
as of the Closing Date, including, without limitation, the FF&E
(collectively, the "PERSONAL PROPERTY"). Notwithstanding anything to the
contrary contained in this Agreement, the Personal Property does not
include: the property leased by Seller under the contracts described in
Schedule II to the Bill of Sale; all personal property owned by the
Operator; all personal property owned by guests of the Hotel; property owned
by any subtenant under any Sublease; and property owned by any suppliers,
vendors or contractors serving the Hotel or any sublessee. The Personal
Property shall be conveyed from Seller to Buyer pursuant to a Bill of Sale
(the "BILL OF SALE") substantially in the form of Exhibit C attached hereto
and incorporated herein by reference.
(d) CONTRACTS--those certain contracts and agreements relating to the
improvement, maintenance, repair, or operation of the Hotel in effect on the
Closing Date, if any, entered into by Seller, including, without limitation,
the Equipment Leases (collectively, the "CONTRACTS"). Seller's interest in
the Contracts shall be conveyed to Buyer pursuant to an Assignment and
Assumption of Contracts, Permits and Miscellaneous Property Assets (the
"ASSIGNMENT AND ASSUMPTION OF CONTRACTS") substantially in the form of
Exhibit D attached hereto and incorporated herein by reference. "Contracts"
does not include contracts or agreements entered into by Operator.
(e) OPERATING LEASE--the Operating Lease as in effect on the Closing
Date. Seller's interest in the Operating Lease shall be conveyed to Buyer
pursuant to an Assignment, Assumption and Indemnity Agreement (the
"ASSIGNMENT AND ASSUMPTION OF OPERATING LEASE") substantially in the form of
Exhibit E attached hereto and incorporated herein by reference.
(f) PERMITS--all licenses, franchises and permits obtained by Seller,
if any, used in or relating to the ownership, occupancy or operation of the
Property or any part thereof (the "PERMITS"), other than those which, under
applicable law or under provisions applicable to any particular Permit in
question, are non-transferable. Seller's interest in the Permits shall be
conveyed to Buyer pursuant to the Assignment and Assumption of Contracts.
(g) MISCELLANEOUS PROPERTY ASSETS--all contract rights, leases,
concessions, trademarks, service marks, trade names (including the names of
restaurants, lounges and meeting rooms), logos, copyrights, and rights under
guaranties or warranties relating to goods, merchandise or services at or
relating to the Hotel (collectively, the "MISCELLANEOUS PROPERTY ASSETS"),
but the Miscellaneous Property Assets shall not include (and there shall be
expressly excluded) the Contracts, the Operating Lease, the Permits, and the
Protected Name and all Protected Marks. Seller's interest in the
Miscellaneous Property Assets shall be conveyed to Buyer pursuant to the
Assignment and Assumption of Contracts.
ARTICLE IV
PURCHASE PRICE, PAYMENT OF
PURCHASE PRICE AND LIQUIDATED DAMAGES
4.1 PURCHASE PRICE. Subject to the terms, conditions, and provisions
contained in this Agreement, Buyer agrees to pay, and Seller agrees to accept,
as consideration for conveyance of the Property to Buyer, the sum of One Hundred
Twenty-Six Million Nine Hundred Thousand Dollars ($126,900,000) (the "PURCHASE
PRICE").
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4.2 PAYMENT OF PURCHASE PRICE; DEPOSIT. The Purchase Price shall be paid
by Buyer as follows:
(a) Ten Million Dollars ($10,000,000) (the "DEPOSIT") shall be placed
into Escrow by wire transfer of immediately available funds to Escrow Holder
within one (1) business day following the Effective Date. Escrow Holder
shall immediately notify Seller by facsimile in accordance with Section 14.1
hereof of Escrow Holder's receipt of the Deposit. The Deposit shall become
non-refundable upon deposit into Escrow, except as otherwise provided
herein.
(b) The balance of the Purchase Price, subject to adjustments as
provided in Sections 9.6 and 9.7 hereof and taking into account all interest
earned on the Deposit (the "BALANCE"), shall be placed into Escrow by wire
transfer of immediately available funds to Escrow Holder at least one (1)
business day before the scheduled Closing. If the purchase of the Property
by Buyer hereunder is consummated, then the Deposit shall constitute a part
of and be applied against the Purchase Price. If the purchase of the
Property by Buyer hereunder is not consummated, then the Deposit shall
either be returned to Buyer or be paid to Seller in accordance with the
provisions hereinafter set forth.
4.3 ALLOCATION OF PURCHASE PRICE. Subject to the prorations and
adjustments hereinafter provided, the Purchase Price shall be allocated as
follows: $118,556,000 for the Real Property and $8,344,000 for the Personal
Property. Notwithstanding the allocation of the Purchase Price, the sale of the
Property shall be on an all or nothing basis, the sale of each item of Property
to be conditioned upon the simultaneous sale of all other items of Property on a
concurrent basis. Buyer shall have no right to purchase, and Seller shall have
no right to cause Buyer to purchase, less than all of the Property as an
entirety in accordance with the provisions of this Agreement. Nevertheless, both
Buyer and Seller agree that in all public filings and reports, including,
without limitation, any transfer tax declarations and any federal or state
income tax returns, the various items of Property shall be valued as herein
provided or, if not specifically provided for herein, then Buyer and Seller
shall negotiate in good faith any additional allocations for the Property using,
to the extent required, the method set forth in section 1060 of the Internal
Revenue Code of 1986 (as amended) and the Treasury Regulations promulgated
thereunder for purposes of filing Forms 8594 with the Internal Revenue Service.
4.4 INVESTMENT OF DEPOSIT. Escrow Holder shall place the Deposit in money
market accounts, certificates of deposit, United States government obligations,
or in a collateralized interest-bearing account or accounts, as shall be
directed in writing by Buyer and Seller. All interest on the Deposit shall
accrue for the benefit of Buyer until the Closing. Notwithstanding the
foregoing, however, in the event of any default by Buyer hereunder, all interest
earned on such account shall accrue to the benefit of Seller. Seller shall not
be responsible for nor bear the risk of loss of the Deposit, and shall not be
responsible for the rate of return thereon.
4.5 LIQUIDATED DAMAGES. IF THE SALE OF THE PROPERTY AS CONTEMPLATED
HEREUNDER IS NOT CONSUMMATED BECAUSE THIS AGREEMENT IS TERMINATED BY SELLER
UNDER SECTION 14.22(D) HEREOF, AND SELLER HAS OTHERWISE SATISFIED ALL MATERIAL
CONDITIONS REQUIRED TO BE SATISFIED BY SELLER ON OR BEFORE THE DATE OF SUCH
TERMINATION, ESCROW HOLDER, WITHOUT ANY FURTHER INSTRUCTION FROM EITHER SELLER
OR BUYER, AND DESPITE ANY INSTRUCTIONS FROM BUYER TO THE CONTRARY, SHALL PAY TO
SELLER THE DEPOSIT (INCLUDING ALL INTEREST EARNED FROM THE INVESTMENT THEREOF)
AND SELLER SHALL RETAIN SUCH AMOUNT AS LIQUIDATED DAMAGES. THE PARTIES
ACKNOWLEDGE THAT SELLER'S ACTUAL DAMAGES IN THE EVENT OF A DEFAULT BY BUYER
WOULD BE EXTREMELY DIFFICULT OR IMPRACTICABLE TO DETERMINE. THEREFORE, BY
PLACING THEIR SIGNATURES BELOW, THE PARTIES EXPRESSLY AGREE AND ACKNOWLEDGE THAT
THE DEPOSIT (PLUS INTEREST) HAS BEEN AGREED UPON, AFTER NEGOTIATION, AS THE
PARTIES' REASONABLE ESTIMATE OF SELLER'S DAMAGES IF THE SALE OF THE PROPERTY AS
CONTEMPLATED HEREUNDER IS NOT CONSUMMATED BECAUSE OF A DEFAULT UNDER THIS
AGREEMENT ON THE PART OF BUYER. THE PARTIES FURTHER
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ACKNOWLEDGE THAT SUCH LIQUIDATED DAMAGES HAVE BEEN AGREED UPON AS SELLER'S
EXCLUSIVE REMEDY AGAINST BUYER IN THE EVENT THAT THE SALE OF THE PROPERTY AS
CONTEMPLATED HEREUNDER IS NOT CONSUMMATED BECAUSE OF A DEFAULT HEREUNDER ON THE
PART OF BUYER, PROVIDED THAT (A) THE FOREGOING SHALL NOT LIMIT SELLER'S RIGHTS
OR REMEDIES WITH RESPECT TO (1) THE OBLIGATIONS OF BUYER UNDER SECTIONS 5.2(C),
14.2(B) AND 14.11 HEREOF, (2) THOSE RIGHTS AND OBLIGATIONS THAT, BY THEIR TERMS,
SURVIVE THE TERMINATION OF THIS AGREEMENT AND (3) DAMAGES OF SELLER RESULTING
FROM A BREACH OF THIS AGREEMENT ON THE PART OF BUYER BUT FOR WHICH SELLER IS NOT
ENTITLED TO THE LIQUIDATED DAMAGES DESCRIBED IN THIS SECTION 4.5; AND (B) BUYER
SHALL ALSO BE RESPONSIBLE FOR THE PAYMENT OF ALL TITLE COMPANY AND ESCROW
CANCELLATION CHARGES.
NOTHING CONTAINED IN THIS SECTION 4.5 SHALL BE DEEMED TO LIMIT ANY OF THE
INDEMNITIES OF BUYER OR SELLER CONTAINED ELSEWHERE IN THIS AGREEMENT. IN THE
EVENT THAT THE SALE OF THE PROPERTY AS CONTEMPLATED HEREUNDER IS CONSUMMATED,
THIS SECTION 4.5 SHALL BE OF NO FURTHER FORCE OR EFFECT.
"SELLER"
UNION SQUARE HOTEL PARTNERS, L.P.,
a Delaware limited partnership
By: Union Square/GP Corp.,
a Delaware corporation
Its: General Partner
By: /s/ JEFFREY C. CARTER
-----------------------------------
Print Name: Jeffrey C. Carter
Print Title: President
"BUYER"
HT-Hotel Equities, Inc.
a Delaware corporation
By: /s/ NICHOLAS J. PRITZKER
-----------------------------------
Print Name: Nicholas J. Pritzker
Print Title: President
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ARTICLE V
"AS IS, WHERE IS" SALE
5.1 "AS IS, WHERE IS" SALE. Buyer acknowledges (i) that Seller owns the
Property but is a passive owner of the Property and has not and does not
directly operate or manage the Property and (ii) Operator, an affiliate of
Buyer, is the operator and manager of the Property. As an essential inducement
to Seller to sell the Property to Buyer on the favorable terms and conditions
set forth in this Agreement, Buyer acknowledges, understands, and agrees as
follows:
(a) (i) Buyer is (or is controlled by) a sophisticated purchaser who is
familiar with this type of property and Operator, an affiliate of Buyer, has
leased and operated the Hotel under the Operating Lease since 1973; (ii)
except as set forth herein, neither Seller nor any of its agents, brokers,
officers, directors, shareholders, or employees has made or will make any
representations or warranties of any kind whatsoever, whether oral or
written, express or implied, with respect to the Property; and (iii) Buyer
will be purchasing the Property in its "AS IS, WHERE IS" condition and "WITH
ALL FAULTS". Buyer has been afforded the opportunity to make any and all
inspections of the Property and such related matters as Buyer desired.
(b) In particular, but without limiting the generality of subsection (a)
above, except as set forth herein, neither Seller nor any of its agents,
brokers, officers, directors, shareholders, or employees has made or will
make any representations or warranties, whether oral or written, express or
implied, with respect to the economic value of the Property, adequacy of
utilities serving the Property, the fitness or suitability of the Property
for Buyer's intended uses or the present use of the Property, or the
physical condition, occupation, or management of the Property, its
compliance with applicable statutes, laws, codes, ordinances, regulations,
or requirements relating to occupancy, leasing, zoning, subdivision, removal
of architectural or communications barriers, planning, building, fire,
safety, health or environmental matters (including, without limitation, the
presence or absence of asbestos or toxic or hazardous substances or
materials), compliance with covenants, conditions, and restrictions (whether
or not of record), other local, municipal, regional, state, or federal
requirements, or other statutes, laws, codes, ordinances, regulations, or
requirements.
(c) Further, but again without limiting the generality of subsection (a)
above, Seller expressly disclaims and negates, as to the Personal Property
and all of the other Property: (i) any implied or express warranty of
merchantability; (ii) any implied or express warranty of fitness for a
particular purpose; and (iii) any implied warranty with respect to the
condition of the Property, the past or projected financial condition of the
Property (including, without limitation, the income or expenses thereof) or
the uses permitted on, the development requirements for, or any other matter
or thing relating to all or any portion of the Property.
(d) In addition, but again without limiting the generality of subsection
(a) above: (i) all documents, reports, studies and other information or
materials delivered or disclosed to Buyer by Seller (the "INFORMATION"),
including, without limitation, that certain Phase I Environmental Site
Assessment, dated as of July 17, 1996 (the "ENVIRONMENTAL ASSESSMENT"), are
being provided to Buyer for informational purposes only and only as an
accommodation to Buyer; (ii) unless expressly stated otherwise, all of the
Information relates to the period from and after Seller's acquisition of
title to the Property, and Seller is not providing and will not provide any
documents, reports, studies, or other information or materials regarding any
aspect of Seller's relationship with Seller's predecessor(s)-in-title; (iii)
Seller has not made, is not making, and will not make any representation,
warranty, or promise of any kind, express or implied, concerning the
accuracy or completeness of all or any part of the Information; and (iv) any
inaccuracy, incompleteness, or deficiency in any part of the Information
shall be solely the risk and responsibility of Buyer, shall not be
chargeable in any respect to Seller, and shall not form the basis of any
claims by Buyer against any person or entity that prepared, authored,
compiled, or created any part of the Information, such claims being
expressly waived and relinquished
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by Buyer. Seller shall provide reasonable assistance (provided that such
assistance shall be at no cost to Seller) to Buyer in obtaining a reliance
letter from the firm which prepared the Environmental Assessment, entitling
Buyer (and Buyer's lender, if any) to rely thereon as if the same had been
addressed to Buyer (and Buyer's lender, if any).
(e) Buyer hereby absolutely and unconditionally waives and releases
Seller, to the fullest extent permitted under law, from and of any and all
demands, claims, actions or causes of action, assessments, losses, damages,
liabilities, costs and expenses with respect to all obligations for or
pertaining to the existence of asbestos, hazardous materials, environmental
contamination or conditions at, in, on, under or from the Property arising
under or based upon any federal, state, local or foreign laws or
regulations, or based upon common law or otherwise, whether now or hereafter
in effect, including, without limitation, all those provisions of law that
exclude or may exclude unknown or unsuspected claims from general release.
THIS WAIVER AND RELEASE BY BUYER SPECIFICALLY, BUT WITHOUT LIMITATION,
INCLUDES BUYER'S WAIVER AND RELEASE OF ANY CLAIMS UNDER SECTION 1542 OF THE
CALIFORNIA CIVIL CODE, WHICH PROVIDES, "A GENERAL RELEASE DOES NOT EXTEND TO
CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT
THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE
MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR", THE PROVISIONS OF WHICH
BUYER HEREBY SPECIFICALLY ACKNOWLEDGES, AFTER CONSULTATION WITH LEGAL
COUNSEL AND WITH FULL KNOWLEDGE OF THE CONSEQUENCES OF ITS ACTIONS.
--------------------------
Buyer's initials
(f) To the extent required to be operative, the disclaimers or
warranties contained herein are "conspicuous" disclaimers for purposes of
any applicable law, rule, regulation, or order.
5.2 INSPECTION.
(a) Prior to the date hereof, Seller has permitted Buyer and its
representatives to enter upon and inspect the Property and to conduct soils,
engineering, and any other tests or studies as Buyer desired. In connection with
such inspections, Seller has provided to Buyer (subject to the limitations set
forth in Section 5.1(d) hereof), copies of any documents, reports, studies and
other information in Seller's possession relating to the physical condition of
the Property and requested by Buyer. Buyer has and shall keep the Property free
and clear of any mechanic's or materialmen's liens arising out of any entry,
inspection, test, or study conducted by Buyer or its representatives. If Buyer
has not already done so, Buyer shall promptly restore the Property to its
previous condition before any such inspections, studies, or tests were
performed.
(b) If, during such inspections, Buyer or its representatives undertook any
borings or other disturbances of the soil, the soil shall be re-compacted to its
condition immediately before any such borings or other disturbances were
undertaken, and Buyer shall obtain, at Buyer's own expense, a certificate from a
licensed soils engineer that certifies that the soil has been re-compacted to
such condition.
(c) Notwithstanding any general liability or other insurance that may be
maintained by Buyer, Buyer shall indemnify and defend Seller and Operator and
hold Seller and Operator harmless (using counsel reasonably satisfactory to
Seller) from any and all liability, loss, cost, damage, or expense (including,
without limitation, reasonable attorneys' fees and costs) that Seller or
Operator may sustain or incur by reason of or in connection with any such entry,
inspections, studies, or tests. The indemnity obligations of Buyer under this
Agreement shall survive any termination of this Agreement or the delivery of the
Grant Deed and the transfer of title to the Property. If this Agreement is
terminated for any reason other than pursuant to Section 14.22(c) hereof, Buyer
shall deliver to Seller, without charge therefor, all originals and copies of
any and all inspections, studies, tests, surveys, or other reports made by or
for or provided to
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Buyer with respect to the Property other than any economic studies, financial
analyses or capital improvement and rehabilitation studies or programs relating
to the Property (the "EXCLUDED REPORTS").
ARTICLE VI
TITLE TO PROPERTY; APPROVALS
6.1 TITLE. At the Closing, Seller shall convey to Buyer fee title to the
Real Property by execution and delivery of the Grant Deed and by execution and
delivery of the Assignment and Assumption of Operating Lease. The issuance by
First American Title Insurance Company (the "TITLE COMPANY") of an American Land
Title Association Owner's Policy of Title Insurance in the amount of the
Purchase Price (the "OWNER'S TITLE POLICY") shall be conclusive evidence of
Seller's delivery of fee title acceptable to Buyer. At Closing, the Title
Company shall deliver the Owner's Title Policy to Buyer and shall have obtained
reinsurance for a portion of the title insurance coverage reasonably
satisfactory to Buyer from reinsurers reasonably satisfactory to Buyer under
direct access agreements reasonably satisfactory to Buyer; provided that any
additional cost for such reinsurance (above the premium for the Owner's Title
Policy) shall be borne by Buyer. Buyer's sole recourse for any defect in the
title actually acquired by Buyer shall be to enforce Buyer's rights under the
Owner's Title Policy, and Seller shall have no liability to Buyer based upon any
defect in the title actually acquired by Buyer. The Owner's Title Policy shall
be issued by the Title Company in the amount of the Purchase Price, and shall
insure fee title to the Real Property in Buyer, subject only to the Operating
Lease, property taxes and assessments not yet delinquent, and such other
exceptions to title as may be accepted and/or approved by Buyer pursuant to
Section 6.2 hereof (collectively, the "PERMITTED EXCEPTIONS"), and with
full-extended coverage over the general exceptions and the following
endorsements: Access, ALTA 9, Restrictions, Survey and Tax Information.
6.2 APPROVAL OF TITLE.
(a) Seller has delivered to Buyer, and Buyer has reviewed: (i) that certain
preliminary title report dated July 16, 199[6], concerning the Real Property,
issued by the Title Company under order no. T-260418-MW (the "PTR"), including
copies of all documents referred to in the PTR as encumbering the Real Property
as well as (ii) a copy of that certain ALTA/ACSM Land Title Survey of the Real
Property prepared by Tronoff Associates and dated September 12, 1996 (the
"SURVEY"), which Seller shall, at Seller's expense, cause to be certified to
Buyer (and Buyer's lender, if any) prior to the Closing (provided that any
additional survey work required by Buyer or Buyer's lender shall be at the sole
cost and expense of Buyer). Buyer has approved the condition of title to the
Real Property subject to (i) all matters disclosed on the Survey, and (ii) all
matters disclosed in the PTR and in all documents referred to in the PTR as
encumbering the Real Property; provided, however, that Buyer has not approved
matters shown on the PTR or disclosed on the survey to the extent required to be
discharged by Seller on or before the Closing as hereinafter specifically set
forth in subparagraph (b) of this Section 6.2.
(b) Seller shall cause the matters of title reflected on the PTR as
exceptions no. 9-12 (inclusive), 16 and 17 to be removed from title or otherwise
insured against under the Owner's Title Policy at Closing. Buyer shall accept
the following matters of title (each of which shall be deemed a "Permitted
Exception" hereunder): matters reflected on the PTR as exceptions no. 1-8
(inclusive), 13, 14 and 15; the applicable zoning and use regulations of any
applicable governmental authority; possessory interests in the Property of less
than thirty (30) days' duration arising in the ordinary course of the operation
of the Hotel; rights of tenants and sub-tenants, under Subleases entered into by
Operator, as tenants only, without any option to purchase or right of first
refusal for all or any portion of the Real Property; and any mechanic's or other
liens arising out of Buyer's entry upon the Property. Buyer has reviewed and
approved all matters shown on the Survey (and shall accept the Property and the
Owner's Title Policy subject to any items shown on the Survey which may be
excepted by the Title Company).
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(c) Prior to the Closing, Seller shall not take any action or commit or
suffer any acts which would give rise to a material variance from the current
legal description of the Real Property, or cause the creation of any detrimental
exception or encumbrance against or respecting the Real Property other than
Permitted Exceptions, without in each case the prior written consent of Buyer,
which consent may be withheld in Buyer's discretion.
(d) Notwithstanding the foregoing provisions of this Section 6.2, Buyer
acknowledges and agrees that any matters resulting from the act of Operator or
the failure of Operator to perform any action required to be performed by it
under the terms of the Operating Lease, made without the express written
direction of Seller, which could otherwise result in an unpermitted exception to
title (including, without limitation, Operator's execution and delivery of any
additional Subleases at the Property or creation of liens upon the Property)
shall be deemed to be "Permitted Exceptions" hereunder.
6.3 PERSONAL PROPERTY AND CONTRACTS, PERMITS AND MISCELLANEOUS PROPERTY
ASSETS. At Closing, Seller shall transfer to Buyer title to Seller's interest
in the Personal Property and the Contracts, Permits and Miscellaneous Property
Assets by execution and delivery of the Bill of Sale and the Assignment and
Assumption of Contracts respectively. Buyer shall assume all Contracts,
including those Contracts, if any, that are terminable only upon the payment of
a penalty, and Buyer shall be responsible for any such penalty. Seller and Buyer
specifically waive compliance with California Uniform Commercial Code, Sections
6101, et seq., commonly referred to as the Uniform Commercial Code-Bulk
Transfers, and any similar provisions under the laws of the State of California.
6.4 APPROVAL OF OTHER MATTERS.
(a) Buyer has conducted and completed its inspections of the Property as
described in Section 5.2 hereof and Buyer shall have no right to terminate this
Agreement based upon the physical condition of the Property or any matter which
was (or might have been) disclosed by Buyer's inspections thereof or otherwise,
except as expressly set forth herein.
(b) Buyer hereby acknowledges that the transfer documents attached hereto as
exhibits (the "DOCUMENTS"), as revised to conform to the specific terms of this
Agreement, will be used at Closing. Buyer hereby unconditionally approves the
form of all the Documents, subject to completion of any uncompleted information
to be set forth therein in accordance with the terms of this Agreement.
ARTICLE VII
BUYER'S CONDITIONS PRECEDENT TO CLOSING
The following conditions are conditions precedent to Buyer's obligation to
purchase the Property:
7.1 OWNER'S TITLE POLICY. The Title Company shall be irrevocably committed
to issue to Buyer the Owner's Title Policy (with such reinsurance and
endorsements thereto as are set forth in Section 6.1 hereof), subject only to
the Permitted Exceptions.
7.2 SELLER'S NON-FOREIGN AFFIDAVIT. Buyer shall have received a
Non-Foreign Affidavit ("SELLER'S NON-FOREIGN AFFIDAVIT") executed by Seller and
satisfying the requirements of Section 1445 of the United States Internal
Revenue Code of 1986, as amended, and the requirements of Section 18805 of the
California Revenue and Taxation Code, as amended, substantially in the form
attached hereto as Exhibit F and incorporated herein by reference.
7.3 SELLER'S ORGANIZATIONAL DOCUMENTS. Within fifteen (15) business days
after the Effective Date, Seller shall deliver the following to Buyer at the
address set forth in Section 14.1 hereof: certified copies of Seller's
Partnership Agreement and Certificate of Limited Partnership, and all amendments
or modifications thereto, and, if available, a certificate of good standing.
7.4 COMPLIANCE BY SELLER. Seller shall have complied in all material
respects with each and every covenant and condition of this Agreement to be kept
or complied with by Seller.
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7.5 REPRESENTATIONS AND WARRANTIES. The representations and warranties of
Seller contained in Section 10.2 and elsewhere in this Agreement shall be true
and correct in all material respects when made, and shall be true and correct in
all material respects on the Closing Date, and Buyer shall have received a
certificate to that effect by a duly authorized officer of the general partner
of Seller (the liability thereunder being solely that of Seller and not the
personal liability of the officer executing the same).
7.6 LIMITED PARTNER APPROVAL. Seller shall have obtained the Limited
Partner Approval and delivered the Limited Partner Vote Notice evidencing the
same to Buyer and Escrow Holder.
7.7 COVENANT TO SATISFY CONDITIONS. Seller hereby agrees to use
commercially reasonable efforts to cause each of the conditions precedent to the
obligations of Buyer to be fully satisfied, performed and discharged on and as
of the Closing Date, except that Seller shall not have any obligation to expend
any funds, or incur any liabilities or obligations, which it would not otherwise
be required to spend or incur under the provisions of this Agreement.
ARTICLE VIII
SELLER'S CONDITIONS PRECEDENT TO CLOSING
The following conditions are conditions precedent to Seller's obligation to
sell the Property:
8.1 LIMITED PARTNER VOTE. Although Seller believes that the approval of
the Limited Partners is not required for the sale of the Property to Buyer,
Seller has nonetheless agreed, at Seller's sole cost and expense, to present the
sale to the Limited Partners for their approval.
(a) Solicitation. Seller shall solicit the authorization, approval or
ratification (the "LIMITED PARTNER VOTE") by the Limited Partners of the
sale of the Property as contemplated hereby. Seller shall solicit the
Limited Partner Vote by duly noticing and holding a meeting of the Limited
Partners (the "MEETING") at which the Limited Partners may vote, in person
or by proxy, on the matters described above, or by soliciting the Limited
Partners written consent, whichever method Seller believes in its sole and
absolute discretion will more expeditiously result in the receipt of the
approval of the sale of the Property as contemplated hereby by the
affirmative action of Limited Partners holding a majority of the outstanding
"Interests" (as defined in Seller's Partnership Agreement) (the "LIMITED
PARTNER APPROVAL").
(b) Limited Partner Vote Notice. Within three (3) business days of
obtaining knowledge thereof, Seller shall provide written notice (the
"MEETING NOTICE") to Buyer and Escrow Holder of the date set for the
Meeting. In addition, within three (3) business days of obtaining knowledge
thereof, Seller shall provide written notice (each, a "POSTPONEMENT NOTICE")
of any postponement of the date set for the Meeting, and the new date
therefor. Finally, within three (3) business days after conducting the
Limited Partner Vote, Seller shall deliver written notice of the result
thereof (the "LIMITED PARTNER VOTE NOTICE") to Buyer and Escrow Holder, in
substantially the form of Exhibit J attached hereto.
(c) Proxy Materials. Buyer and Seller each acknowledges and agrees
that Buyer shall have no responsibility for, or involvement or participation
in, the preparation, execution, issuance or dissemination of the materials
(the "PROXY MATERIALS") to be prepared and filed with the Securities and
Exchange Commission and thereafter distributed to the Limited Partners in
connection with soliciting the Limited Partner Approval. Notwithstanding the
foregoing, Buyer shall reasonably cooperate with Seller, to the extent
requested by Seller and/or the Securities and Exchange Commission, with
respect to the preparation of the Proxy Materials and in no event shall
Buyer delay comments or such cooperation for more than three business days,
provided that Seller shall pay any reasonable and actual out-of-pocket costs
(excluding the fees, charges and disbursements of attorneys and accountants)
incurred by Buyer in connection with such requested cooperation. Seller
shall provide Buyer with a draft of the Proxy Materials at least one
business day prior to submission of the Proxy Materials
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to the Securities and Exchange Commission and shall deliver to Buyer final
and definitive versions of the Proxy Materials together with delivery
thereof to the Limited Partners. If, at any time prior to the Meeting, any
event or circumstance relating to Buyer or Seller should be discovered by
such party which should be set forth in an amendment or a supplement to the
Proxy Materials, such party shall promptly inform the other thereof and take
appropriate action in respect thereof.
(d) Indemnification. Each party hereto shall (i) indemnify (in such
role, an "INDEMNIFYING PARTY") and hold harmless each other party and their
respective partners, affiliates, directors, officers and controlling persons
(an "INDEMNIFIED PARTY") against any and all loss, liability, claim, damage
and expense whatsoever to which an Indemnified Party may become subject,
under the Securities Exchange Act of 1934, as amended or otherwise, insofar
as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of any untrue statement or alleged untrue statement of a
material fact contained in the Proxy Materials, including any amendment or
supplement thereto, or any preliminary Proxy Materials, or the omission or
alleged omission therefrom of a material fact required to be stated therein
or necessary to make the statements therein not misleading; and (ii)
reimburse the Indemnified Party for any legal or other expenses reasonably
incurred by the Indemnified Party in connection with investigating or
defending any such loss, claim, damage, liability or action as such expenses
are incurred; PROVIDED, HOWEVER, that (x) Buyer shall be liable under this
Section 8.1(d) only for information relating to Buyer included or
incorporated by reference in the Proxy Materials, and (y) Seller shall not
be liable in any such case under this Section 8.1(d) to the extent that any
such loss, claim, damage, liability or action arises out of any untrue
statement or alleged untrue statement or omission or alleged omission made
in any of such documents in reliance upon and in conformity with written
information furnished to Seller by or on behalf of Buyer specifically for
use therein.
Promptly after receipt by an Indemnified Party under this Section 8.1(d)
of notice of any claim or the commencement of any action, the Indemnified
Party shall, if a claim in respect thereof is to be made against the
Indemnifying Party under this Section 8.1(d), promptly notify the
Indemnifying Party in writing of the claim or the commencement of that
action; PROVIDED, HOWEVER, that the failure to notify or a delay in
notifying the Indemnifying Party shall not relieve it from any liability
which it may have to an Indemnified Party under this Section 8.1(d) except
to the extent that such Indemnifying Party is materially prejudiced thereby.
If any such claim or action shall be brought against an Indemnified Party,
and it shall notify the Indemnifying Party thereof, the Indemnifying Party
shall be entitled to participate therein, and, to the extent that it wishes,
jointly with any other similarly notified Indemnifying Party, to assume the
defense thereof with counsel reasonably satisfactory to the Indemnified
Party. After notice from the Indemnifying Party to the Indemnified Party of
its election to assume the defense of such claim or action, the Indemnifying
Party shall not be liable to the Indemnified Party under this Section 8.1(d)
for any legal or other expenses subsequently incurred by the Indemnified
Party in connection with the defense thereof, but the fees and expenses of
such counsel shall be at the expense of such Indemnified Party unless (i)
the employment thereof has been specifically authorized by the Indemnifying
Party in writing, (ii) such Indemnified Party shall have been advised in
writing (a copy of which shall be provided to the Indemnifying Party) by
such counsel that there may be one or more legal defenses available to it
which are different from or additional to those available to the
Indemnifying Party and in the reasonable judgment of such counsel it is
advisable for such Indemnified Party to employ separate counsel or (iii) the
Indemnifying Party has failed to assume the defense to such claim or action
and employ counsel reasonably satisfactory to the Indemnified Party, and, in
the case of clauses (i), (ii) and (iii), if such Indemnified Party notifies
the Indemnifying Party in writing that it elects to employ separate counsel
at the expense of the Indemnifying Party, the Indemnifying Party shall not
have the right to assume the defense of such claim or action on behalf of
such Indemnified Party; it being understood, however, that the Indemnifying
Party shall not, in connection with any one such claim or action or separate
but substantially similar or related claims or actions in the same
jurisdiction arising out of the same general allegations
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or circumstances, be liable for the reasonable fees and expenses of more
than one separate firm of attorneys at any time for all such Indemnified
Parties, which firm shall be designated in writing by such Indemnified
Parties. Each Indemnified Party, as a condition of the indemnity agreements
contained herein shall use its commercially reasonable efforts to cooperate
with the Indemnifying Party in the defense of any such claim or action. The
Indemnifying Party shall not be liable for any settlement of any such claim
or action effected without its written consent (which consent shall not be
unreasonably withheld), but if settled with its written consent or if there
is a final judgment in favor of the plaintiff in any such claim or action,
the Indemnifying Party agrees to indemnify and hold harmless any Indemnified
Party from and against any loss or liability by reason of such settlement or
judgment.
(e) TERMINATION RIGHT. In the event that a Limited Partner Vote Notice
evidencing disapproval by the Limited Partners of the sale of the Property
as contemplated hereby is delivered by Seller to Escrow Holder and Buyer
then this Agreement shall automatically terminate. In the event that no
Limited Partner Vote Notice (whether evidencing the approval or disapproval
of the Limited Partners) has been delivered to Escrow Holder on or before
March 24, 1997, then either party may terminate this Agreement and cancel
the Escrow by written notice to the other party and the Escrow Holder.
8.2 BUYER'S ORGANIZATIONAL DOCUMENTS. Within fifteen (15) business days
after the Effective Date, Buyer shall deliver the following to Seller at the
address set forth in Section 14.1 hereof:
(i) if Buyer or any partner or permitted assignee of Buyer is a
corporation, certified copies of each such corporation's Articles of
Incorporation, Bylaws, and all amendments or modifications thereto,
appropriate corporate resolutions and incumbency certificates, and a current
certificate of good standing;
(ii) if Buyer or any partner or permitted assignee of Buyer is a general
partnership, certified copies of each such general partnership's Partnership
Agreement and Statement of Partnership, and all amendments and modifications
thereto;
(iii) if Buyer or any partner or permitted assignee of Buyer is a limited
partnership, certified copies of each such limited partnership's Partnership
Agreement and Certificate of Limited Partnership, and all amendments or
modifications thereto, and, if available, a certificate of good standing;
and
(iv) if Buyer or any partner or permitted assignee of Buyer is a trust,
certified copies of each such trust's trust agreement, and all amendments
and modification thereto, and, if available, a certificate of good standing.
8.3 ESTOPPEL BY OPERATOR. Buyer shall have caused Operator to deliver to
Buyer and Seller an Estoppel Agreement (the "ESTOPPEL AGREEMENT"), in the form
attached hereto as Exhibit G.
8.4 COMPLIANCE BY BUYER. Buyer shall have complied in all material
respects with each and every covenant and condition of this Agreement to be kept
or complied with by Buyer.
8.5 REPRESENTATIONS AND WARRANTIES. The representations and warranties of
Buyer contained in Section 10.1 and elsewhere in this Agreement shall be true
and correct in all material respects when made, and shall be true and correct in
all material respects on the Closing Date, and Seller shall have received a
certificate to that effect by a duly authorized officer of Buyer (the liability
thereunder being solely that of Buyer and not the personal liability of the
officer executing the same).
8.6 COVENANT TO SATISFY CONDITIONS. Buyer hereby agrees to use
commercially reasonable efforts to cause each of the conditions precedent to the
obligations of Seller to be fully satisfied, performed and discharged on and as
of the Closing Date, except that Buyer shall not have any obligation to expend
any funds, or incur any liabilities or obligations, which it would not otherwise
be required to spend or incur under the provisions of this Agreement.
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ARTICLE IX
ESCROW AND CLOSING
9.1 DEPOSIT WITH ESCROW HOLDER AND ESCROW INSTRUCTIONS. Escrow hereunder
(the "ESCROW") shall be established with Escrow Holder at 345 California Street,
24th Floor, San Francisco, California. Upon execution of this Agreement, the
parties shall deposit an executed copy of this Agreement with Escrow Holder.
This Agreement shall serve as the instructions to Escrow Holder to consummate
the purchase and sale contemplated hereby. Seller and Buyer agree to execute
such additional and supplementary escrow instructions as are consistent with
this Agreement and as may be appropriate to enable Escrow Holder to comply with
the terms of this Agreement. If there is any conflict between the provisions of
this Agreement and any additional or supplementary escrow instructions, however,
the terms of this Agreement shall control.
9.2 CLOSING.
(a) Except as may be provided otherwise herein, the Closing Date shall occur
prior to 5:00 p.m., Pacific time, on the seventh (7th) calendar day following
delivery of the Limited Partner Vote Notice evidencing the Limited Partner
Approval into Escrow, but in no event earlier than December 27, 1996 or later
than March 31, 1997, unless the parties hereto agree, each in its sole and
absolute discretion, to change the scheduled Closing Date. Notwithstanding the
foregoing, in the event that Seller delivers the Limited Partner Vote Notice
evidencing the Limited Partner Approval into Escrow on or before 3:00 p.m.
Pacific time on December 24, 1996, then the Closing Date shall occur on December
31, 1996 (unless the parties hereto agree, each in its sole and absolute
discretion, to change the scheduled Closing Date).
(b) If either party has complied with the terms and conditions of this
Agreement on or before the scheduled Closing Date but the Closing does not occur
because of a breach or default hereunder by the other party, the defaulting
party shall be deemed to be in material breach of this Agreement and the non-
defaulting party may terminate this Agreement.
9.3 DELIVERIES BY SELLER.
(1) Within fifteen (15) business days after the Effective Date, Seller shall
deposit with Escrow Holder the following:
(a) One (1) original Grant Deed, duly executed and acknowledged by
Seller and in recordable form;
(b) Four (4) originals of the Bill of Sale, duly executed by Seller;
(c) Four (4) original counterparts of the Assignment and Assumption of
Contracts, duly executed by Seller;
(d) Four (4) original counterparts of the Assignment and Assumption of
Operating Lease, duly executed and acknowledged by Seller and in recordable
form;
(e) Four (4) original counterparts of the Landlord's Certification
attached to the Estoppel Agreement, duly executed by Seller;
(f) Four (4) original counterparts of a Fifth Amendment to the Operating
Lease (the "FIFTH AMENDMENT"), whereby the "Early Termination Fee" (as
defined in the Operating Lease) shall be increased (i) to $16,032,500 as of
January 1, 1997 and (ii) to $17,635,750 as of January 1, 1998, duly executed
by Seller;
(g) Two (2) original Seller's Non-Foreign Affidavits, duly executed by
Seller;
(h) Original copies, executed by or on behalf of Seller, of any required
real estate transfer tax declarations, or any similar documentation required
to evidence the payment of any tax imposed by the state, county and
municipality on the transaction contemplated hereby; and
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(i) Such articles of incorporation, agreements or certificates of
partnership, resolutions, authorizations, bylaws, certifications or other
corporate, partnership or trust documents or agreements relating to Seller
and Seller's partners as Buyer or Escrow Holder shall reasonably require in
connection with this transaction.
(2) Within one (1) business day following Seller's delivery of the Limited
Partner Vote Notice evidencing the Limited Partner Approval, Seller shall
deposit with Escrow Holder the following:
(a) Any other cash, documents, or instruments called for hereunder or
reasonably requested by Buyer and consistent herewith to be paid, executed,
or delivered by Seller that have not previously been delivered by Seller to
Escrow Holder.
9.4 DELIVERIES BY BUYER.
(1) Within fifteen (15) business days after the Effective Date, Buyer shall
deposit with Escrow Holder the following:
(a) Four (4) original counterparts of the Assignment and Assumption of
Contracts, duly executed by Buyer;
(b) Four (4) original counterparts of the Assignment and Assumption of
Operating Lease, duly executed by Buyer;
(c) Four (4) original Estoppel Agreements and four (4) original
counterparts of the Fifth Amendment, each duly executed by Operator;
(d) Such articles of incorporation, agreements or certificates of
partnership, resolutions, authorizations, bylaws, certifications or other
corporate, partnership, or trust documents or agreements relating to Buyer
(or Buyer's permitted assignee, if any) as Seller or Escrow Holder shall
reasonably require in connection with this transaction;
(e) Original copies, executed by or on behalf of Buyer, of any required
real estate transfer tax declarations, or any similar documentation required
to evidence the payment of any tax imposed by the state, county and
municipality on the transaction contemplated hereby; and
(f) Any documents, or instruments reasonably requested by Seller or
Title Company to evidence Buyer's assumption of the Hyatt Loan and the
release of Seller from its obligations thereunder, each executed and
delivered (in recordable form where necessary) by Hyatt Corporation and/or
Buyer, as applicable.
(2) Within one (1) business day following Seller's delivery of the Limited
Partner Vote Notice evidencing the Limited Partner Approval, Buyer shall deposit
with Escrow Holder the following:
(a) Good and immediately available funds sufficient to pay the Balance,
Buyer's portion of the closing costs, and any other amounts payable by Buyer
in order to permit Escrow Holder to close the Escrow which, if deposited by
Buyer prior to the Closing Date, shall be invested for Buyer's benefit at
Buyer's sole discretion; and
(b) Any other cash, documents, or instruments called for hereunder or
reasonably requested by Seller and consistent herewith to be paid, executed,
or delivered by Buyer or that are required for Closing hereunder that have
not been previously delivered by Buyer to Escrow Holder.
9.5 OTHER INSTRUMENTS; REVISED DELIVERIES. Seller and Buyer shall each
deposit any other documents or instruments that may be reasonably required by
Escrow Holder, or that are otherwise required to close Escrow and consummate the
purchase and sale of the Property in accordance with the terms hereof including,
without limitation, the Closing Statements. In the event that the interest
hereunder of Buyer or Seller is assigned (as permitted hereby) subsequent to the
date that instruments have been delivered into Escrow but prior to the Closing
Date, the parties shall re-execute documents by and for the benefit of the
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permitted assignee and shall deliver such revised instruments to Escrow Holder
and shall authorize Escrow Holder, upon its receipt of the revised
documentation, to destroy the instruments previously deposited into Escrow, to
the extent replaced by such revised documentation.
9.6 PRORATIONS AND APPORTIONMENTS.
(a) Payments required to be made by the Operator under the Operating Lease
shall be prorated, credited or applied in accordance with Section 9.6(b) hereof.
All other income and expenses in connection with the ownership, operation and
maintenance of the Property and not accounted for in the calculation of amounts
due under the Operating Lease, shall be prorated as of the Closing Date. In
addition, Seller shall retain that portion of the FF&E Reserves (and at the
Closing Operator shall deliver such portion to Seller from the account in which
the FF&E Reserves are held in trust for Seller) equal to (i) $896,454, plus (ii)
all amounts contributed to the FF&E Reserves and attributable to the period from
October 1, 1996 through October 31, 1996, plus (iii) fifty percent (50%) of all
amounts to be deposited into the FF&E Reserves pursuant to the terms of the
Operating Lease and attributable to the period between November 1, 1996, and the
Closing Date. The remaining fifty percent (50%) of the FF&E Reserves
attributable to the period between November 1, 1996 and the Closing Date may be
expended by the Operator in accordance with the terms of the Operating Lease and
any budgets approved pursuant thereto, and any portion thereof which is not so
expended by the Operator shall be transferred to Buyer without any adjustment to
the Purchase Price. At close of Escrow, Buyer shall deposit in Escrow any
additional amount required to cover prorations and other charges to Buyer which
have been determined prior to close of Escrow in accordance with this Agreement.
Seller and Buyer shall settle any prorations not known at close of Escrow within
thirty (30) calendar days after the Closing Date (including adjustments in
accordance with the provisions of the Operating Lease which would otherwise be
made at the end of the Lease Year in which the Closing occurs under the
Operating Lease). In the event that either party hereto receives amounts that
are due to the other under the terms of this Section 9.6(a), such amounts shall
be paid to the party entitled thereto within thirty (30) calendar days of
receipt by the other of such amount, which payment shall be accompanied by a
calculation thereof together with such documentation as may be reasonably
necessary to support such calculation.
(b) Rent required to be paid by Operator under the Operating Lease for the
month in which Closing occurs shall be prorated between Buyer and Seller
effective as of the Closing Date based on the actual number of days elapsed.
Buyer shall cause Operator to provide calculations (together with reasonable
documentation supporting such calculations) setting forth any adjustments
("ADJUSTMENTS") to rental payments required to be made by Operator under the
Operating Lease which are made on a Lease Year (as defined in the Operating
Lease) basis to both Buyer and Seller within sixty (60) calendar days after the
Closing Date. Buyer and Seller shall negotiate in good faith to agree upon the
amount of the Adjustments within ten (10) calendar days after submission of the
calculations therefor by Operator. No Adjustments or prorations under the
Operating Lease or otherwise shall be made for periods subsequent to the Lease
Year in which Closing occurs. Upon close of Escrow, Buyer and Seller shall
jointly notify Operator in writing of the Closing Date and instruct Operator to
make all payments thereafter to Buyer.
(c) For a period of one (1) year following the Closing Date, Buyer agrees to
permit Seller, its independent auditors and other representatives reasonable
access to inspect the books, records and accounts of Buyer and Operator
pertaining to the Property, to the extent the same are applicable to the period
prior to the Closing Date.
(d) If Seller and Buyer are unable, after using reasonable efforts in good
faith, to agree upon any particular item, or the amount thereof, for inclusion
in the Closing Statements, the Closing shall nevertheless occur, and proration
adjustments shall be made, on a tentative basis, on the basis of the individual
items as proposed by Buyer, with any differences between the amounts as proposed
by Buyer and the amounts proposed by Seller deposited by Buyer in an escrow with
the Title Company under the Title Company's form of strict joint order escrow
(the "PRORATION ESCROW"). Promptly after Operator's
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delivery of the Adjustment calculations, Buyer and Seller shall meet and attempt
in good faith to resolve any differences between them with regard to any item of
proration or Adjustment in dispute. If however, the parties are unable, within
ten (10) days following Operator's delivery of the Adjustment calculations, to
resolve all items in dispute, each party will, within three business days and at
its sole cost and expense, engage an independent and disinterested certified
public accountant with no less than ten (10) years experience in calculating
prorations of the type in question (other than the accounting firm of Arthur
Andersen & Co.) to calculate (within ten (10) calendar days) the item or items
of proration or Adjustment in dispute, and, so long as the calculation of the
higher accountant of any particular item is no more than 110% of the value of
the lower accountant, the parties will agree to accept the average of the two
calculations. In the event that the higher calculation is more than 110% of the
lower calculation, then the two accountants shall within five (5) calendar days
jointly designate a third disinterested certified public accountant. In the
event that the two accountants after good faith attempts shall have failed to
agree on the third accountant within such five day period, then either Buyer or
Seller may request that the accounting firm of Arthur Andersen & Co. designate
the third accountant, and such designation(s) shall be binding on the parties.
If, within, ten (10) days after appointment of the third accountant, a majority
of the accountants concur on the valuation, that valuation shall be binding and
conclusive on Buyer and Seller. If a majority of the accountants do not concur
within that period, the calculation farthest from the median of the three
calculations shall be disregarded and the average of the remaining two
calculations shall be deemed the calculation and shall be binding and
conclusive. The cost of the third accountant shall be borne solely by the
parties who engaged the accountant who delivered the original calculation that
was farthest in value from the third calculation. Buyer (on its own behalf and
on behalf of Operator) and Seller agree to furnish the accountant(s) with all
appropriate information utilized in the parties' own calculations.
(e) The provisions of this Section 9.6 shall survive the Closing.
9.7 COSTS AND EXPENSES. Seller shall pay (a) the premium for the Owner's
Title Policy, (b) the cost of the Survey and a reasonable survey certification
to Buyer (and Buyer's lender if any) (provided that any additional survey work
required by Buyer or Buyer's lender shall be at the sole cost and expense of
Buyer), and (c) one-half ( 1/2) of all documentary transfer taxes and sales
taxes applicable to the transfer of the Property to Buyer, (d) one-half ( 1/2)
of Escrow Holder's fees and costs and (e) all charges to remove any title
exceptions which are not Permitted Exceptions and which Seller has elected or is
obligated to remove, including recording fees for the same. Buyer shall pay (i)
the cost of any endorsements to the Owner's Title Policy and the costs of any
additional survey work desired by Buyer, (ii) one-half ( 1/2) of all documentary
transfer taxes and sales taxes applicable to the transfer of the Property to
Buyer, (iii) one-half ( 1/2) of Escrow Holder's fees and costs, and (iv) all
filing and recording charges for the Documents. All other taxes, costs, and
charges of the Escrow shall be paid equally by Seller and Buyer. Except as
otherwise expressly herein provided, each party hereto agrees to bear and pay
for its own account the fees and disbursements of its own counsel, accountants,
appraisers, engineers and other advisors in connection with the negotiation and
preparation of this Agreement and the close of Escrow.
9.8 CLOSE OF ESCROW. Provided that (i) Escrow Holder has received the
documents and funds described in Sections 9.3, 9.4, and 9.5 hereof; (ii) Escrow
Holder has not received prior written notice from either party to the effect
that an agreement of either party made hereunder has not been performed or to
the effect that any condition set forth herein has not been satisfied or waived;
(iii) Buyer has not terminated this Agreement as permitted herein; (iv) Seller
has not terminated this Agreement as permitted herein; and (v) the Title Company
has issued or is unconditionally prepared and committed to issue to Buyer the
Owner's Title Policy (with such reinsurance and endorsements thereto as are set
forth in Section 6.1 hereof), Escrow Holder is authorized and instructed at 8:00
a.m., Pacific time, on the scheduled Closing Date to:
(a) retain for Escrow Holder's own account all escrow fees and costs,
disburse to Title Company the fees and expenses incurred in connection with
the issuance of the Owner's Title Policy, and disburse to any other persons
or entities entitled thereto the amount of any other closing costs, all in
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accordance with Buyer's and Seller's closing statements prepared by Escrow
Holder and pre-approved by the parties hereto (the "CLOSING STATEMENTS").
(b) record in the appropriate office any documents or instruments
necessary to remove any exceptions to title which are not Permitted
Exceptions.
(c) request that the amount of the documentary transfer tax due be shown
on a separate paper and be affixed to the Grant Deed by the County Recorder
only after the permanent record is made;
(d) cause the Grant Deed and the Assignment and Assumption of Operating
Lease to be recorded in the County Recorder's Office of San Francisco
County, California and deliver conformed copies of such recorded documents
to each of Buyer and Seller;
(e) deliver by wire transfer the Deposit and the Balance to Seller, as
adjusted by Seller's share of prorations and costs of escrow, in the manner
specified by Seller in separate written instructions to Escrow Holder;
(f) deliver to Buyer two (2) fully executed original counterparts of
each of the Bill of Sale, the Assignment and Assumption of Contracts, and
the Estoppel Agreement, and two (2) conformed copies of each of the
"as-recorded" Grant Deed and the Assignment and Assumption of Operating
Lease, and deliver to Seller two (2) fully executed original counterparts of
each of the Bill of Sale, the Assignment and Assumption of Contracts, and
the Estoppel Agreement, and two (2) conformed copies of each of the
"as-recorded" Grant Deed and the Assignment and Assumption of Operating
Lease;
(g) deliver two (2) original Seller's Non-Foreign Affidavits to Buyer;
(h) return any remaining funds to Buyer after all payments pursuant to
clauses (a) and (e) immediately above;
(i) cause the Title Company to issue the Owner's Title Policy (together
with the endorsements and evidence of reinsurance described in Section 6.2
hereof) to Buyer; and
(j) destroy all copies and counterparts of the Fifth Amendment.
9.9 NOTIFICATION; CLOSING STATEMENTS. If Escrow Holder cannot comply with
the instructions herein (or as may be provided later), Escrow Holder is not
authorized to cause the recording or delivery of any of the foregoing documents.
If Escrow Holder is unable to cause the recording, Escrow Holder shall notify
the parties of such fact without delay. If such inability continues for a period
of seven (7) calendar days (unless either Seller or Buyer is then in default
hereunder (in which event the provisions of Section 9.2(b) shall apply), either
Seller or Buyer may, upon written notice to the other party and to Escrow
Holder, demand the return of its deposits, in which event Escrow Holder shall
return all deposits to the respective depositor (including the Deposit to Buyer)
and this Agreement shall terminate. Immediately after the Closing, Escrow Holder
shall deliver to Buyer and Seller, respectively, at their addresses listed in
Section 14.1 hereof, a true, correct, and complete copy of the Seller's and
Buyer's Closing Statements, in forms customarily prepared by Escrow Holder, as
well as all other instruments and documents to be delivered to Buyer and Seller.
ARTICLE X
REPRESENTATIONS, WARRANTIES, AND COVENANTS
10.1 BUYER'S REPRESENTATIONS AND WARRANTIES. Buyer represents and warrants
to Seller as follows:
(a) Buyer is a corporation, duly created, validly existing, and in good
standing under the laws of the State of Delaware with full right, power, and
authority to take title to the Property, and to enter into and otherwise
perform and comply with all the terms and conditions of this Agreement and
no
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less than fifty-one percent (51%) of the voting securities or ownership
interests in Buyer are held (directly or indirectly) by a Pritzker Affiliate
as of the Effective Date;
(b) This Agreement and all documents executed by Buyer that are to be
delivered to Seller or Escrow Holder at the Closing are, and at the time of
Closing will be, duly authorized, executed, and delivered by Buyer; this
Agreement and all documents executed by Buyer that are to be delivered to
Seller at the Closing are, and at the Closing will be, legal, valid, and
binding obligations of Buyer, enforceable in accordance with their terms
(except as enforcement may be limited by bankruptcy, insolvency or similar
laws) and do not, and at the time of Closing will not, violate any
provisions of any agreement or judicial order to which Buyer is a party or
to which Buyer is subject; and
(c) Except as may be expressly provided otherwise in this Agreement or
in the documents or instruments being executed and delivered in connection
with this Agreement, no representations of any kind (whether oral or
written, express or implied) have been made by the Seller to Buyer, and
Buyer hereby represents and warrants to Seller that Buyer is investing in
the Property solely in reliance on Buyer's own investigations and evaluation
thereof, the representations and warranties of Seller set forth herein, and
not in reliance on anything else.
10.2 SELLER'S REPRESENTATIONS AND WARRANTIES. Seller represents and
warrants to Buyer as follows:
(a) Seller is a Delaware limited partnership duly created, validly
existing, and in good standing under the laws of the State of Delaware and
Seller has the full right, power, and authority to own and convey the
Property and to enter into and otherwise perform and comply with all the
terms and conditions of this Agreement.
(b) This Agreement and all documents executed by Seller that are to be
delivered to Buyer or Escrow Holder at the Closing are, and at the time of
Closing will be, duly authorized, executed, and delivered by Seller; and
this Agreement and all documents executed by Seller that are to be delivered
to Buyer at Closing are, and at the time of Closing will be, legal, valid,
and binding obligations of Seller, enforceable in accordance with their
terms (except as enforcement may be limited by bankruptcy, insolvency or
similar laws) and do not, and at the time of Closing will not, violate any
provisions of any agreement or judicial order to which Seller is a party or
to which Seller or the Property is subject.
(c) Seller is the owner of the landlord's interest under the Operating
Lease (subject only to those matters set forth in the PTR) and Seller has
not heretofore assigned any of its interest in the Operating Lease, the
Personal Property, the Permits or the Miscellaneous Property Assets.
(d) Seller has not directly entered into any Subleases, and has not
entered into any leases with respect to the Hotel or the Land or any portion
thereof, other than the Operating Lease.
(e) Exhibit H hereto contains a complete list of all Contracts currently
in effect with respect to the Property.
To Seller's knowledge, all information contained on Exhibit H is
true, accurate and complete in all respects as of the date hereof and copies
of all Contracts which have heretofore been delivered to Buyer are true,
accurate and complete, and include all amendments or modifications thereof
(whether written or verbal). Except as disclosed on Exhibit H, (i) to
Seller's knowledge, no party to any Contract is in default thereunder; (ii)
to Seller's knowledge, no event or circumstance has occurred which, either
by itself, or with the giving of notice or passage of time, or both, would
constitute a breach or default or event of default under any Contract; and
(iii) to Seller's knowledge, no party to any Contract has delivered any
notice, either written or verbal, alleging the occurrence of any breach
thereof or default or event of default thereunder.
(f) To Seller's knowledge, except for notices or copies thereof received
by the Operator (including, without limitation, notices relating to the
Americans With Disabilities Act), as of the date
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of this Agreement, Seller has not received any notices of violations of any
laws, ordinances, orders or requirements of any governmental authority,
agency or officer having jurisdiction against or affecting the Property or
with respect to the operation thereof for its currently intended purpose,
which have not previously been complied with, nor, to Seller's knowledge, do
any facts or circumstances exist which are not known to Operator and which,
if known to any applicable governmental agency or authority, would
constitute a material violation of any such laws, ordinances, orders or
requirements and have a material adverse impact on the operations of the
Hotel.
(g) To Seller's knowledge, there are no actions, investigations, suits
or proceedings (including arbitrations, grievances, judicial proceedings,
administrative proceedings and tax contests) pending, or threatened, with
respect to the Property, or the ownership or operation thereof, or any part
thereof (other than those being administered by the Operator), nor any
judgments, orders, awards or decrees currently in effect against Seller with
respect to the ownership or operation of any part of the Property which have
not been fully discharged prior to the date hereof.
(h) To Seller's knowledge, there are no pending or threatened requests,
applications or proceedings to alter or restrict the zoning or other use
restrictions applicable to the Property, or to condemn all or any portion of
the Property by eminent domain proceedings or otherwise.
(i) Attached hereto as Exhibit I is a list of all Permits obtained by
Seller (and excluding permits obtained by the Operator) with respect to the
construction, operation, ownership or maintenance of the Property, or the
Improvements, which are currently in effect. To Seller's knowledge, Seller
has received no notice from any governmental authority of intended
non-renewal, suspension or revocation of any Permit, and Seller has no
knowledge of any threatened non-renewal, suspension or revocation
proceeding.
(j) To Seller's knowledge, except as may have been contracted for by the
Operator, there has been no construction or other work performed, nor is any
in process, at the Property, nor have any construction materials been
furnished to the Property or any portion thereof, which might hereafter give
rise to mechanic's, materialmen's or other liens against the Property or any
portion thereof.
(k) As used herein, the term "Seller's knowledge" shall mean the actual
knowledge of Jeffrey C. Carter, president of the general partner of Seller.
10.3 CONTINUATION AND SURVIVAL OF REPRESENTATIONS AND WARRANTIES;
LIMITATIONS ON LIABILITY THEREFOR. All representations and warranties made by
the respective parties and contained in this Agreement are intended to and shall
remain true and correct as of the time of Closing, shall be deemed to be
material, and shall survive the execution and delivery of this Agreement, the
delivery of the Grant Deed, and transfer of title to the Property, for a period
of one (1) year, and shall not be deemed to have been waived at the Closing, or
merged into any of the documents of conveyance or transfer to be delivered by
Seller at the Closing; provided, however, no person, firm or entity shall have
any liability or obligation with respect to any representation or warranty
herein contained unless on or prior to a date which is not later than one (1)
year following the Closing Date the party seeking to assert liability under any
such representation or warranty shall have notified the other party hereto in
writing setting forth specifically the representation or warranty allegedly
breached, and a description of the alleged breach in reasonable detail. All
liability or obligation of either party hereto under any representation or
warranty shall lapse and be of no further
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force or effect with respect to any matters not contained in a written notice
delivered as contemplated above on or prior to one (1) year following the
Closing. Notwithstanding the foregoing, Buyer acknowledges and agrees that: (a)
Seller shall have no liability whatsoever with respect to any representation or
warranty as to which Buyer and/or Operator has any knowledge prior to Closing
that such representation or warranty made by Seller pursuant to this Agreement
or the other Documents was incorrect, false or misleading in any way, and (b)
neither party shall have any right to pursue remedies against the other for an
untrue representation or the breach of a warranty unless and until the actual
damages of the claiming party as a result of such incorrectness, falsity or
breach are in excess of $100,000 (the aforesaid amount being a threshold for
enforcement and not a deductible from liability).
ARTICLE XI
POSSESSION
Possession of the Property shall be delivered to Buyer immediately following
the Closing, subject only to the Permitted Exceptions.
ARTICLE XII
OPERATION OF THE PROPERTY
Regarding the operation, maintenance and repair of the Property between the
Effective Date and the Closing Date (or earlier termination of this Agreement),
(a) Seller shall not be required to make any capital improvements to the
Property, except improvements or repairs that Seller determines to be of an
emergency nature; (b) Seller agrees that it will not, without the prior written
consent of Buyer, enter into any lease with respect to any portion of the
Property; (c) Seller shall not take any action, or suffer any action to be taken
in its name or on its behalf, the effect of which would cause any of the
representations or warranties of Seller herein contained to be untrue or
incorrect in any material respect on and as of the Closing Date, or which would
have the effect of causing Seller to be unable to satisfy or perform any of the
conditions precedent to the obligations of Buyer hereunder; (d) Seller shall at
all times (i) promptly deliver to Buyer copies of any notices received by Seller
(but not received by or from Operator) from any person, firm, corporation or
governmental agency alleging any default on the part of Seller under any
contract or agreement relating to the Property, or any part thereof, or any
violation of any applicable law or ordinance with respect thereto which, if the
facts alleged therein were true, would constitute a breach of any representation
or warranty of Seller herein contained or adversely affect the ability of Seller
to satisfy any condition precedent to the obligations of Buyer hereunder, and
(ii) promptly advise Buyer in writing of any pending or threatened litigation,
administrative proceeding or condemnation proceeding brought with respect to the
Property, or which relates to the Property or any part thereof; (e) Seller will
not consent to, authorize or approve any change in zoning or similar land use
classification for the Land or any part thereof or any adjoining or nearby
parcels, or any special assessments not heretofore confirmed with respect to the
Land; and (f) Seller will not knowingly or deliberately create any lien or
encumbrance to attach to the Property, or any part thereof.
ARTICLE XIII
LOSS BY CASUALTY; CONDEMNATION
13.1 DAMAGE OR DESTRUCTION. Prior to the Closing Date, the entire risk of
loss or damage by earthquake, flood, landslide, fire, hurricane, tornado or
other casualty shall be assumed and borne by Seller. If, prior to the Closing
any part of the Property is damaged by earthquake, flood, landslide, fire,
hurricane, tornado or other casualty, Seller shall promptly notify Buyer of such
fact. In the event that the estimated cost to repair any such damage exceeds, in
the aggregate, $2,500,000, Buyer shall have the right to terminate this
Agreement upon written notice to Seller, in which event this Agreement shall
terminate. In the event that Buyer elects not to terminate this Agreement as a
result of any such damage, or the estimated cost of repair (as reasonably
determined by Buyer and Seller) does not exceed, in the aggregate,
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$2,500,000, Seller shall, at the Closing, assign and turn over, and Buyer shall
be entitled to receive and keep, all insurance proceeds payable to Seller with
respect to such damage or destruction, Buyer shall receive a credit against the
Purchase Price in the amount of any applicable insurance deductible, and the
parties shall proceed to Closing pursuant to the terms hereof without
modification of the terms of this Agreement.
13.2 CONDEMNATION. If, prior to the Closing Date all or any portion of the
Property is taken by a condemnation or eminent domain (or is the subject of a
pending or contemplated taking which has not been consummated), Seller shall
promptly notify Buyer of such fact (the "CONDEMNATION NOTICE"). If in the
reasonable opinion of Buyer the taking materially interferes or would materially
interfere with the economic operation or use of the Property, then Buyer may
elect to terminate this Agreement by written notice to such effect given to
Seller within ten (10) days after receipt by Buyer of the Condemnation Notice,
in which event this Agreement shall terminate. If, under such circumstances,
Buyer does not so elect to terminate this Agreement, then the Closing shall take
place as herein provided without any abatement of the Purchase Price, and at the
Closing Seller shall assign to the Buyer, by written instrument, all of Seller's
right, title and interest in and to any condemnation award which may be payable
to Seller on account of such condemnation. If, prior to the Closing Date, one or
more portions of the Real Property shall be taken (or are threatened to be
taken) by exercise of right of eminent domain in a manner which does not, in the
reasonable opinion of Buyer, materially interfere with the economic operation or
use of the Property, then neither party shall have any right to terminate its
obligations hereunder by reason thereof, but at the Closing Seller shall assign
to the Buyer, by written instrument, all of Seller's right, title and interest
in and to any condemnation awards which may be payable to Seller on account of
such condemnation. For purposes hereof, the term "taking" shall include any
temporary as well as permanent takings.
ARTICLE XIV
MISCELLANEOUS
14.1 NOTICES. Any communication, notice, or demand of any kind whatsoever
that either party may be required or may desire to give to or serve upon the
other shall be in writing, addressed to the parties at the addresses set forth
below, and delivered by personal service, by Federal Express or other overnight
delivery service, by facsimile transmission, or by registered or certified mail,
postage prepaid, return receipt requested:
<TABLE>
<S> <C>
If to Seller: Union Square Hotel Partners, L.P.
c/o Union Square/GP Corp.
3 World Financial Center, 29th Floor
New York, New York 10285-2900
Attention: Jeffrey C. Carter, President
Facsimile No.: (212) 528-9696
With a copy to: Skadden, Arps, Slate, Meagher & Flom
300 South Grand Avenue, Suite 3400
Los Angeles, California 90071
Attention: Rand S. April, Esq.
Facsimile No.: (213) 687-5600
If to Buyer: HT-Hotel Equities, Inc.
200 West Madison
Chicago, Illinois 60606
Attention: General Counsel
Facsimile No.: (312) 750-8084
</TABLE>
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<TABLE>
<S> <C>
With a copy to: Neal, Gerber & Eisenberg
Two North LaSalle, Suite 2100
Chicago, Illinois 60602
Attention: Philip M. Kayman
Facsimile No.: (312) 269-1747
</TABLE>
Any such notice shall be deemed delivered as follows: (a) if personally
delivered, on the date of delivery to the address of the person to receive such
notice as evidenced by a signed receipt; (b) if sent by Federal Express or other
overnight courier service, on the date of delivery to the address of the person
to receive such notice as evidenced by a signed receipt; (c) if sent by
facsimile transmission, on the date transmitted to the person to receive such
notice if sent by 5:00 p.m., Eastern time, and on the next business day if sent
after 5:00 p.m., Eastern time; or (d) if mailed, on the date of delivery to the
address of the person to receive such notice as evidenced by a signed receipt.
Any notice sent by facsimile transmission must be confirmed by personally
delivering, sending by courier, or mailing a copy of the notice sent by
facsimile transmission. Any party may change its address for notice by written
notice given to the other at least ten (10) calendar days before the effective
date of such change in the manner provided in this Section 14.1.
14.2 BROKERS AND FINDERS.
(a) If and only if the sale contemplated herein actually closes (as
evidenced by the recordation of the Grant Deed), Seller has agreed to pay a
brokerage commission to Eastdil Broker Services, Inc., or its designee
("BROKER") pursuant to a separate agreement with Broker. Seller shall not pay
any brokerage commission or finder's fee to any broker or finder retained by
Buyer, and Buyer shall be solely responsible for any such commission or fee.
(b) In the event of any claim (other than Broker's) for broker's fees,
finder's fees, commissions, or other similar compensation in connection
herewith: (i) Buyer, if such claim is based upon any agreement alleged to have
been made by Buyer, shall indemnify Seller against and hold Seller harmless
(using counsel reasonably satisfactory to Seller) from any and all damages,
liabilities, costs, expenses, and losses (including, without limitation,
attorneys' fees and costs) that Seller sustains or incurs by reason of such
claim; and (ii) Seller, if such claim is based upon any agreement alleged to
have been made by Seller, shall indemnify Buyer against and hold Buyer harmless
(using counsel reasonably satisfactory to Buyer) from any and all damages,
liabilities, costs, expenses, and losses (including, without limitation,
attorneys' fees and costs) that Buyer sustains or incurs by reason of such
claim. The provisions of this subsection shall survive the termination of this
Agreement or the Closing.
14.3 ASSIGNMENT.
(a) Assignment by Buyer. Neither all nor any portion of Buyer's interest
under this Agreement may be sold, assigned, encumbered, conveyed, or otherwise
transferred, whether directly or indirectly, voluntarily or involuntarily, or by
operation of law or otherwise (including, without limitation, by a transfer of
interests in Buyer) (collectively, a "TRANSFER"), without the prior written
consent of Seller, which consent may be granted or denied in Seller's sole and
absolute discretion. Any attempted Transfer without Seller's consent shall be
null and void.
Buyer's request for consent to any Transfer shall set forth in writing the
details of the proposed Transfer, including, without limitation, the name,
ownership and financial condition of the prospective transferee and financial
details of the proposed Transfer. In addition, Buyer shall provide Seller with
copies of all transaction documentation, certified by Buyer to be true, correct
and complete. Seller shall not withhold consent to any Transfer by Buyer,
provided that each of the following conditions have been
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met, as reasonably determined by Seller following its review of the transaction
documentation submitted by Buyer:
(i) in the event of a transfer of all or any portion of Buyer's interest
in this Agreement, the prospective transferee shall assume in writing the
obligations of Buyer under this Agreement and the Documents;
(ii) as a result of any Transfer, no less than twenty-five percent (25%)
of the ownership interests in Buyer or the prospective transferee, as the
case may be, shall be owned and held (directly or indirectly) by a Pritzker
Affiliate;
(iii) if, as a result of such Transfer, less than fifty-one percent (51%)
of the ownership interests in Buyer or the prospective transferee, as the
case may be, will be owned and held (directly or indirectly) by a Pritzker
Affiliate, the obligations of the Buyer hereunder and with respect to the
transactions contemplated hereby (including, without limitation, the
obligation of Buyer to pay the Purchase Price), shall be guaranteed pursuant
to a guaranty agreement, in form and substance reasonably satisfactory to
Seller (including the waiver of such guarantor's right to enforce the
liquidated damages provision set forth in Section 4.5 hereof), by a Pritzker
Affiliate satisfactory to Seller in its sole and absolute discretion, such
determination to be made by Seller based upon audited financial statements
(with footnotes) of such Pritzker Affiliate; and
(iv) in the event that the total "Consideration" (as hereinafter
defined) given, pledged or committed by any prospective transferee in
connection with any Transfer exceeds such prospective transferee's
"Proportionate Share" (as hereinafter defined), then the Purchase Price
hereunder shall be increased by the amount of such excess, up to a maximum
amount of $132,000,000 (the "MAXIMUM AMOUNT"). As used herein, (A) the term
"Consideration" shall mean any and all consideration, regardless of the form
of such consideration and whether in direct payment of the Purchase Price
hereunder, as contribution (debt or equity) to the capital of the
prospective transferee, or otherwise, but specifically excluding the value
derived by Buyer as a result of the retention of any entity controlled
(directly or indirectly) by a Pritzker Affiliate as the manager or operator
of the Hotel, and (B) the term "Proportionate Share" shall mean the amount
obtained by multiplying $126,900,000 (the "CASH CONSIDERATION") by such
prospective transferee's percentage ownership interest in the Buyer or any
assignee of Buyer's interest hereunder (as applicable). Notwithstanding the
foregoing to the contrary, in the event that, in connection with any
Transfer, it is contemplated that the Operating Lease will be terminated,
then the Cash Consideration and the Maximum Amount set forth above in this
clause (iv) shall each be increased by the amount of the Early Termination
Fee (as defined in the Operating Lease) applicable as of the Effective Date,
exclusive of any increase to the Early Termination Fee which would be
effected by the Fifth Amendment.
(v) such Transfer shall be consummated on or before the fifth (5th)
calendar day prior to the scheduled Closing Date.
No Transfer, whether with or without Seller's consent, shall operate
to release Buyer or alter Buyer's primary liability to perform the
obligations of Buyer under this Agreement.
Each of the parties acknowledges and agrees that the restrictions on
Transfer contained in this Section 14.3(a) shall not survive the Closing
(except and to the extent that such provisions were breached prior to the
Closing and Seller proceeded to close without knowledge of such breach.)
(b) Assignment By Seller. Seller shall have the right to assign all or any
portion of the Property and/or its interest hereunder to any entity (including,
without limitation by delivery of a deed in lieu of foreclosure to any secured
lender of Seller (or a designee of such secured lender)); provided, however,
that no such assignment shall relieve Seller of its obligations hereunder and
any such assignee shall take subject to such obligations and the rights of Buyer
hereunder.
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14.4 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective heirs,
administrators and permitted successors and assigns.
14.5 AMENDMENTS. This Agreement may be amended or modified only by a
written instrument executed by both parties.
14.6 INTERPRETATION. Words used in the singular shall include the plural,
and vice-versa, and any gender shall be deemed to include the other. The
captions and headings of the Articles and Sections of this Agreement are for
convenience of reference only, and shall not be deemed to define or limit the
provisions hereof. Further, each party hereby acknowledges that such party and
its counsel, after negotiation and consultation, have reviewed and revised this
Agreement. As such, the terms of this Agreement shall be fairly construed and
the rule of construction, to the effect that any ambiguities herein should be
resolved against the drafting party, shall not be employed in the interpretation
of this Agreement or any amendments, modifications, or exhibits hereto or
thereto.
14.7 GOVERNING LAW. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of California, without regard
to its principles of conflicts of law.
14.8 ENTIRE AGREEMENT. This Agreement, including the exhibits attached
hereto, constitutes the entire agreement between Buyer and Seller pertaining to
the subject matter hereof and supersedes all prior agreements, understandings,
letters of intent, negotiations, and discussions of the parties, whether oral or
written, and there are no warranties, representations, or other agreements,
express or implied, made to either party by the other party in connection with
the subject matter hereof except as specifically set forth herein or in the
documents delivered pursuant hereto or in connection herewith.
14.9 ATTORNEYS' FEES AND COSTS. If either Buyer or Seller brings any suit
or other proceeding with respect to the subject matter or the enforcement of
this Agreement, the prevailing party (as determined by the court, agency, or
other authority before which such suit or proceeding is commenced), in addition
to such other relief as may be awarded, shall be entitled to recover reasonable
attorneys' fees, expenses, and costs of investigation actually incurred. The
foregoing includes, without limitation, attorneys' fees, expenses, and costs of
investigation incurred in appellate proceedings, costs incurred in establishing
the right to indemnification, or in any action or participation in, or in
connection with, any case or proceeding under Chapter 7, 11, or 13 of the
Bankruptcy Code, 11 United States Code Section 101 et seq., or any successor
statutes.
14.10 TIME OF THE ESSENCE. Time is of the essence with respect to all
matters contemplated by this Agreement.
14.11 CONFIDENTIALITY. All information, surveys, reports, tests, and
studies relating to the Property obtained by Buyer before or after the Effective
Date, either by the observations and examinations of its agents and
representatives or by Seller's disclosure, shall remain confidential. If the
transaction contemplated herein fails to close for any reason other than solely
as a result of Seller's default hereunder, Buyer shall deliver to Seller, at no
cost to Seller, all originals and copies of all such information, surveys,
reports, tests, and studies, together with all copies of the Records or other
documents, work papers, or materials of Seller obtained by or provided to Buyer,
and Buyer shall make no further distributions or disclosures of any such
information, surveys, reports, tests, studies, documents, work papers, and
materials other than Excluded Reports. Buyer and Seller agree that, to the
extent reasonably practical, they shall keep the contents of this Agreement
confidential and that no publicity or press release to the general public or
otherwise with respect to this transaction shall be made by either party without
the prior written consent of the other party, which consent may be denied in the
sole and absolute discretion of either party; provided, however, that Seller
shall be entitled to make any disclosures that Seller determines, in its sole
and absolute discretion, are necessary or desirable (i) to effect the Limited
Partner Approval (including, without limitation, the preparation, filing and
distribution (to the Securities and Exchanges Commission, the Limited Partners
and otherwise) of the Proxy Materials), (ii) to comply with requirements of law
or the
26
<PAGE>
Securities and Exchange Commission, or (iii) otherwise to be disclosed or made
available to the limited partners of Seller or Seller's lenders. Notwithstanding
the foregoing, nothing herein contained shall be deemed to limit or impair in
any way Seller's or Buyer's right or ability to disclose the details of the
herein contemplated transaction to (a) their respective counsel, consultants,
advisors or accountants, provided that each such person is informed of the
confidentiality requirements hereof and agrees to abide by the same or (b) such
persons as they deem necessary in order to enable either of them to comply with
any requirements of law or any court order. Notwithstanding the foregoing,
nothing herein contained shall limit or impair in any way Buyer's right or
ability to disclose the details of the herein contemplated transaction to
persons or entities who in good faith are considering providing debt or equity
financing to Buyer for purposes of this transaction, or to governmental agencies
in connection with the application by Buyer for any required license or permit,
or for transfer of any Permit from Seller and Buyer. The confidentiality
provisions of this Section 14.11 shall survive the Closing.
14.12 NO WAIVER. No waiver of any of the provisions of this Agreement
shall be deemed or shall constitute a waiver of any other provision, whether or
not similar, nor shall any waiver constitute a continuing waiver. No waiver
shall be binding unless executed in writing by the party making the waiver.
14.13 FURTHER ACTS. Each party, at the request of the other, shall
execute, acknowledge (if appropriate), and deliver such additional documents,
and do such other additional acts, as may be reasonably required in order to
accomplish the intent and purposes of this Agreement.
14.14 EXHIBITS. Exhibits A through J inclusive, are attached hereto and
incorporated herein by reference.
14.15 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to constitute an original, but all
of which when taken together shall constitute one and the same instrument, with
the same effect as if all of the parties to this Agreement had executed the same
counterpart.
14.16 NO INTENT TO BENEFIT THIRD PARTIES. Seller and Buyer do not intend
by any provision of this Agreement to confer any right, remedy, or benefit upon
any third party, and no third party shall be entitled to enforce, or otherwise
shall acquire any right, remedy, or benefit by reason of, any provision of this
Agreement.
14.17 PERFORMANCE DUE ON DAY OTHER THAN BUSINESS DAY. If the time period
for the performance of any act called for under this Agreement expires on a
Saturday, Sunday, or any other day on which banking institutions in the State of
California are authorized or obligated by law or executive order to close (a
"HOLIDAY"), the act in question may be performed on the next succeeding day that
is not a Saturday, Sunday, or Holiday.
14.18 EXPENSES OF PURCHASE AND SALE. Except as otherwise provided in this
Agreement, Seller and Buyer shall each bear its own direct and indirect expenses
incurred in connection with the negotiation and preparation of this Agreement
and the consummation and performance of the transactions contemplated hereby.
14.19 SEVERABILITY. Any provision or part of this Agreement which is
invalid or unenforceable in any situation in any jurisdiction shall, as to such
situation and such jurisdiction, be ineffective only to the extent of such
invalidity and shall not affect the enforceability of the remaining provisions
hereof or the validity or enforceability of any such provision in any other
situation or in any other jurisdiction, unless such invalidity materially
changes the transaction set forth herein, in which event the Deposit shall be
returned to Buyer and this Agreement shall terminate.
14.20 NO RECORDING. Except in connection with a proceeding brought to
enforce the provisions of this Agreement, Buyer shall not record this Agreement
or any notice thereof. If such recording other than
27
<PAGE>
in connection with such an enforcement proceeding shall occur, Seller shall
have, in addition to all other remedies for breach provided by law, the right to
terminate this Agreement by written notice to Buyer.
14.21 QUITCLAIM. In the event of the termination of this Agreement for any
reason, Buyer shall deliver to Seller a quitclaim deed and such other written
instruments as Seller may reasonably require, executed and acknowledged in
recordable form, transferring to Seller any and all rights of Buyer in the
Property or any part thereof or interest therein; provided, however, that Seller
shall prepare any such instruments and shall pay all charges, taxes and fees
associated with recording the same.
14.22 TERMINATION OF AGREEMENT.
(a) If this Agreement is terminated pursuant to Section 9.9, Article
XIII or Section 14.19 hereof, or by reason of the failure of any material
condition precedent to Seller's or Buyer's obligations to occur (other than
as set forth in Section 8.1(e) and other than the failure of any material
condition precedent resulting from the material uncured breach by Seller or
Buyer of any of the provisions hereof), the Deposit (together with all
interest earned on such Deposit) shall be returned to Buyer and the Fifth
Amendment shall be null and void and of no further force or effect (and all
copies thereof shall be destroyed by Escrow Holder) and Escrow Holder shall
return all other cash, documents, instruments and other items theretofore
deposited into Escrow to the depositor party, without any further
instruction to Escrow Holder from either Seller or Buyer. Thereafter, this
Agreement shall be null and void and of no further force or effect and,
except as provided in Sections 5.2(c), 14.2(b) and 14.11 hereof, neither
party shall have any further rights or obligations hereunder, other than
those rights and obligations that, by their terms, survive the termination
of this Agreement. In the event of such termination, the costs of the Title
Company and Escrow Holder shall be borne equally by Buyer and Seller, and
each party shall bear its own costs (including attorneys' and accountants'
fees) incurred hereunder.
(b) If this Agreement is terminated pursuant to Section 8.1(e), two
fully executed copies of the Fifth Amendment shall be delivered to each of
Buyer and Seller by Escrow Holder, the Deposit (together with all interest
earned on such Deposit) shall be delivered to Buyer by Escrow Holder and
Escrow Holder shall return all other cash, documents, instruments and other
items theretofore deposited into Escrow to the depositor party, without any
further instruction to Escrow Holder from either Seller or Buyer.
Thereafter, this Agreement shall be null and void and of no further force or
effect and, except as provided in Sections 5.2(c), 14.2(b) and 14.11 hereof,
neither party shall have any further rights or obligations hereunder, other
than those rights and obligations that, by their terms, survive the
termination of this Agreement. In the event of a termination pursuant to
Section 8.1(e), the costs of the Title Company and Escrow Holder shall be
borne equally by Buyer and Seller, and each party shall bear its own costs
(including attorneys' and accountants' fees) incurred hereunder.
(c) If this Agreement is terminated by Buyer as a result of the material
uncured breach by Seller (after notice and reasonable opportunity to cure
such breach) of any of the provisions hereof, two fully executed copies of
the Fifth Amendment shall be delivered to each of Buyer and Seller by Escrow
Holder, the Deposit (together with all interest earned on such Deposit)
shall be delivered to Buyer by Escrow Holder and Escrow Holder shall return
all other cash, documents, instruments and other items theretofore deposited
into Escrow to the depositor party, without any further instruction to
Escrow Holder from either Seller or Buyer. Thereafter, this Agreement shall
be null and void and of no further force or effect and, except as provided
in Sections 5.2(c), 14.2(b) and 14.11 hereof, neither party shall have any
further rights or obligations hereunder, other than those rights and
obligations that, by their terms, survive the termination of this Agreement;
provided, however, that Buyer may exercise all remedies available to it, at
law or in equity and the costs of the Title Company and Escrow Holder shall
be borne by Seller.
(d) If this Agreement is terminated by Seller as a result of the
material uncured breach by Buyer (after notice and reasonable opportunity to
cure such breach) of any of the provisions hereof, the
28
<PAGE>
Fifth Amendment shall be null and void and of no further force or effect
(and all copies thereof shall be destroyed by Escrow Holder) and the Deposit
(together with all interest earned on such Deposit) shall be delivered to
Seller by Escrow Holder, without any further instruction to Escrow Holder
from either Seller or Buyer. Thereafter, this Agreement shall be null and
void and of no further force or effect and, except as provided in Sections
5.2(c), 14.2(b) and 14.11 hereof, neither party shall have any further
rights or obligations hereunder, other than those rights and obligations
that, by their terms, survive the termination of this Agreement; provided,
however, that (subject to the provisions for liquidated damages set forth in
Section 4.5 hereof), Seller may exercise all remedies available to it, at
law or in equity and the costs of the Title Company and Escrow Holder shall
be borne by Buyer.
14.23 WAIVER OF KNOWN DEFAULTS. Notwithstanding anything to the contrary
contained in this Agreement, in the event that either party hereto has actual
knowledge of the default of the other party (a "KNOWN DEFAULT"), but nonetheless
elects to consummate the transactions contemplated hereby and proceeds to
Closing, then the rights and remedies of the non-defaulting party shall be
waived with respect to any such Known Default upon the Closing and the
defaulting party shall have no liability with respect thereto.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date above.
"SELLER"
UNION SQUARE HOTEL PARTNERS, L.P.,
a Delaware limited partnership
By: Union Square/GP Corp.,
a Delaware corporation
Its: General Partner
By: /s/_JEFFREY C. CARTER_____________
Print Name: JEFFREY C. CARTER_________
Print Title: PRESIDENT________________
"BUYER"
HT-HOTEL EQUITIES, INC.
a Delaware corporation
By: /S/_THOMAS J. PRITZKER____________
Print Name: THOMAS J. PRITZKER________
Print Title: PRESIDENT________________
By: /s/_DOUGLAS G. GEOGA______________
Print Name: DOUGLAS G. GEOGA__________
Print Title: VICE PRESIDENT___________
29
<PAGE>
ACCEPTED AND AGREED:
"Escrow Holder"
FIRST AMERICAN TITLE INSURANCE COMPANY
By: /s/_THOMAS F. SULLIVAN____________
Print Name: THOMAS F. SULLIVAN________
Print Title: VICE PRESIDENT-COUNSEL___
30
<PAGE>
EXHIBIT A TO ANNEX A
EXHIBIT A
LEGAL DESCRIPTION
All that certain real property situated in the City and County of San Francisco,
State of California, described as follows:
BEGINNING at the point of intersection of the northerly line of Post Street with
the westerly line of Stockton Street; running thence northerly along said line
of Stockton Street 275.00 feet and 10 3/4 inches to the southerly line of Sutter
Street; thence at a right angle westerly along said line of Sutter Street 117.00
feet and 6 inches; thence at a right angle southerly 100 feet; thence at a right
angle westerly 20 feet; thence at a right angle southerly 175 feet and 10 3/4
inches to the northerly line of Post Street; thence at a right angle easterly
along said line of Post Street 137.00 feet and 6 inches to the point of
beginning.
BEING a portion of 50 Vara Block No. 142, which said Block is delineated and
shown on the record of Survey Map thereof recorded January 8, 1970 in Book "S"
of Maps, Page 47, in the Office of the Recorder of the City and County of San
Francisco, State of California.
A-1
<PAGE>
EXHIBIT A-1 TO ANNEX A
EXHIBIT A-1
SUBLEASES
1. Sublease to D. Fine, Inc., 300 Post Street
2. Sublease to Marta's Flowers, 345 Stockton Street
A-2
<PAGE>
EXHIBIT B TO ANNEX A
EXHIBIT B
FORM OF GRANT DEED
[See Following Pages]
B-1
<PAGE>
____________, 199__
San Francisco County Recorder
____________________________
____________________________
San Francisco, California ______
Dear County Recorder:
In accordance with Section 11932 of the California Revenue and Taxation
Code, the undersigned hereby requests that this statement of documentary
transfer tax not be recorded with the attached Grant Deed (the "DEED") but be
affixed to the Deed after recordation and be returned as directed on the Deed.
The Deed names ______________________________, as grantee. The property that
is the subject of the Deed is located in the County of San Francisco, State of
California.
The amount of documentary transfer tax due on the attached Deed is
$________, computed on the full value of the property less any encumbrances
remaining on the property.
<TABLE>
<S> <C> <C>
"GRANTOR"
UNION SQUARE HOTEL PARTNERS, L.P.,
a Delaware limited partnership
By: Union Square/GP Corp.,
a Delaware corporation
Its: General Partner
By:
------------------------------------------
Print Name: Jeffrey C. Carter
Print Title: President
</TABLE>
B-2
<PAGE>
RECORDING REQUESTED BY AND
WHEN RECORDED MAIL TO:
...............................................................................
(Space Above Line For Recorder's Use Only)
GRANT DEED
The undersigned Grantor declares that documentary transfer tax is not shown
pursuant to Section 11932 of the California Revenue and Taxation Code, as
amended.
FOR VALUE RECEIVED, UNION SQUARE HOTEL PARTNERS, L.P., a Delaware limited
partnership (formerly known as Shearson Union Square Associates Limited
Partnership, a Delaware limited partnership), grants to ____________________, a
____________________("GRANTEE"), all that certain real property (the "PROPERTY")
situated in the County of San Francisco, State of California, more particularly
described in Exhibit A attached hereto and incorporated herein by reference.
THE PROPERTY IS CONVEYED TO GRANTEE SUBJECT TO: (a) all liens, encumbrances,
easements, covenants, conditions, and restrictions of record; (b) all matters
that would be revealed or disclosed in an accurate survey of the Property; (c)
all matters that would be revealed or disclosed by a physical inspection of the
Property; (d) interests of tenants and other parties in possession; (e) a lien
not yet delinquent for taxes for real property and personal property, and any
general or special assessments against the Property; and (f) zoning ordinances
and regulations and any other laws, ordinances, or governmental regulations or
orders restricting or regulating the use, occupancy, or enjoyment of the
Property.
IN WITNESS WHEREOF, the undersigned has executed this Grant Deed as of
____________, 199__.
"SELLER"
UNION SQUARE HOTEL PARTNERS, L.P.,
a Delaware limited partnership
By: Union Square/GP Corp.,
a Delaware corporation
Its:General Partner
By:
--------------------------------------------------------------------
Print Name: Jeffrey C. Carter
Print Title:
President
B-3
<PAGE>
<TABLE>
<S> <C> <C>
STATE OF )
: ss.
COUNTY OF )
</TABLE>
On the ___day of ____________, 199__, before me,
________________________________________, personally appeared
________________________________________ / / personally known to me or / /
proved to me on the basis of satisfactory evidence to be the person(s) whose
name(s) is/are subscribed to the within instrument and acknowledged to me that
he/she/they executed the same in his/her/their authorized capacity(ies), and
that by his/her/their signature(s) on the instrument the person(s), or the
entity upon behalf of which the person(s) acted, executed the instrument.
WITNESS my hand and official seal.
- - - - ---------------------------------------------
(SEAL)
B-4
<PAGE>
EXHIBIT A TO GRANT DEED
LEGAL DESCRIPTION
All that certain real property situated in the City and County of San Francisco,
State of California, described as follows:
BEGINNING at the point of intersection of the northerly line of Post Street with
the westerly line of Stockton Street; running thence northerly along said line
of Stockton Street 275.00 feet and 10- 3/4 inches to the southerly line of
Sutter Street; thence at a right angle westerly along said line of Sutter Street
117.00 feet and 6 inches; thence at a right angle southerly 100 feet; thence at
a right angle westerly 20 feet; thence at a right angle southerly 175 feet and
10- 3/4 inches to the northerly line of Post Street; thence at a right angle
easterly along said line of Post Street 137.00 feet and 6 inches to the point of
beginning.
BEING a portion of 50 Vara Block No. 142, which said Block is delineated and
shown on the record of Survey Map thereof recorded January 8, 1970 in Book "S"
of Maps, Page 47, in the Office of the Recorder of the City and County of San
Francisco, State of California.
B-5
<PAGE>
EXHIBIT C TO ANNEX A
EXHIBIT C
FORM OF BILL OF SALE
[See Following Pages]
C-1
<PAGE>
BILL OF SALE
FOR VALUABLE CONSIDERATION, the receipt and sufficiency of which are hereby
acknowledged, UNION SQUARE HOTEL PARTNERS, L.P., a Delaware limited partnership
("SELLER"), does hereby sell and convey to _______ _______ _______ ("BUYER"),
all of Seller's right, title, and interest in and to the personal property,
furniture, fixtures and equipment (collectively, the "PERSONAL PROPERTY") owned
by Seller, located at and used exclusively for the operation, maintenance, or
management of the "HOTEL" (as hereafter defined), including, without limitation,
the personal property described on Schedule I attached hereto, but expressly
excluding, without limitation, any and all personal property leased by Seller
under the contracts set listed on Schedule II attached hereto, and any and all
personal property owned or leased by the California Hyatt Corporation, guests of
the Hotel, tenants under leases at the Hotel, and suppliers, contractors and
vendors serving the Hotel. The "HOTEL" shall mean and refer to that certain
hotel commonly known as the "Grand Hyatt San Francisco" located at 345 Stockton
Street, San Francisco, California.
Seller represents and warrants to Buyer that Seller has good and marketable
title to the Personal Property. Seller has not made and does not make any
representations or warranties of any kind whatsoever, oral or written, express
or implied, with respect to the condition any of the Personal Property or any
such related matters (including, without limitation, any representation or
warranty of merchantability or fitness for a particular purpose) and that the
Personal Property is sold to Buyer in its present "AS IS, WHERE IS" condition.
By its acceptance of this Bill and Sale and the Personal Property, Buyer
hereby acknowledges receipt of the Personal Property and further acknowledges
that Buyer is receiving such Personal Property in its present "AS IS, WHERE IS"
condition without recourse or representation or warranty of any kind whatsoever
as to the condition thereof.
This Bill of Sale shall be binding upon and inure to the benefit of the
parties hereto and their respective heirs, legal representatives, successors,
and assigns.
This Bill of Sale shall be governed by and construed and enforced in
accordance with the laws of the State of California, without regard to its
principles of conflicts of law.
IN WITNESS WHEREOF, Seller has executed this Bill of Sale as of ___________,
199_.
"SELLER"
UNION SQUARE HOTEL PARTNERS, L.P.,
a Delaware limited partnership
By: Union Square/GP Corp.,
a Delaware corporation
Its: General Partner
By:
--------------------------------------
Print Name: Jeffrey C. Carter
Print Title: President
C-2
<PAGE>
SCHEDULE I TO BILL OF SALE
DESCRIPTION OF CERTAIN PERSONAL PROPERTY
The following personal property to the extent located in and about the land
and improvements known as the Grand Hyatt-San Francisco, San Francisco,
California, consisting of:
(i) furniture and furnishings (including furniture, carpeting,
draperies, lamps and other items for all guest rooms, offices, and
public areas);
(ii) hotel equipment (including office equipment, dining room wagons,
material handling equipment, cleaning and engineering equipment,
vehicles and all equipment required for the operation of kitchens,
bars, laundries and dry cleaning facilities);
(iii) uniforms, tools and utensils (including staff uniforms and dining
room, engineering and housekeeping tools and utensils); and
(iv) china, glassware, linens, silverware and the like.
C-3
<PAGE>
SCHEDULE II TO BILL OF SALE
DESCRIPTION OF EXCLUDED PERSONAL PROPERTY
All personal property leased by Seller under the following contracts:
(i) Lease Agreement, dated as of September 15, 1989, by and between
Seller and Telerent Leasing Corporation, as amended by Lease
Addendum #II executed by Seller on September 24, 1994.
(ii) Lease Renewal Agreement, dated as of November 21, 1995, by and
between Seller and M&SD Financial Services, a division of Electronic
Data Systems Corporation.
C-4
<PAGE>
EXHIBIT D TO ANNEX A
EXHIBIT D
FORM OF ASSIGNMENT AND ASSUMPTION OF CONTRACTS
[See Following Pages]
D-1
<PAGE>
ASSIGNMENT AND ASSUMPTION OF CONTRACTS,
PERMITS AND MISCELLANEOUS PROPERTY ASSETS
This ASSIGNMENT AND ASSUMPTION OF CONTRACTS, PERMITS AND MISCELLANEOUS
PROPERTY ASSETS (this "ASSIGNMENT") is made as of ___________, 199_ by UNION
SQUARE HOTEL PARTNERS, L.P., a Delaware limited partnership ("ASSIGNOR"), in
favor of _____________________ ("ASSIGNEE"), with reference to the following
facts:
A. Assignor is the owner of that certain real property located at 345
Stockton Street in the County of San Francisco, State of California, commonly
known as the "Grand Hyatt San Francisco" and more particularly described in
Exhibit A attached hereto and incorporated herein by reference, together with
all buildings and other improvements thereon (collectively, the "REAL
PROPERTY"). The Real Property is being conveyed to Assignee pursuant to a
certain Grant Deed executed by Assignor in favor of Assignee.
B. Assignor, as the owner of the Real Property, has an interest in the
following items: (i) those certain agreements, warranties, and contracts listed
on Exhibit B attached hereto and incorporated herein by reference (collectively,
the "CONTRACTS"), (ii) those certain licenses, franchises and permits listed on
Exhibit B attached hereto, obtained by Seller, if any, used in or relating to
the ownership, occupancy or operation of the Property or any part thereof
(collectively, the "PERMITS"), and (iii) Assignor's interest, if any, in and to
any contract rights, leases, concessions, trademarks, service marks, trade names
(including the names of restaurants, lounges and meeting rooms), logos,
copyrights, and rights under guaranties or warranties relating to goods,
merchandise or services at or relating to the Hotel (collectively, the
"MISCELLANEOUS PROPERTY ASSETS" and, collectively with the Permits and the
Contracts, the "ASSIGNED ASSETS").
NOW, THEREFORE, in consideration of the foregoing facts:
1. Assignor hereby assigns, transfers, and conveys to Assignee all of
Assignor's right, title, and interest in and to the Assigned Assets. This
Assignment is made without recourse or representation or warranty whatsoever. By
executing this Assignment and assuming the obligations under the Assigned
Assets, Assignee acknowledges and agrees that Assignee and Assignee's
representatives have been afforded the opportunity to make and have made such
inspections of the Assigned Assets assigned hereby and matters related thereto
as they have deemed necessary and desirable. Assignee acknowledges that Assignor
has not made and does not make any representations or warranties of any kind
whatsoever, oral or written, express or implied, with respect to any of the
Assigned Assets or any such related matters, except as and to the extent set
forth in that certain Purchase and Sale Agreement and Joint Escrow Instructions,
dated as of November 4, 1996, by and between Assignee and Assignor.
2. Assignee hereby agrees to and accepts such assignment and, in addition,
expressly assumes and agrees to keep, perform, and fulfill all of the terms,
covenants, obligations, and conditions required to be kept, performed, and
fulfilled by Assignor under, or with respect to, the Assigned Assets from and
after the "CLOSING DATE" (as hereafter defined). Assignee further agrees to
indemnify, defend, and hold Assignor harmless from and against any and all
liability, loss, cost, damage, and expense (including, without limitation,
reasonable attorneys' fees and costs) directly or indirectly related to any
breach or default by Assignee under the Contracts or the Permits or in
Assignee's obligations hereunder, accruing from and after the Closing Date.
Assignor agrees to indemnify, defend, and hold Assignee harmless from and
against any and all liability, loss, cost, damage, and expense (including,
without limitation, reasonable attorneys' fees and costs) directly or indirectly
related to any breach or default by Assignor under the Contracts or the Permits
prior to the Closing Date. "CLOSING DATE" shall mean and refer to the date this
Assignment is delivered to Assignee.
D-2
<PAGE>
3. The provisions of this Assignment shall be binding upon and inure to the
benefit of Assignor and Assignee and their respective successors and permitted
assigns.
4. This Assignment may be executed in as many counterparts as may be deemed
necessary and convenient, and by the different parties hereto on separate
counterparts, each of which, when so executed, shall be deemed an original, but
all of which such counterparts shall constitute one and the same instrument.
5. This Assignment and the legal relations of the parties hereto shall be
governed by and construed and enforced in accordance with the laws of the State
of California, without regard to its principles of conflicts of law.
6. In the event of any litigation between Assignor and Assignee arising out
of the obligations of Assignor or Assignee under this Assignment or concerning
the meaning or interpretation of any provision contained herein, the losing
party shall pay the prevailing party's costs and expenses of such litigation,
including, without limitation, reasonable attorneys' fees and costs. The
prevailing party shall be determined by the court based upon an assessment of
which party's major arguments or positions taken in the proceedings could fairly
be said to have prevailed over the other party's major arguments or positions on
major disputed issues in the court's decision.
IN WITNESS WHEREOF, Assignor and Assignee have executed this Assignment and
Assumption of Contracts, Permits and Miscellaneous Property Assets as of the
date first set forth above.
"ASSIGNOR"
UNION SQUARE HOTEL PARTNERS, L.P.,
a Delaware limited partnership
By: Union Square/GP Corp.,
a Delaware corporation
Its: General Partner
By:
--------------------------------------
Print Name: Jeffrey C. Carter
Print Title: President
<TABLE>
<S> <C>
"ASSIGNEE"
By:
------------------------------------------
a
------------------------------------------
</TABLE>
<TABLE>
<S> <C>
By:
--------------------------------
Print Name:
--------------------------------
Print
Title:
--------------------------------
</TABLE>
D-3
<PAGE>
EXHIBIT A TO ASSIGNMENT AND ASSUMPTION OF CONTRACTS
LEGAL DESCRIPTION
All that certain real property situated in the City and County of San Francisco,
State of California, described as follows:
BEGINNING at the point of intersection of the northerly line of Post Street with
the westerly line of Stockton Street; running thence northerly along said line
of Stockton Street 275.00 feet and 10-3/4 inches to the southerly line of Sutter
Street; thence at a right angle westerly along said line of Sutter Street 117.00
feet and 6 inches; thence at a right angle southerly 100 feet; thence at a right
angle westerly 20 feet; thence at a right angle southerly 175 feet and 10-3/4
inches to the northerly line of Post Street; thence at a right angle easterly
along said line of Post Street 137.00 feet and 6 inches to the point of
beginning.
BEING a portion of 50 Vara Block No. 142, which said Block is delineated and
shown on the record of Survey Map thereof recorded January 8, 1970 in Book "S"
of Maps, Page 47, in the Office of the Recorder of the City and County of San
Francisco, State of California.
D-4
<PAGE>
EXHIBIT B TO ASSIGNMENT AND ASSUMPTION OF
CONTRACTS, PERMITS AND MISCELLANEOUS PROPERTY ASSETS
1. CONTRACTS:
- Lease Agreement, dated as of September 15, 1989, by and between Seller
and Telerent Leasing Corporation, as amended by Lease Addendum #II
executed by Seller on September 24, 1994.
- Lease Renewal Agreement, dated as of November 21, 1995, by and between
Seller and M&SD Financial Services, a division of Electronic Data
Systems Corporation.
2. PERMITS:
- Permit to Operate Underground Storage Tank, effective February 1, 1996
and expiring February 1, 1997, issued to Seller by the Department of
Public Health of the City and County of San Francisco for Tank No.
017020001001 (diesel fuel).
D-5
<PAGE>
EXHIBIT E TO ANNEX A
EXHIBIT E
FORM OF ASSIGNMENT AND ASSUMPTION OF OPERATING LEASE
[See Following Pages]
E-1
<PAGE>
Recording Requested by:
- - - - ----------------------------
- - - - ----------------------------
- - - - ----------------------------
When recorded mail to:
- - - - ----------------------------
- - - - ----------------------------
- - - - ----------------------------
- - - - --------------------------------------------------------------------------------
Space Above This Line For Recorder's Use
ASSIGNMENT, ASSUMPTION AND INDEMNITY AGREEMENT
This ASSIGNMENT, ASSUMPTION AND INDEMNITY AGREEMENT (this "Assignment") is
entered as of ___________, 199_, by and between Union Square Hotel Partners,
L.P., a Delaware limited partnership ("Assignor") and _______ _______ _______, a
_______ _______ _______ ("Assignee").
RECITALS
A. California Hyatt Corporation, a California corporation ("Tenant") and
Massachusetts Life Insurance Company ("Mass. Mutual") are parties to that
certain Lease and Agreement dated January 4, 1973 (the "Lease") covering that
certain real property located in the City and County of San Francisco and
improvements thereon known as the Hyatt on Union Square, as more particularly
described on Exhibit A attached hereto (the "Property"). A short form of the
Lease was recorded on January 4, 1973 in the Official Records of the City and
County of San Francisco at Book B176, Page 76, Series V-43591.
B. Assignor is the successor in interest to Mass. Mutual's interest in the
Lease pursuant to that certain Assumption, Consent and Indemnity Agreement
recorded on July 31, 1980 in the Official Records of the City and County of San
Francisco at Book D34, Page 481, Series C-124183.
C. Assignor and Assignee are parties to that certain Purchase and Sale
Agreement and Joint Escrow Instructions pursuant to which Assignor has agreed to
sell and Assignee has agreed to purchase the Property and Assignor has agreed to
assign and Assignee has agreed to assume the Lease.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Assignor and Assignee agree as
follows:
(a) Assignor assigns and transfers to Assignee all of the right, title and
interest of Assignor in, to and under the Lease.
(b) Assignor warrants to Assignee that Assignor has the right and authority
to assign and transfer to Assignee the Lease.
(c) Assignee assumes as of and from the date hereof all of Assignor's
obligations under the Lease.
(d) Assignee agrees to indemnify and hold Assignor harmless from and against
any and all losses, costs, liabilities, damages and expenses (including
reasonable attorneys' fees and expenses), accruing on or after the date hereof
and arising out of the Lease.
(e) Assignee further agrees to indemnify and hold Assignor harmless from and
against any and all losses, costs, liabilities, damages and expenses (including
reasonable attorneys' fees and expenses), whenever arising or accruing, with
respect to any and all claims and liabilities relating to current or former
E-2
<PAGE>
employees of Tenant, whether with respect to the Worker Adjustment and
Retraining Notification Act, codified at 29 U.S.C. Section2101 et. seq., or
otherwise.
(f) In the event of any litigation between Assignor and Assignee arising out
of the obligations of Assignor or Assignee under this Agreement or concerning
the meaning or interpretation of any provision contained herein, the losing
party shall pay the prevailing party's costs and expenses of such litigation,
including, without limitation, reasonable attorneys' fees and costs. The
prevailing party shall be determined by the court based upon an assessment of
which party's major arguments or positions taken in the proceedings could fairly
be said to have prevailed over the other party's major arguments or positions on
major disputed issues in the court's decision.
(g) This Assignment shall be binding on, and inure to the benefit of, the
parties hereto, their successors in interest and assigns.
(h) This Assignment may be executed in as many counterparts as may be deemed
necessary and convenient, and by the different parties hereto on separate
counterparts, each of which, when so executed, shall be deemed an original, but
all of which such counterparts shall constitute one and the same instrument.
(i) This Assignment and the legal relations of the parties hereto shall be
governed by and construed and enforced in accordance with the laws of the State
of California, without regard to its principles of conflicts of law.
IN WITNESS WHEREOF, Assignor and Assignee have executed this Assignment as
of the day and year first hereinabove written.
<TABLE>
<S> <C>
HT-HOTEL EQUITIES, INC. UNION SQUARE HOTEL PARTNERS, L.P.,
a Delaware corporation a Delaware limited partnership
By --------------------------------------- By: UNION SQUARE/ GP Corp.,
Title -------------------------------------- its general partner
By: --------------------------------------- By: ---------------------------------------
Title -------------------------------------- Jeffrey Carter, President
</TABLE>
E-3
<PAGE>
<TABLE>
<S> <C> <C>
STATE OF )
: ss.
COUNTY OF )
</TABLE>
On the ____ day of _________, 199_, before me, _______ _______ _______
_______ _______, personally appeared _______ _______ _______ _______ _______ / /
personally known to me or / / proved to me on the basis of satisfactory evidence
to be the person(s) whose name(s) is/are subscribed to the within instrument and
acknowledged to me that he/she/they executed the same in his/her/their
authorized capacity(ies), and that by his/her/their signature(s) on the
instrument the person(s), or the entity upon behalf of which the person(s)
acted, executed the instrument.
WITNESS my hand and official seal.
- - - - ---------------------------------------------
(SEAL)
<TABLE>
<S> <C> <C>
STATE OF )
: ss.
COUNTY OF )
</TABLE>
On the ____ day of _________, 199_, before me, _______ _______ _______
_______ _______, personally appeared _______ _______ _______ _______ _______ / /
personally known to me or / / proved to me on the basis of satisfactory evidence
to be the person(s) whose name(s) is/are subscribed to the within instrument and
acknowledged to me that he/she/they executed the same in his/her/their
authorized capacity(ies), and that by his/her/their signature(s) on the
instrument the person(s), or the entity upon behalf of which the person(s)
acted, executed the instrument.
WITNESS my hand and official seal.
- - - - ---------------------------------------------
(SEAL)
E-4
<PAGE>
EXHIBIT A TO ASSIGNMENT OF LEASE
LEGAL DESCRIPTION
All that certain real property situated in the City and County of San Francisco,
State of California, described as follows:
BEGINNING at the point of intersection of the northerly line of Post Street with
the westerly line of Stockton Street; running thence northerly along said line
of Stockton Street 275.00 feet and 10- 3/4 inches to the southerly line of
Sutter Street; thence at a right angle westerly along said line of Sutter Street
117.00 feet and 6 inches; thence at a right angle southerly 100 feet; thence at
a right angle westerly 20 feet; thence at a right angle southerly 175 feet and
10- 3/4 inches to the northerly line of Post Street; thence at a right angle
easterly along said line of Post Street 137.00 feet and 6 inches to the point of
beginning.
BEING a portion of 50 Vara Block No. 142, which said Block is delineated and
shown on the record of Survey Map thereof recorded January 8, 1970 in Book "S"
of Maps, Page 47, in the Office of the Recorder of the City and County of San
Francisco, State of California.
E-5
<PAGE>
EXHIBIT F TO ANNEX A
EXHIBIT F
FORM OF NON-FOREIGN AFFIDAVIT
[See Following Page]
F-1
<PAGE>
NON-FOREIGN AFFIDAVIT OF
UNION SQUARE HOTEL PARTNERS, L.P.
A DELAWARE LIMITED PARTNERSHIP
Section 1445 of the Internal Revenue Code of 1986, as amended (the "IRC"),
provides that a transferee of a U.S. real property interest must withhold tax if
the transferor is a foreign person. In addition, Section 18805 of the California
Revenue and Taxation Code, as amended (the "R&T CODE"), provides that a
transferee of a California real property interest must withhold tax if the
transferor's last known street address is outside the boundaries of the State of
California. To inform the transferee that withholding of tax is not required
upon the disposition of a U.S. and California real property interest by UNION
SQUARE HOTEL PARTNERS, L.P., a Delaware limited partnership ("TRANSFEROR"), the
undersigned Transferor hereby certifies as follows:
1. Transferor is not a foreign person, foreign corporation, foreign
partnership, foreign trust, or foreign estate (as those terms are defined in the
IRC and the regulations promulgated thereunder);
2. Transferor's U.S. taxpayer I.D. number is ________; and
3. Transferor's office address is ________________. .
Transferor understands that this certification may be disclosed to the
Internal Revenue Service and/or the California Franchise Tax Board and that any
false statement contained herein could be punished by fine, imprisonment, or
both.
Under penalties of perjury, Transferor declares that it has examined the
foregoing certification and it is true, correct, and complete.
"TRANSFEROR"
UNION SQUARE HOTEL PARTNERS, L.P.,
a Delaware limited partnership
By: Union Square/GP Corp.
a Delaware orporation
Its: General Partner
By: ________________________
Print Name: Jeffrey C. Carter
Print Title: President
F-2
<PAGE>
EXHIBIT G TO ANNEX A
EXHIBIT G
FORM OF ESTOPPEL AGREEMENT
[See Following Page]
G-1
<PAGE>
ESTOPPEL AGREEMENT OF CALIFORNIA HYATT CORPORATION
___________, 199_
HT-Hotel Equities, Inc.
200 West Madison
Chicago, Illinois 60606
Attention: General Counsel
Union Square Hotel Partners, L.P.
c/o Union Square/GP Corp.
3 World Financial Center, 29th Floor
New York, New York 10285-2900
RE: Grand Hyatt San Francisco
Ladies and Gentlemen:
California Hyatt Corporation, a Delaware corporation ("TENANT"), as lessee
and operator, and Union Square Hotel Partners, L.P., a Delaware limited
partnership ("LANDLORD"), as successor-in-interest to the lessor and as owner,
are parties to that certain Agreement and Lease, dated January 4, 1973, as
amended by First Amendment to Lease dated as of August 29, 1986, Second
Amendment to Lease dated as of May 1, 1989, Third Amendment to Lease dated as of
June 30, 1992, and Fourth Amendment to Lease dated as of August 29, 1996
(collectively, the "LEASE"), pursuant to which Landlord has leased to Tenant for
Tenant's operation in accordance therewith, certain real property and
improvements thereon (collectively, the "PROPERTY") located in San Francisco
County, California, which Property is more particularly described in Exhibit "A"
attached hereto. Tenant understands that HT-Hotel Equities, Inc., a Delaware
corporation ("PURCHASER"), has entered into an agreement with Landlord to
purchase the Property, subject to the Lease. Landlord has requested that Tenant
deliver this Estoppel Certificate to Purchaser and Landlord, and by delivering
this Estoppel Certificate to Purchaser, Tenant acknowledges that Landlord has
advised Tenant of the prospective transaction described in this paragraph.
Tenant hereby certifies to Landlord and to Purchaser, as of the date hereof,
as follows:
1. Lease. The Lease attached hereto as Exhibit "B" is a true, correct,
and complete copy of the Lease, is in full force and effect, and Landlord and
Tenant have not entered into any other agreement that has modified,
supplemented, or amended in any way the terms or provisions of the Lease, and
the Lease represents the entire agreement between Landlord and Tenant as to the
Property and the premises demised thereunder.
2. Landlord's Obligations. Landlord has done all things required of
Landlord under the Lease to be done as of the date hereof, and Tenant, as of the
date hereof, has no offset, defense, deduction, or claim against Landlord, and
Landlord is not in default under the Lease, and no event has occurred which,
with the passage of time or with the giving of notice, or both, would result in
a default by Landlord under the Lease.
3. Rent. Tenant is not entitled to, and has made no agreement with
Landlord or its agents or employees concerning, free rent, partial rent, rebate
of rent payments, credit or offset or reduction in rent, or any other type of
rental concession.
4. Purchase Rights. Except as expressly provided in the Lease, Tenant has
no right to renew or extend the term of the Lease, nor any option or
preferential right to purchase all or any part of the
G-2
<PAGE>
premises demised thereunder or all or any part of the Property, nor any right,
title, or interest with respect to the Property other than as a tenant and
operator of the Property under the Lease.
5. Security Deposit. Landlord holds no security or other deposit of
Tenant, and all security or other deposits of Tenant previously held by Landlord
have been refunded in full to Tenant.
6. Assignment and Subletting. Tenant has not assigned any of its rights
under the Lease, and except as described on Exhibit "C" attached hereto, has not
sublet the demised premises to any sublessee. Except as described on Exhibit
"C", no one except Tenant and its employees occupies the premises demised under
the Lease.
7. Insurance. All insurance, if any, required to be maintained by Tenant
under the Lease is presently in full force and effect.
8. Pending Actions. No actions, voluntary or otherwise, are pending
against Tenant under the bankruptcy, insolvency, or similar laws of the United
States or any state thereof.
9. Consent to Sale. Tenant acknowledges and consents to Landlord's sale
of the Property and assignment of the Lease to Purchaser.
10. Notices. The address for notices to be sent to Tenant is ____________.
Very truly yours,
CALIFORNIA HYATT CORPORATION,
a Delaware corporation
By:
-----------------------------------
Print Name:
----------------------------
Print Title:
-----------------------------
G-3
<PAGE>
LANDLORD'S CERTIFICATION:
By its execution hereof, Landlord hereby certifies to Tenant and to
Purchaser that Tenant has done all things required of Tenant under the Lease to
be done as of the date hereof, and Landlord, as of the date hereof, has no
offset, defense, deduction, or claim against Tenant (other than for the payment
of rent under the Lease not yet due and payable), and Tenant is not in default
under the Lease, and no event has occurred which, with the passage of time or
with the giving of notice, or both, would result in a default by Tenant under
the Lease.
UNION SQUARE HOTEL PARTNERS, L.P.,
a Delaware limited partnership
By: Union Square/GP Corp.
a Delaware corporation
Its: General Partner
By:
-----------------------------------
Print Name: Jeffrey C. Carter
Print Title: President
G-4
<PAGE>
Exhibit "A" to Estoppel Agreement
LEGAL DESCRIPTION OF PROPERTY
All that certain real property situated in the City and County of San Francisco,
State of California, described as follows:
BEGINNING at the point of intersection of the northerly line of Post Street with
the westerly line of Stockton Street; running thence northerly along said line
of Stockton Street 275.00 feet and 10-3/4 inches to the southerly line of Sutter
Street; thence at a right angle westerly along said line of Sutter Street 117.00
feet and 6 inches; thence at a right angle southerly 100 feet; thence at a right
angle westerly 20 feet; thence at a right angle southerly 175 feet and 10-3/4
inches to the northerly line of Post Street; thence at a right angle easterly
along said line of Post Street 137.00 feet and 6 inches to the point of
beginning.
BEING a portion of 50 Vara Block No. 142, which said Block is delineated and
shown on the record of Survey Map thereof recorded January 8, 1970 in Book "S"
of Maps, Page 47, in the Office of the Recorder of the City and County of San
Francisco, State of California.
<PAGE>
Exhibit "B" to Estoppel Agreement
LEASE
[To Be Attached]
<PAGE>
Exhibit "C" to Estoppel Agreement
SUBLEASES
[To Be Attached]
<PAGE>
EXHIBIT H TO ANNEX A
EXHIBIT H
LIST OF CONTRACTS
1. Lease Agreement, dated as of September 15, 1989, by and between Seller and
Telerent Leasing Corporation, as amended by Lease Addendum #II executed by
Seller on September 24, 1994
2. Lease Renewal Agreement, dated as of November 21, 1995, by and between
Seller and M&SD Financial Services, a division of Electronic Data Systems
Corporation
H-1
<PAGE>
EXHIBIT I TO ANNEX A
EXHIBIT I
LIST OF PERMITS
1. Permit to Operate Underground Storage Tank, effective February 1, 1996 and
expiring February 1, 1997, issued to Seller by the Department of Public
Health of the City and County of San Francisco for Tank No. 017020001001
(diesel fuel).
I-1
<PAGE>
EXHIBIT J TO ANNEX A
EXHIBIT J
FORM OF LIMITED PARTNER VOTE NOTICE
[See Following Page]
J-1
<PAGE>
LIMITED PARTNER VOTE NOTICE
[Date]
To: HT-Hotel Equities, Inc.
First American Title Insurance Company
From: Union Square Hotel Partners, L.P.
Re: Grand Hyatt San Francisco
Capitalized terms used but not defined herein shall have the meanings
ascribed thereto in that certain Purchase and Sale Agreement and Joint Escrow
Instructions, dated as of November 4, 1996 (the "Purchase Agreement") by and
among HT-Hotel Equities, Inc., Union Square Hotel Partners, L.P., and First
American Title Insurance Company.
This notice shall serve to inform you that a meeting (the "Meeting") of the
limited partners and unit holders (collectively, the "Limited Partners") of
Union Square Hotel Partners, L.P. was held on ______, 199_ at which time the
Limited Partners voted to [approve/disapprove] the sale of the Property in
accordance with the terms and conditions of the Purchase Agreement.
The undersigned hereby certifies that the Meeting was duly noticed and held
in accordance with the terms of the Seller's Partnership Agreement and that a
vote of the Limited Partners was solicited at such Meeting in accordance with
the Proxy Materials.
Very truly yours,
UNION SQUARE HOTEL PARTNERS, L.P.,
a Delaware limited partnership
By: Union Square/GP Corp.,
a Delaware corporation, its
General Partner
By:
-------------------------------------------------------------------------------
Jeffrey C. Carter
President
J-2
<PAGE>
ANNEX B
ALLOCATION AND RELEASE AGREEMENT
THIS ALLOCATION AND RELEASE AGREEMENT (this "Agreement") is made and entered
into as of November 1, 1996 by and between CAPITAL GROWTH MORTGAGE INVESTORS,
L.P., a Delaware limited partnership ("Lender") and UNION SQUARE HOTEL PARTNERS,
L.P., a Delaware limited partnership (formerly known as Shearson Union Square
Associates Limited Partnership, a Delaware limited partnership) ("Borrower").
R E C I T A L S
WHEREAS, Borrower is the owner of that certain property located in San
Francisco, California, as more particularly described on Exhibit A attached
hereto, commonly known as the Grand Hyatt San Francisco hotel (the "Hotel");
WHEREAS, Lender is the holder of the following promissory notes made by
Borrower (collectively, the "Promissory Notes"): (i) the Zero Coupon Mortgage
Note due January 2, 1997, dated as of August 20, 1986, as amended and restated
as of June 30, 1992, in the original principal amount of $13,325,000 and the
face amount of $42,207,708.58 (the "Secured Note"), (ii) the Promissory Note,
dated May 1, 1989, in the original principal amount of $1,000,000 (the "May 1
Note"), and (iii) the Note, dated as of July 12, 1991, in the original principal
amount of $1,611,952.35 (the "July 12 Note" and, collectively with the May 1
Note, the "Unsecured Notes");
WHEREAS, the Secured Note is a non-recourse note which is secured by: (i)
that certain second priority Deed of Trust, Assignment of Rents, Security
Agreement and Fixture Filing, dated as of August 29, 1986, encumbering the
Hotel, as amended (as so amended, the "Deed of Trust") by that certain First
Agreement Supplementing Capital Growth Deed of Trust and Capital Growth
Assignment of Lessor's Interest in Leases, Security Agreement and Fixture
Filing, dated as of June 30, 1992 (the "First Supplement") and (ii) that certain
second priority Assignment of Lessor's Interest in Leases, dated as of August
29, 1986, as amended by the First Supplement (as so amended, the "Assignment of
Leases");
WHEREAS, both the first priority mortgage debt encumbering the Hotel (the
"First Mortgage Debt") and the Secured Note are scheduled to mature and become
due and payable on January 2, 1997;
WHEREAS, in order to generate funds to apply toward, among other things, the
repayment of the First Mortgage Debt and the Secured Note, Borrower anticipates
entering into a purchase and sale agreement (the "Purchase Agreement") with an
affiliate ("Buyer") of Hyatt Corporation for the sale (the "Sale") of the Hotel
in consideration for (a) a cash purchase price (the "Gross Purchase Price") of
$126,900,000, (b) Buyer's assumption of mortgage debt subordinate to the Secured
Note, and (c) the covenants, representations, warranties and indemnities made by
Buyer and contained in the Purchase Agreement and in the property transfer
documents executed in connection therewith, with no other consideration of any
kind being paid by Buyer to Borrower;
WHEREAS, the Unsecured Notes will mature and become due and payable (to the
extent of sufficient sales proceeds) upon the consummation of the Sale;
WHEREAS, the net proceeds that Borrower expects to receive from the payment
of the Gross Purchase Price in connection with the Sale, after the payment of
transaction costs, the making of closing adjustments and the repayment of the
First Mortgage Debt (the "Net Sales Proceeds"), would not be sufficient to repay
in full the obligations of the Borrower under the Promissory Notes (the
"Obligations");
WHEREAS, in consideration of Borrower's efforts and expense in connection
with the sale of the Hotel, Borrower will be entitled to retain a portion of the
Net Sales Proceeds for distribution to its constituent partners;
WHEREAS, Lender and Borrower have each determined that, taking into account
a number of factors (including, without limitation, the terms of the agreement
and lease pursuant to which the Hotel is
<PAGE>
managed by California Hyatt Corporation), an orderly sale of the Hotel by
Borrower (and not by Lender or any other third party) is the means most likely
to result in the maximum amount of Net Sales Proceeds;
WHEREAS, Lender, in order to maximize such Net Sales Proceeds, to avoid
costly and time-consuming foreclosure proceedings and/or litigation, which could
result if Borrower failed to sell the Hotel on or before the maturity of the
Secured Note, and in consideration of Borrower's undertakings and efforts with
respect to the sale of the Hotel, is willing to accept the "Pay-Off Amount" (as
hereinafter defined) and allow Borrower to retain certain of the Net Sales
Proceeds, upon the terms and conditions set forth herein;
WHEREAS, Borrower and Lender have each engaged an independent financial
advisor (collectively, the "Independent Advisors") to negotiate an allocation
(the "Allocation") between Borrower and Lender of the anticipated Net Sales
Proceeds, and the Independent Advisors have independently negotiated and
presented an Allocation to Borrower and Lender;
WHEREAS, Lender's Independent Advisor has opined to Lender that the
Allocation is fair, from a financial point of view, to the limited partners of
Lender and that the Allocation is at least as favorable to Lender as an
allocation of proceeds would be if it were between unaffiliated parties in
similar circumstances and, in reliance thereon, Lender has approved the
Allocation;
WHEREAS, Borrower's Independent Advisor has opined to Borrower that the
Allocation is fair, from a financial point of view, to the limited partners of
Borrower and that the Allocation is at least as favorable to Borrower as an
allocation of proceeds would be if it were between unaffiliated parties in
similar circumstances and, in reliance thereon, Borrower has approved the
Allocation;
WHEREAS, Lender and Borrower now desire to set forth their agreement with
respect to the Allocation of Net Sales Proceeds and the satisfaction of the
Obligations.
NOW, THEREFORE, in consideration of the covenants and conditions herein
contained and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto hereby agree as follows:
1. Sale of Hotel and Acceptance of Pay-Off Amount.
a. Sale of Hotel. Lender shall permit Borrower to consummate the Sale
generally in accordance with the terms of the Purchase Agreement, as the same
may be amended or otherwise modified from time to time in Borrower's sole and
absolute discretion, provided, however, that no such modification shall reduce
the Gross Purchase Price to an amount which is not sufficient to yield Net Sales
Proceeds in cash in an amount at least equal to the Pay-Off Amount, as defined
below. Lender acknowledges that, pursuant to the Purchase Agreement, the Gross
Purchase Price may be increased to a maximum of $132,000,000 under certain
circumstances. Borrower shall deliver to Lender a fully executed copy of the
Purchase Agreement within three (3) business days following the execution
thereof by Buyer and Borrower. As used herein, the term, "Effective Date" shall
mean the date that the Purchase Agreement becomes effective, as more
particularly set forth therein. Borrower shall notify Lender of the Effective
Date promptly following notification thereof to Borrower.
b. Pay-Off Amount. The term "Pay-Off Amount" as used herein means the sum
of the following amounts in cash:
(1) the amount of $30,000,000, which amount includes the amount of $150,000
in reimbursement of costs and expenses (including reasonable attorneys' fees)
incurred by Lender in connection with the transactions contemplated hereby
(regardless of the actual amount of such costs and expenses), said $150,000 plus
the amounts referred to in clause (2) below being the only amounts that Borrower
shall be obligated to pay or reimburse to Lender for such costs and expenses,
plus
2
<PAGE>
(2) the cost incurred by Lender in obtaining Lender's Fairness Opinion,
provided that such cost shall not exceed the sum of $250,000, plus
(3) in the event that the Gross Purchase Price is increased under the terms
of the Purchase Agreement to an amount above $126,900,000, then one-half (1/2)
of the amount of such excess shall additionally be payable to Lender, plus
(4) in the event that the First Mortgage Debt is repaid in full upon the
consummation of the Sale for less than $89,714,536 as a result of (i) the fact
that the Sale is consummated prior to December 31, 1996, or (ii) the fact that
as a result of an arithmetical error, the amount necessary to repay the First
Mortgage Debt on December 31, 1996 is less than $89,714,536 (or correspondingly
less as of some other date), or (iii) the fact that Borrower negotiates and
obtains the agreement of the holder of the First Mortgage Debt to accept a
discounted payment for the full satisfaction and release of the First Mortgage
Debt, then, and only then, Borrower shall additionally pay to Lender an amount
equal to the product of: (A) the difference between $89,714,536 and such lesser
repayment amount, multiplied by (B) 0.8559947.
c. Acceptance of Pay-Off Amount. Lender shall accept the Pay-Off Amount in
full satisfaction of all of the outstanding Obligations.
d. Time Deadline; Extension of Maturity of Secured Note. Borrower shall
use its commercially reasonable best efforts to consummate the Sale on or before
January 2, 1997, provided, however, that Borrower shall have until March 31,
1997 (the "Outside Closing Date") in which to obtain the approval of Borrower's
limited partners to the Sale and to consummate the Sale. Lender hereby covenants
and agrees that, unless foreclosure proceedings with respect to the First
Mortgage Debt have been commenced, Lender shall not commence foreclosure
proceedings with respect to the indebtedness evidenced by the Secured Note, or
attempt to have a receiver appointed for the Hotel, until the first business day
following the Outside Closing Date.
e. Agreement Contingent. This Agreement is contingent upon the
consummation of the Sale. In the event the Sale has not been consummated on or
before the Outside Closing Date, this Agreement shall terminate and be of no
further force or effect and Lender shall not thereafter be obligated to accept
the Pay-Off Amount in satisfaction of the Obligations.
f. Hotel Operation. From and after the date hereof, Borrower shall
continue to operate the Hotel (to the extent within Borrower's control)
materially in accordance with Borrower's past practices and the terms of the
Operating Lease.
g. No Other Consideration or Commission. Borrower represents and warrants
to Lender that neither Borrower nor any affiliate of Borrower will be paid
(directly or indirectly) any commission, fee or other consideration of any kind
from Buyer (or its affiliates) on account of Buyer's purchase of the Hotel,
whether pursuant to the Purchase Agreement, the property transfer documents
executed in connection therewith, or otherwise, other than (a) the Gross
Purchase Price, (b) the assumption of mortgage debt subordinate to the Secured
Note, and (c) the covenants (relating to the Hotel and the transfer of the
Hotel), representations, warranties and indemnities more particularly set forth
in the Purchase Agreement and the property transfer documents executed in
connection therewith (including, without limitation, Buyer's assumption of the
landlord's obligations under the Operating Lease and with respect to the
contracts, personal property and miscellaneous property assets in connection
with Buyer's purchase of the Hotel). The Purchase Agreement (including the
property transfer documents attached as exhibits thereto) is the entire
agreement between the parties with respect to Buyer's purchase of the Hotel.
2. Borrower's Retention of Certain Net Sales Proceeds.
Lender acknowledges and agrees that the Independent Advisors agreed upon the
Allocation based upon the assumption that the Net Sales Proceeds would not only
be sufficient to pay to Lender the Pay-Off Amount, but would also be sufficient
to enable Borrower to retain a portion of the Net Sales Proceeds.
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Accordingly, Lender further acknowledges and agrees that, after payment to
Lender of the Pay-Off Amount as contemplated herein, Borrower shall have the
absolute right to keep and retain any and all remaining Net Sales Proceeds, free
from any claim of Lender, in consideration of Borrower's undertakings and
efforts regarding the Sale.
3. Closing.
a. Closing Date. The closing (the "Closing") of the satisfaction of the
Obligations and the release of any and all collateral securing the same (the
"Collateral") shall occur on the date (the "Closing Date") set forth in a
written notice to Lender delivered by Borrower one (1) business day prior to the
Closing, which Closing Date shall be no later than the Outside Closing Date. The
Closing shall be conducted concurrently with the closing of the Sale and shall
be made part of the escrow established by Borrower with First American Title
Insurance Company (the "Title Company") with respect to the Sale.
b. Lender's Closing Deliveries. No later than thirty days after the
Effective Date, the following items shall be delivered by Lender to the Title
Company, to be held in escrow by the Title Company pending the consummation of
the Sale:
(1) the original executed Promissory Notes;
(2) releases and full reconveyances of the Collateral, to be prepared by
Borrower in form and substance reasonably satisfactory to the parties (the
"Collateral Releases"), all in form for recordation required in the State of
California, together with the original Deed of Trust and the original Assignment
of Leases and any other instruments reasonably required by the Title Company for
the release and reconveyance of the Collateral;
(3) UCC-3 Termination Statements for filing with the California Secretary of
State and the County Recorder of San Francisco, California, evidencing the
termination of Lender's security interests in the Collateral, to be prepared by
Borrower in form and substance reasonably satisfactory to the parties;
(4) an unconditional general release of Borrower and its general partner and
affiliates of Borrower's general partner, duly executed by Lender, to be
prepared by Borrower in form and substance reasonably satisfactory to the
parties (the "General Release of Borrower");
(5) an unconditional general release of each Additional Unsecured Lender (as
hereinafter defined), duly executed by Lender to be prepared by Borrower in form
and substance reasonably satisfactory to such Additional Unsecured Lender (each,
a "General Release of Additional Unsecured Lender");
(6) a Form 1099-A prepared by Borrower in form and substance satisfactory to
Lender, to be filed by Lender with the Internal Revenue Service; and
(7) wire transfer instructions for the payment to Lender of the Pay-Off
Amount.
c. Borrower's Closing Deliveries. At the Closing, the following items
shall be delivered by Borrower to the Title Company to be held in escrow by the
Title Company pending the consummation of the Sale:
(1) instruction to the Title Company to pay the Pay-Off Amount to Lender out
of Net Sales Proceeds;
(2) an unconditional general release of Lender and its general partner and
affiliates of Lender's general partner, duly executed by Borrower, in form and
substance reasonably satisfactory to the parties (the "Borrower's General
Release of Lender");
(3) a certification made by the general partner of Borrower for the benefit
of Lender setting forth each and every Additional Unsecured Lender holding
unsecured debt of Borrower and the original and outstanding principal amount of
such unsecured debt; and
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(4) evidence of the consent of each Additional Unsecured Lender to the
transactions contemplated hereby, together with an unconditional general
release(s) of Lender and its general partner and affiliates of Lender's general
partner, duly executed by each Additional Unsecured Lender, in form and
substance reasonably satisfactory to Lender (each, a "Release of Lender By
Additional Unsecured Lender" and, collectively with Borrower's General Release
of Lender, the "General Releases of Lender").
d. Title Company Obligations. At Closing, Borrower shall cause the Title
Company to (i) wire transfer the Pay-Off Amount and deliver the General Releases
of Lender to Lender, (ii) cause the Collateral Releases to be filed and recorded
in the appropriate offices and deliver conformed copies thereof to Borrower and
Lender, (iii) deliver the Promissory Notes and the General Release of Borrower
to Borrower, and (iv) deliver each General Release of Additional Unsecured
Lender to the applicable Additional Unsecured Lender.
4. Agreement and Release by Additional Unsecured Lender(s).
It shall be a condition precedent to the obligations of Lender and Borrower
hereunder that Borrower shall have obtained (or, in the case of clause (iii) of
this Section 4, caused to be delivered to the Title Company at the Closing): (i)
the agreement of any and all lender(s) holding unsecured debt of the Borrower
other than the Unsecured Notes (each, an "Additional Unsecured Lender") to
Borrower's retention of all Net Sales Proceeds in excess of the Pay-Off Amount
as set forth herein, (ii) a general release of Borrower, its general partner and
its affiliates by such Additional Unsecured Lender(s), and (iii) a Release of
Lender by Additional Unsecured Lender executed by each Additional Unsecured
Lender.
5. Miscellaneous Provisions.
a. Authority. Each party hereto represents and warrants to the other that
it has full power and authority to enter into this Agreement and to consummate
the transactions contemplated hereby. The person executing this Agreement on
behalf of the general partner of each party hereto has been duly authorized to
sign this Agreement on behalf of such general partner, but signs this Agreement
only in such person's capacity as an officer of such general partner and shall
have no personal liability with respect to this Agreement or the transactions
contemplated hereby.
b. Severability. If any term or provision of this Agreement or the
application thereof to any persons or circumstances shall, to any extent, be
invalid or unenforceable, the remainder of this Agreement or the application of
such term or provision to persons or circumstances other than those as to which
it is held invalid or unenforceable shall not be affected thereby, and each term
and provision of this Agreement shall be valid and enforceable to the fullest
extent permitted by law.
c. Integration of Agreement. This Agreement, together with the Exhibits
hereto and that certain letter agreement between Borrower and Lender dated as of
September 5, 1996 attached hereto as Exhibit B and incorporated herein by this
reference, constitutes the entire agreement of the parties regarding the subject
matter of this Agreement and all prior or contemporaneous agreements,
understandings, representations and statements, oral or written, are hereby
merged herein.
d. Further Assurances. The parties agree to mutually execute and deliver
to each other, at, and from time to time after, the Closing, such other and
further documents as may be reasonably required by counsel for the parties to
carry into effect the purposes and intents of this Agreement, provided such
documents are customarily delivered in similar transactions, and do not impose
any material obligations upon any party hereunder except as set forth in this
Agreement.
e. Attorneys' Fees. In the event that any party hereto fails to perform
any of its obligations under this Agreement or in the event a dispute arises
concerning the meaning or interpretation of any provision of this Agreement, the
defaulting party or the party not prevailing in such dispute, as the case may
be, shall
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<PAGE>
pay any and all costs and expenses reasonably incurred by the other parties in
enforcing or establishing its rights hereunder, including, without being limited
to, court costs and reasonable attorneys' fees, charges and disbursements.
f. Modifications; Counterparts. This Agreement may not be modified,
amended, altered or supplemented except by written agreement executed and
delivered by the parties hereto. This Agreement may be executed in any number of
counterparts and by different parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original, and all of which when
so executed shall be deemed to be an original, and all of which taken together
shall constitute one and the same agreement. Delivery of an executed counterpart
of a signature page to this Agreement by telecopier shall be effective as
delivery of a manually executed counterpart of this Agreement. Any delivery of a
counterpart signature by telecopier shall, however, be promptly followed by
delivery of a manually executed counterpart.
g. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York, as if this Agreement was made
and to be performed wholly within such State.
h. Waiver of Jury Trial. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY
WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY AND ALL RIGHT TO TRIAL BY
JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED HEREBY.
i. No Waiver. Except as otherwise expressly provided herein, the failure
of any party hereto to enforce at any time any of the provisions of this
Agreement shall in no way be construed as a waiver of any of such provisions, or
the right of any party thereafter to enforce each and every such provision. No
waiver of any breach of this Agreement shall be held to be a waiver of any other
or subsequent breach.
j. Headings. The Article and Section headings used herein are for
reference purposes only and do not control or affect the meaning or
interpretation of any term or provision hereof.
k. Recordation. No party hereto may record this Agreement. To the extent
that any such filing is made in violation of the Agreement, the party effecting
such filing shall indemnify, defend and hold the other harmless from and against
any damages incurred by the other in connection therewith. The provisions of
this paragraph shall survive the termination of this Agreement.
l. No Modifications to Existing Loan Documents. Except to the extent
expressly set forth herein, each of the loan documents executed and delivered in
connection with the Promissory Notes shall remain unmodified and in full force
and effect. Any material default by Borrower under this Agreement shall be
deemed to constitute a default under the Secured Note. The parties expressly
agree that this Agreement is contingent and is effective only upon the closing
of the Sale under the terms and conditions set forth herein. Both Borrower and
Lender agree that this Agreement does not constitute a modification of the
Obligations within the meaning of Treasury Regulation section 1.1001-3.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Allocation and
Release Agreement as of the date and year first above written.
UNION SQUARE HOTEL PARTNERS, L.P.
By: Union Square/GP Corp.,
its general partner
By: /s/ JEFFREY C.
CARTER_____
Name: Jeffrey C. Carter
Title: President
CAPITAL GROWTH MORTGAGE
INVESTORS, L.P.
By: CG Realty Funding Inc.,
its general partner
By: /s/ KENNETH L.
ZAKIN______
Name: Kenneth L. Zakin
Title: President
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<PAGE>
EXHIBIT A TO ANNEX B
EXHIBIT A
LEGAL DESCRIPTION
All that certain real property situated in the City and County of San
Francisco, State of California, described as follows:
BEGINNING at the point of intersection of the northerly line of Post Street with
the westerly line of Stockton Street; running thence northerly along said line
of Stockton Street 275.00 feet and 10-3/4 inches to the southerly line of Sutter
Street; thence at a right angle westerly along said line of Sutter Street 117.00
feet and 6 inches; thence at a right angle southerly 100 feet; thence at a right
angle westerly 20 feet; thence at a right angle southerly 175 feet and 10-3/4
inches to the northerly line of Post Street; thence at a right angle easterly
along said line of Post Street 137.00 feet and 6 inches to the point of
beginning.
BEING a portion of 50 Vara Block No. 142, which said Block is delineated and
shown on the record of Survey Map thereof recorded January 8, 1970 in Book "S"
of Maps, Page 47, in the Office of the Recorder of the City and County of San
Francisco, State of California.
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<PAGE>
EXHIBIT B TO ANNEX B
EXHIBIT B
LETTER AGREEMENT
9
<PAGE>
CAPITAL GROWTH MORTGAGE INVESTORS, L.P.
3 WORLD FINANCIAL CENTER
29TH FLOOR
NEW YORK, NY 10285
September 5, 1996
PERSONAL AND CONFIDENTIAL
Jeffrey C. Carter
Union Square Hotel Partners, L.P.
3 World Financial Center, 29th Floor
New York, NY 10285
Dear Mr. Carter:
The purpose of this letter is to set forth our understanding with regard to
any written communication with investors, press release or other public written
statement made by Capital Growth Mortgage Investors, L.P., a Delaware limited
partnership, or Union Square Hotel Partners, L.P., a Delaware limited
partnership, concerning the possible sale of the Grand Hyatt San Francisco (the
"Hotel").
In order to facilitate any potential sale of the Hotel and to allow the
Hotel to be sold for the maximum price obtainable, we each agree that we shall
consult with each other for a reasonable period of time before having any
written communication with investors, issuing any press release or otherwise
making any public written statement with respect to the possible sale of the
Hotel and shall not have any such investor communication, issue any such press
release or make any such public statement prior to such consultation, except as
may be required by applicable law or regulation.
This letter agreement shall be governed by the laws of the State of New York
without giving effect to principles of conflicts of law thereof. This letter
agreement may be executed in counterparts, each of which shall be deemed an
original, but all of which together constitute one and the same instrument.
If you agree with the foregoing, please sign and return two copies of this
letter agreement, which will constitute our agreement with respect to the
subject matter of this letter agreement.
Very truly yours,
CAPITAL GROWTH MORTGAGE
INVESTORS, L.P.
By: Capital Growth Realty
Funding, Inc.
its general partner
By: /s/ KENNETH L. ZAKIN_____
Kenneth L. Zakin
President
Confirmed and agreed to as of
the date first above written
UNION SQUARE HOTEL PARTNERS, L.P.
By: Union Square/GP Corp.,
its general partner
By /s/ JEFFREY C. CARTER_____
Jeffrey C. Carter
President
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<PAGE>
Annex C
CONSENT AND RELEASE AGREEMENT
THIS CONSENT AND RELEASE AGREEMENT (this "Agreement") is made and entered
into as of November , 1996 by and among LEHMAN LENDING CORP., a Delaware
corporation (formerly known as Shearson Lending Corp., a Delaware corporation)
("Lehman Lending"), LEHMAN BROTHERS HOLDINGS INC., a Delaware corporation
(formerly known as Shearson Lehman Brothers Holdings Inc.) ("Holdings") and
UNION SQUARE HOTEL PARTNERS, L.P., a Delaware limited partnership (formerly
known as Shearson Union Square Associates Limited Partnership, a Delaware
limited partnership) ("Borrower").
R E C I T A L S
WHEREAS, Borrower is the owner of that certain property located in San
Francisco, California and commonly known as the Grand Hyatt San Francisco hotel
(the "Hotel");
WHEREAS, Lehman Lending is the holder of that certain Restructuring Expense
Note, dated as of June 30, 1992 (the "Lehman Lending Note") made by Borrower in
favor of Shearson Lending Corp., in the original principal amount of $1,000,000;
WHEREAS, Holdings is the holder of that certain Amended and Restated Note,
dated as of June 28, 1990 (the "Holdings Note") made by Borrower in favor of
Shearson Lehman Brothers Holdings Inc., in the original principal amount of
$10,000,000;
WHEREAS, Capital Growth Mortgage Investors, L.P. ("CapGrowth") is the holder
of the following promissory notes made by Borrower (collectively, the "CapGrowth
Notes"): (i) the Zero Coupon Mortgage Note due January 2, 1997, dated as of
August 20, 1986, as amended and restated as of June 30, 1992, in the original
principal amount of $13,325,000 and the face amount of $42,207,708.58 (the
"CapGrowth Secured Note"), (ii) the Promissory Note, dated May 1, 1989, in the
original principal amount of $1,000,000 (the "May 1 Note"), and (iii) the Note,
dated as of July 12, 1991, in the original principal amount of $1,611,952.35
(the "July 12 Note" and, collectively with the May 1 Note, the "CapGrowth
Unsecured Notes");
WHEREAS, the CapGrowth Secured Note is a non-recourse note which is secured
by: (i) that certain second priority Deed of Trust, Assignment of Rents,
Security Agreement and Fixture Filing, dated as of August 29, 1986, encumbering
the Hotel, as amended (as so amended, the "Deed of Trust") by that certain First
Agreement Supplementing Capital Growth Deed of Trust and Capital Growth
Assignment of Lessor's Interest in Leases, Security Agreement and Fixture
Filing, dated as of June 30, 1992 (the "First Supplement") and (ii) that certain
second priority Assignment of Lessor's Interest in Leases, dated as of August
29, 1986, as amended by the First Supplement (as so amended, the "Assignment of
Leases");
WHEREAS, the first priority mortgage debt encumbering the Hotel (the "First
Mortgage Debt"), the Lehman Lending Note and the CapGrowth Secured Note are each
scheduled to mature and become due and payable on January 2, 1997;
WHEREAS, in order to generate funds to apply toward, among other things, the
repayment of the First Mortgage Debt and the Secured Note, Borrower anticipates
entering into a purchase and sale agreement (the "Purchase Agreement") with an
affiliate ("Buyer") of Hyatt Corporation for the sale (the "Sale") of the Hotel
in consideration for (a) a cash purchase price (the "Gross Purchase Price") of
$126,900,000, (b) Buyer's assumption of mortgage debt subordinate to the Secured
Note, and (c) the covenants, representations, warranties and indemnities made by
Buyer and contained in the Purchase Agreement and in the property transfer
documents executed in connection therewith, with no other consideration of any
kind being paid by Buyer to Borrower;
WHEREAS, the Holdings Note and the CapGrowth Unsecured Notes will mature and
become due and payable (to the extent of sufficient sales proceeds) upon the
consummation of the Sale;
<PAGE>
WHEREAS, the net proceeds that Borrower expects to receive from the payment
of the Gross Purchase Price in connection with the Sale, after the payment of
transaction costs, the making of closing adjustments and the repayment of the
First Mortgage Debt (the "Net Sales Proceeds"), would not be sufficient to repay
in full the obligations of the Borrower under the CapGrowth Secured Note and
would therefore be insufficient to permit any repayment of the CapGrowth
Unsecured Notes, the Holdings Note or the Lehman Lending Note;
WHEREAS, in consideration of Borrower's undertakings and efforts in
connection with the sale of the Hotel, CapGrowth will permit Borrower to retain
a portion of the Net Sales Proceeds for distribution to Borrower's constituent
partners, upon the terms and conditions set forth in that certain Allocation and
Release Agreement, dated as of November 1, 1996 (the "CapGrowth Allocation
Agreement") by and between CapGrowth and Borrower, a copy of which is attached
hereto as Exhibit A, provided that Borrower (i) obtain the consent of its
unsecured lenders to the provisions of the CapGrowth Allocation Agreement,
including, without limitation, to the retention by Borrower of a portion of the
Net Sales Proceeds, (ii) obtain the release by Holdings and Lehman Lending of
Borrower from any obligations under the Holdings Note and the Lehman Lending
Note, respectively, and (iii) obtain general releases of Borrower, CapGrowth and
their respective general partners and affiliates from each of Lehman Lending and
Holdings in their capacities as unsecured creditors of Borrower;
WHEREAS, Holdings and Lehman Lending have also agreed to permit Borrower to
retain a portion of the Net Sales Proceeds (to the extent set forth in the
CapGrowth Allocation Agreement) in consideration of Borrower's undertakings and
efforts in connection with the Sale of the Hotel; and
WHEREAS, Holdings, Lehman Lending and Borrower now desire to set forth their
agreement with respect to the release and forgiveness of the Holdings Note and
the Lehman Lending Note.
NOW, THEREFORE, in consideration of the covenants and conditions herein
contained and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto hereby agree as follows:
1. Consent by Holdings.
Holdings hereby consents to the terms and provisions of the CapGrowth
Allocation Agreement.
2. Consent by Lehman Lending.
Lehman Lending hereby consents to the terms and provisions of the CapGrowth
Allocation Agreement.
3. Extension of Maturity of Lehman Lending Note.
In order to permit Borrower sufficient time in which to consummate the Sale,
Lehman Lending and Borrower hereby agree that the maturity date of the Lehman
Lending Note shall be extended until March 31, 1997, regardless of the maturity
of the First Mortgage Debt.
4. Release of Indebtedness and Borrower's Retention of Certain Net Sales
Proceeds.
Each of Holdings and Lehman Lending acknowledges and agrees that, upon
consummation of the Sale and after payment to CapGrowth of the Pay-Off Amount as
contemplated by (and as such term is defined in) the CapGrowth Allocation
Agreement, Holdings and Lehman Lending shall cause all of Borrower's obligations
under, respectively, the Holdings Note and the Lehman Lending Note and each of
the respective loan documents executed in connection therewith to be fully and
unconditionally released and forgiven, and Borrower shall have the absolute
right to keep and retain any and all remaining Net Sales Proceeds, free from any
claim of Holdings or Lehman Lending.
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<PAGE>
5. Closing.
a. Closing Date. The closing (the "Closing") of the satisfaction and
release of Borrower's obligations under the Holdings Note and the Lehman Lending
Note and each of the loan documents executed in connection therewith shall occur
on the date (the "Closing Date") set forth in a written notice to Holdings and
Lehman Lending delivered by Borrower at least one (1) business day prior to the
Closing, which Closing Date shall be no later than March 31, 1997. The Closing
shall be conducted concurrently with the closing of the Sale and shall be made
part of the escrow established by Borrower with First American Title Insurance
Company (the "Title Company") with respect to the Sale.
b. Closing Deliveries of Holdings and Lehman Lending. No later than thirty
days after the "Effective Date" (as defined in the Purchase Agreement), the
following items shall be delivered by Holdings and/ or Lehman Lending (as
applicable) to the Title Company, to be held in escrow by the Title Company
pending the consummation of the Sale:
(1) the original executed Holdings Note;
(2) the original executed Lehman Lending Note;
(3) an unconditional general release of Borrower, its general partner and
affiliates of Borrower's general partner, duly executed by Holdings and Lehman
Lending, to be prepared by Borrower, and to be in form and substance reasonably
satisfactory to the parties (the "General Release of Borrower");
(4) an unconditional general release of CapGrowth, its general partner and
affiliates of CapGrowth's general partner, duly executed by Holdings and Lehman
Lending, to be prepared by Borrower, and to be in form and substance reasonably
satisfactory to CapGrowth (the "General Release of CapGrowth"); and
(5) instructions to the Title Company to mark each of the Holdings Note and
the Lehman Lending Note "Cancelled" upon delivery to CapGrowth of the Pay-Off
Amount.
c. Borrower's Closing Deliveries. No later than thirty days after the
Effective Date, the following items shall be delivered by Borrower to the Title
Company to be held in escrow by the Title Company pending the consummation of
the Sale:
(1) instruction to the Title Company to pay the Pay-Off Amount to CapGrowth
out of Net Sales Proceeds;
(2) an unconditional general release of Holdings and Lehman Lending and the
affiliates of each, duly executed by Borrower and CapGrowth, in form and
substance reasonably satisfactory to the parties (the "General Release of
Holdings and Lehman Lending").
d. Title Company Obligations. At Closing, Borrower shall cause the Title
Company to (i) deliver the General Release of Holdings and Lehman Lending to
Holdings and Lehman Lending, and (ii) deliver the Holdings Note, the Lehman
Lending Note and the General Release of Borrower to Borrower.
6. Agreement and Release By CapGrowth.
It shall be a condition precedent to the obligations of Holdings, Lehman
Lending and Borrower hereunder that Borrower shall have obtained (or, in the
case of clause (iii) of this Section 6, caused to be delivered to the Title
Company at the Closing): (i) a fully executed CapGrowth Allocation Agreement,
(ii) a general release of Borrower, its general partner and its affiliates by
CapGrowth, and (iii) the General Release of Holdings and Lehman Lending,
executed by CapGrowth.
7. Miscellaneous Provisions.
a. Authority. Each party hereto represents and warrants to the other that
it has full power and authority to enter into this Agreement and to consummate
the transactions contemplated hereby. The person executing this Agreement on
behalf of the general partner of each party hereto has been duly
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<PAGE>
authorized to sign this Agreement on behalf of such general partner, but signs
this Agreement only in such person's capacity as an officer of such general
partner and shall have no personal liability with respect to this Agreement or
the transactions contemplated hereby.
b. Severability. If any term or provision of this Agreement or the
application thereof to any persons or circumstances shall, to any extent, be
invalid or unenforceable, the remainder of this Agreement or the application of
such term or provision to persons or circumstances other than those as to which
it is held invalid or unenforceable shall not be affected thereby, and each term
and provision of this Agreement shall be valid and enforceable to the fullest
extent permitted by law.
c. Integration of Agreement. This Agreement, together with the Exhibits
hereto, constitutes the entire agreement of the parties regarding the subject
matter of this Agreement and all prior or contemporaneous agreements,
understandings, representations and statements, oral or written, are hereby
merged herein.
d. Further Assurances. The parties agree to mutually execute and deliver to
each other, at, and from time to time after, the Closing, such other and further
documents as may be reasonably required by counsel for the parties to carry into
effect the purposes and intents of this Agreement, provided such documents are
customarily delivered in similar transactions, and do not impose any material
obligations upon any party hereunder except as set forth in this Agreement.
e. Attorneys' Fees. In the event that any party hereto fails to perform any
of its obligations under this Agreement or in the event a dispute arises
concerning the meaning or interpretation of any provision of this Agreement, the
defaulting party or the party not prevailing in such dispute, as the case may
be, shall pay any and all costs and expenses reasonably incurred by the other
parties in enforcing or establishing its rights hereunder, including, without
being limited to, court costs and reasonable attorneys' fees, charges and
disbursements.
f. Modifications; Counterparts. This Agreement may not be modified,
amended, altered or supplemented except by written agreement executed and
delivered by the parties hereto. This Agreement may be executed in any number of
counterparts and by different parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original, and all of which when
so executed shall be deemed to be an original, and all of which taken together
shall constitute one and the same agreement. Delivery of an executed counterpart
of a signature page to this Agreement by telecopier shall be effective as
delivery of a manually executed counterpart of this Agreement. Any delivery of a
counterpart signature by telecopier shall, however, be promptly followed by
delivery of a manually executed counterpart.
g. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York, as if this Agreement was made
and to be performed wholly within such State.
h. Waiver of Jury Trial. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY
WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY AND ALL RIGHT TO TRIAL BY
JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED HEREBY.
i. No Waiver. Except as otherwise expressly provided herein, the failure of
any party hereto to enforce at any time any of the provisions of this Agreement
shall in no way be construed as a waiver of any of such provisions, or the right
of any party thereafter to enforce each and every such provision. No waiver of
any breach of this Agreement shall be held to be a waiver of any other or
subsequent breach.
j. Headings. The Article and Section headings used herein are for reference
purposes only and do not control or affect the meaning or interpretation of any
term or provision hereof.
k. Recordation. No party hereto may record this Agreement. To the extent
that any such filing is made in violation of the Agreement, the party effecting
such filing shall indemnify, defend and hold the
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<PAGE>
other harmless from and against any damages incurred by the other in connection
therewith. The provisions of this paragraph shall survive the termination of
this Agreement.
l. No Modifications to Existing Loan Documents. Except to the extent
expressly set forth herein, each of the loan documents executed and delivered in
connection with the Lehman Lending Note and the Holdings Note shall remain
unmodified and in full force and effect.
m. Agreement Contingent. This Agreement is contingent upon the consummation
of the Sale. In the event the Sale has not been consummated on or before March
31, 1997, this Agreement shall terminate and be of no further force or effect.
Borrower, Holdings and Lehman Lending each hereby agrees that this Agreement
does not constitute a modification of the Lehman Lending Note or the Holdings
Note within the meaning of Treasury Regulation section 1.1001-3.
IN WITNESS WHEREOF, the parties hereto have executed this Consent and
Release Agreement as of the date and year first above written.
UNION SQUARE HOTEL PARTNERS, L.P.,
a Delaware limited partnership
By: Union Square/GP Corp.,
its general partner
By: /s/ Jeffrey C. Carter_____________
Name: Jeffrey C. Carter
Title: President
LEHMAN BROTHERS HOLDINGS INC.,
a Delaware corporation
By: /s/ Karen Muller__________________
Name: Karen Muller
Title: Vice President
LEHMAN LENDING CORP.,
a Delaware corporation
By: /s/ Karen Muller__________________
Name: Karen Muller
Title: Vice President
5
<PAGE>
EXHIBIT A TO ANNEX C
EXHIBIT A
CAPGROWTH ALLOCATION AGREEMENT
[Reproduced as Annex B to this Proxy Statement.]
6
<PAGE>
- - - - --------------------------------------------------------------------------------
[LOGO]
ANNEX D
November 1, 1996
Union Square Hotel Partners, L.P.
c/o Union Square/GP Corp.
3 World Financial Center, 29th Floor
New York, NY 10285
Dear Sirs:
We understand that Union Square Hotel Partners, L.P. (the "Partnership")
proposes to enter into an agreement for the sale (the "Sale") of the Grand Hyatt
San Francisco (the "Hotel") to an affiliate of the Hyatt Corporation (the
"Buyer"). We understand that the proceeds of the Sale (the "Gross Sales
Proceeds") of $126.9 million will be used to repay the obligation of the
Partnership to the first lien holder, the Bank of Nova Scotia ("BNS"), in its
entirety, and the obligation to the second lien holder, Capital Growth Mortgage
Investors, L.P. ("Cap Growth"), in an amount less than the face amount of its
debt, based upon an Allocation and Release Agreement (the "Agreement") between
Cap Growth and the Partnership. Different affiliates of Lehman Brothers Holdings
Inc. serve, respectively, as general partner of the Partnership and Cap Growth
as described below.
The Agreement provides, among other things, that the portion of the Gross
Sales Proceeds remaining after the payment of transaction costs and the
repayment in full of the BNS first priority mortgage debt (such remaining Gross
Sales Proceeds being hereinafter referred to as the "Net Sales Proceeds") will
be allocated (the "Allocation") between Cap Growth and the Partnership such that
Cap Growth will receive $29.85 million of the Net Sales Proceeds plus $150,000
of expenses in full satisfaction of all obligations of the Partnership to Cap
Growth, and the Partnership will retain the remainder of the Net Sales Proceeds,
estimated to be approximately $5.0 million if the closing occurred on or about
December 31, 1996. The foregoing Allocation may be adjusted under certain
circumstances if the Gross Sales Proceeds exceed $126.9 million or if there is a
change in the amount necessary to pay off BNS.
We were retained by the general partner of the Partnership, Union Square/GP
Corp. (the "General Partner"), on behalf of the Partnership, to independently
negotiate the Allocation with an independent advisor to Cap Growth (the "Cap
Growth Advisor") without involvement or participation by the General Partner or
the Partnership. The Allocation resulted from the direct negotiations between us
and the Cap Growth Advisor and thereafter was submitted to the General Partner
for its approval on behalf of the Partnership. The Agreement reached by Cap
Growth and the General Partner reflects the results of our negotiation with the
Cap Growth Advisor and recommendation to the General Partner.
You have requested our opinion, as investment bankers, as to the fairness,
from a financial point of view, to the Partnership's unitholders of the
Allocation and as to whether the amount of the Allocation is at least as
favorable to the Partnership as might have been obtained if it were with an
unaffiliated lender in similar circumstances.
In connection with our opinion set forth herein, we have, among other
things:
(i) reviewed the Annual Reports on Form 10-K filed with the Securities and
Exchange Commission (the "Commission") for the fiscal years ended
December 31, 1992 through December 31, 1995 with respect to the
Partnership;
(ii) reviewed the Quarterly Reports on Form 10-Q for the fiscal quarters
ended March 31, 1996, and June 30, 1996, filed with the Commission by
the Partnership;
<PAGE>
(iii) reviewed such legal documentation as we deemed necessary;
(iv) reviewed certain internal financial statements and financial operating
data concerning the Partnership and the Hotel, prepared, respectively,
by the General Partner and management of the Hotel;
(v) reviewed and discussed with the General Partner certain financial
information, including financial forecasts, estimated cash balances at
closing, business conditions, earnings, assets and prospects of the
Partnership, prepared by the General Partner or its advisors;
(vi) discussed the past and current relationship between the Partnership and
Cap Growth with the General Partner;
(vii) discussed the prices and trading activity of the Partnership's Units
with the General Partner;
(viii) reviewed the final Agreement, dated as of November 1, 1996; and
(ix) performed such other analyses and reviewed and analyzed such other
information as we deemed appropriate.
In rendering our opinion, we have assumed and relied upon the accuracy and
completeness of all information supplied or otherwise made available to us by
the Partnership or obtained by us from other sources, and upon the assurance of
the General Partner that it is unaware of any information or facts that would
make the information provided to us incomplete or misleading. We have not
independently verified such information, undertaken an independent appraisal of
the assets or liabilities (contingent or otherwise) of the Partnership or the
Hotel or been furnished with any such appraisals. With respect to financial
forecasts furnished to us by the Partnership or its advisors, we have been
advised by the General Partner, and we have assumed, that they have been
reasonably prepared and reflect the best currently available estimates and
judgment of the General Partner as to the expected future financial performance
of the Hotel.
Our opinion is necessarily based upon economic, market and other conditions
as they exist on, and the information made available to us as of, the date
hereof. We disclaim any undertaking or obligation to advise any person of any
change in any fact or matter affecting the opinion expressed herein which may
come or be brought to our attention after the date hereof.
Schroder Wertheim & Co. Incorporated, as part of its investment banking
business, is continually engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions, negotiated
underwritings, secondary distributions of listed and unlisted securities,
private placements and valuations for real estate, corporate and other purposes.
As part of the negotiation with the Cap Growth Advisor, Schroder Wertheim &
Co. Incorporated was authorized by the General Partner to divulge to the Cap
Growth Advisor the Gross Sales Proceeds.
The opinion expressed herein does not constitute a recommendation as to any
action the Partnership, General Partner or any unitholders of the Partnership
should take in connection with the Sale. Such opinion relates solely to the
fairness, from a financial point of view, of the Allocation. We express no
opinion herein as to the structure, terms or effect of any other aspect of the
Sale.
This letter is for the information of the Partnership and the General
Partner for use in their consideration of the fairness, from a financial point
of view, of the Allocation. This letter may not be publicly referred to by the
Partnership without our prior written consent. Notwithstanding the foregoing,
this letter and appropriate accompanying references to this letter and to
Schroder Wertheim & Co. Incorporated may be included in communications by the
Partnership to its unitholders and/or in any filings or other communications
with the Commission or other regulatory agencies; provided, however, that any
such accompanying references or descriptions of this letter shall be subject to
the prior written consent of Schroder Wertheim & Co. Incorporated, which shall
not be unreasonably withheld or delayed.
2
<PAGE>
Based upon and subject to the foregoing, we are of the opinion, as
investment bankers, that the Allocation is fair, from a financial point of view,
to the unitholders of the Partnership and in that context, the amount of the
Allocation is at least as favorable to the Partnership as might have been
obtained if the Allocation had been made with an unaffiliated lender in similar
circumstances.
Very truly yours,
SCHRODER WERTHEIM & CO.
INCORPORATED
By: /s/ MICHAEL GRAD
-----------------------------------
Michael Grad
Managing Director
3
<PAGE>
ANNEX E
[CONFORMED COPY]
SECOND AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
SHEARSON UNION SQUARE ASSOCIATES
LIMITED PARTNERSHIP
DATED AS OF SEPTEMBER 1, 1986
<PAGE>
SHEARSON UNION SQUARE ASSOCIATES
LIMITED PARTNERSHIP
TABLE OF CONTENTS
<TABLE>
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<C> <S> <C>
ARTICLE I: DEFINED TERMS
1.1 Defined Terms...................................................................................... 1
ARTICLE II: FORMATION: NAME AND OFFICES
2.1 Formation of the Partnership....................................................................... 5
2.2 Name and Offices of Partnership.................................................................... 5
ARTICLE III: TERM
3.1 Term of the Partnership............................................................................ 6
ARTICLE IV: PURPOSES OF THE PARTNERSHIP
4.1 Purposes of the Partnership........................................................................ 6
ARTICLE V: PRINCIPAL PLACE OF BUSINESS
5.1 Principal Place of Business........................................................................ 6
ARTICLE VI: NAMES AND ADDRESSES OF PARTNERS
6.1 Name and Address of General Partner................................................................ 6
6.2 Name and Address of Assignor Limited Partner....................................................... 6
ARTICLE VII: CAPITAL CONTRIBUTIONS
7.1 Initial Contribution............................................................................... 6
7.2 Public Offering of Units........................................................................... 6
7.3 Subscriptions...................................................................................... 7
7.4 Escrow Account..................................................................................... 7
7.5 Distributions from Escrow Account.................................................................. 7
7.6 Assignment of Interests to Unit Holders............................................................ 7
7.7 Purchase of Units by General Partner or Affiliates................................................. 7
ARTICLE VIII: COMPENSATION OF GENERAL PARTNER AND AFFILIATES
8.1 Acquisition Fees................................................................................... 8
8.2 Commissions........................................................................................ 8
8.3 Loan Fees.......................................................................................... 8
8.4 Subordinated Disposition Fee....................................................................... 9
ARTICLE IX: INCOME, LOSSES AND CASH DISTRIBUTIONS
9.1 Distributions of Net Cash Flow..................................................................... 9
9.2 Distributions of Sale or Refinancing Proceeds...................................................... 10
9.3 Allocations of Profits or Losses................................................................... 11
9.4 Status of Limited Partners......................................................................... 14
9.5 Date of Assignment or Transfer..................................................................... 14
9.6 Capital Accounts................................................................................... 14
9.7 Conditions Precedent to Return of Capital Contributions............................................ 14
9.8 Interest of General Partner........................................................................ 15
9.9 Allocations and Adjustments to Capital Accounts.................................................... 15
</TABLE>
i
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<TABLE>
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<C> <S> <C>
9.10 Consent to Methods of Distribution and Allocation.................................................. 15
ARTICLE X: POWERS, RIGHTS AND DUTIES OF THE GENERAL PARTNER
10.1 General Partner's Exclusive Authority to Manage Partnership Affairs................................ 15
10.2 Powers of the General Partner...................................................................... 15
10.3 Management Policies................................................................................ 16
10.4 Limitation on General Partner's Obligation to Manage............................................... 17
10.5 Other Business Activities of the General Partner................................................... 17
10.6 General Partner's Discretion to Make Certain Elections under the Internal Revenue Code............. 17
10.7 Capital Reserves................................................................................... 17
10.8 Fiduciary Obligation of the General Partner........................................................ 17
10.9 Reimbursement of General Partner for Certain Partnership Expenses.................................. 17
10.10 Governmentally Required Reports.................................................................... 18
10.11 General Partner's Fiduciary Responsibility for Partnership Funds and Assets........................ 18
10.12 Nonrecourse Loans.................................................................................. 18
10.13 Limitations on General Partner's Authority......................................................... 18
10.14 General Partner's Rights in the Event of Certain ERISA Determinations.............................. 19
10.15 General Partner's Authority to List and Delist Units............................................... 19
10.16 Actions to Preserve Partnership Status for Tax Purposes............................................ 19
ARTICLE XI: MEETINGS AND VOTING RIGHTS OF LIMITED PARTNERS AND UNIT HOLDERS
11.1 Meetings........................................................................................... 19
11.2 Notice............................................................................................. 19
11.3 Record Date........................................................................................ 20
11.4 Powers of Limited Partners......................................................................... 20
11.5 One Interest, One Vote; Voting by Proxy............................................................ 21
11.6 Majority of Interests Includes Unit Holders' Interests............................................. 21
11.7 No Management by Limited Partners or Unit Holders.................................................. 21
11.8 Voting of Interests Purchased by General Partner, its Affiliates or Employees...................... 21
ARTICLE XII: ASSIGNMENT OF ASSIGNED LIMITED PARTNERSHIP INTERESTS TO UNIT HOLDERS AND RIGHTS OF UNIT HOLDERS
12.1 Assignment of Interests: Timing, Procedures and Rights and Liabilities............................. 21
12.2 Unit Holders May be Required to Become Limited Partners............................................ 22
12.3 Issuance and Transfer of Receipts.................................................................. 23
12.4 Deferral of Registration of Transfers of Units to Avoid Termination of the Partnership............. 23
12.5 Transfer Fee....................................................................................... 23
ARTICLE XIII: REMOVAL, BANKRUPTCY, INSOLVENCY, DISSOLUTION OR WITHDRAWAL OF THE GENERAL PARTNER
13.1 Election of Successor General Partner.............................................................. 23
13.2 Rights of Former General Partner; Purchase of Former General Partner's Partnership Interest........ 23
13.3 Valuation of Former General Partner's Partnership Interest in Event of Voluntary Withdrawal,
Dissolution or Liquidation....................................................................... 24
ARTICLE XIV: TRANSFER OF A PARTNERSHIP INTEREST
14.1 Substitute Limited Partners........................................................................ 24
</TABLE>
ii
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<TABLE>
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<C> <S> <C>
14.2 Assignment of Limited Partnership Interests........................................................ 24
14.3 Conditions Precedent to an Effective Assignment.................................................... 25
14.4 Substitute Limited Partners Subject to This Agreement.............................................. 25
14.5 Amendment to Reflect Change of Limited Partner..................................................... 25
14.6 Death or Legal Disability of a Limited Partner..................................................... 25
14.7 Bankruptcy, Insolvency, Dissolution or Other Cessation of a Limited Partner........................ 26
14.8 Transfers in Violation of This Article XIV......................................................... 26
14.9 Assignment of Units to Unit Holders................................................................ 26
ARTICLE XV: INDEMNIFICATION
15.1 Indemnification of General Partner, Assignor Limited Partner, and Related Parties.................. 26
15.2 Limitations on Indemnification..................................................................... 27
15.3 Indemnification of Limited Partners and Unit Holders............................................... 27
ARTICLE XVI: DISSOLUTION AND TERMINATION
16.1 Date of Dissolution................................................................................ 27
16.2 Distributions in Liquidation....................................................................... 27
16.3 Termination........................................................................................ 27
ARTICLE XVII: NOTICES
17.1 Notices............................................................................................ 28
ARTICLE XVIII: ACCOUNTING, REPORTS AND STATEMENTS
18.1 Fiscal Year........................................................................................ 28
18.2 Inspection of Records.............................................................................. 28
18.3 Income Tax Returns................................................................................. 28
18.4 Quarterly Financial Reports........................................................................ 28
18.5 Annual Financial Reports........................................................................... 29
18.6 Tax Matters Partner................................................................................ 29
ARTICLE XIX: BANK ACCOUNTS
19.1 Bank Accounts...................................................................................... 29
ARTICLE XX: AMENDMENTS
20.1 Amendments......................................................................................... 29
ARTICLE XXI: SPECIAL POWER OF ATTORNEY
21.1 Appointment of General Partner as Attorney-in-Fact; Purpose of Special Power of Attorney........... 29
21.2 Nature and Exercise of Special Power of Attorney................................................... 30
ARTICLE XXII: MISCELLANEOUS
22.1 Binding Effect..................................................................................... 30
22.2 Applicable Laws.................................................................................... 30
22.3 Execution in Counterparts.......................................................................... 30
22.4 Severability....................................................................................... 30
22.5 Headings........................................................................................... 31
22.6 Singular and Plural; Gender........................................................................ 31
</TABLE>
iii
<PAGE>
SECOND AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
SHEARSON UNION SQUARE ASSOCIATES LIMITED PARTNERSHIP
This Second Amended and Restated Agreement of Limited Partnership (the
"Agreement"), dated as of September 1, 1986 is entered into by and among
Shearson Union Square/GP Corp., a Delaware corporation (the "General Partner"),
and Shearson Union Square Depositary Corp., a Delaware corporation, as the
assignor limited partner (the "Assignor Limited Partner").
RECITALS
WHEREAS, the General Partner and the Assignor Limited Partner established
Shearson Union Square Associates Limited Partnership (the "Partnership") as a
limited partnership under the Revised Uniform Limited Partnership Act of the
State of Delaware pursuant to an Agreement of Limited Partnership dated as of
June 16, 1986 (the "Original Partnership Agreement");
WHEREAS, the Original Partnership Agreement was amended and restated in its
entirety by an Amended and Restated Agreement of Limited Partnership, dated as
of July 1, 1986 (the "Existing Partnership Agreement");
WHEREAS, the General Partner and the Assignor Limited Partner desire to make
certain amendments to the Existing Partnership Agreement and to restate their
entire agreement in full.
NOW THEREFORE, in consideration of the premises and mutual agreements herein
contained and other and valuable consideration, the parties hereto agree as
follows:
ARTICLE I
DEFINED TERMS
1.1 DEFINED TERMS. As used in this Agreement, the following terms shall
have the following meanings:
"ACCOUNTANTS" means Kenneth Leventhal & Company or such other nationally
recognized firm of independent certified public accountants as shall be engaged
by the General Partner.
"ACQUISITION EXPENSES" means those expenses including, but not limited to,
legal fees and expenses, travel and communications expenses in connection with
negotiations, costs of appraisals, accounting fees and expenses, title insurance
and miscellaneous expenses related to the acquisition of the Hotel by the
Partnership.
"ACQUISITION FEES" means the total of all fees and commissions paid by any
Person to any other Person including the General Partner or its Affiliates in
connection with the acquisition of the Hotel by the Partnership, including real
estate commissions, selection fees, development fees, nonrecurring management
fees, consulting fees and loan placement fees or any other fees or commissions
of a similar nature, however designated.
"AFFILIATE" means, when used with reference to a specified Person, (i) any
Person that directly or indirectly through one or more intermediaries controls
or is controlled by or is under common control with the specified Person, (ii)
any Person which is an officer, director, partner or general trustee of, or
serves in a similar capacity with respect to, the specified Person or of which
the specified Person is an officer, director, partner or general trustee, or
with respect to which the specified Person is an officer, director, partner or
general trustee, or with respect to which the specified Person serves in a
similar capacity, (iii) any Person which, directly or indirectly, is the
beneficial owner of 10% or more of any class of voting securities of, or
otherwise has a substantial beneficial interest in, the specified Person or of
which the specified Person is directly or indirectly the owner of 10% or more of
any class of voting securities or in which the specified Person has a
substantial beneficial interest and (iv) any relative, spouse, officer,
<PAGE>
director, partner, general trustee or holder of 10% or more of any class of
voting securities of, or otherwise has a substantial beneficial interest in, the
specified Person. Affiliate of the Partnership or the General Partner does not
include a Person who is a partner in a partnership with the Partnership or with
any other Affiliate, which person is not otherwise an Affiliate of the
Partnership or the General Partner.
"AGREEMENT" means this Second Amended and Restated Agreement of Limited
Partnership.
"ASSIGN OR LIMITED PARTNER" means Shearson Union Square Depositary Corp., a
Delaware corporation, or any successor thereto.
"CAPITAL ACCOUNT" means, (a) with respect to any Unit, the separate
subsidiary Capital Account for each Unit Holder maintained by the Assignor
Limited Partner with respect to the Assignor Limited Partner's Capital Account,
the initial balance of which shall be the aggregate Capital Contribution with
respect to such Unit, and (b) with respect to any general partnership interest
and the Interest of the Assignor Limited Partner, the aggregate Capital
Contribution of each such Partner, with all such Capital Contributions reduced
by (x) any losses allocated with respect to such Unit, Interest or general
partnership interest under Article IX and any charge or expense relating to the
offering of Units allocated to the Capital Account with respect to such Unit and
(y) any distributions of Net Cash Flow or Sale or Refinancing Proceeds with
respect to such Unit, Interest or general partnership interest under Article IX,
and increased by any profits allocated with respect to such Unit under Article
IX. In addition to the specific increases and decreases to a Capital Account
which are provided to be made under this Agreement, any item which is required
to be reflected in a Capital Account under Section 9.6 shall be so reflected.
The Capital Account with respect to any Unit, Interest or general partnership
interest shall reflect all prior adjustments to the Capital Account of any
predecessor holder of such Unit, Interest or general partnership interest.
"CAPITAL CONTRIBUTION" means, (i) with respect to any Unit, $10 per each
full Unit, (ii) with respect to any general partnership interest, the total
amount of money and other capital contributed to the Partnership by the General
Partner (or the predecessor holder of the interest of the General Partner) and
(iii) with respect to the Interest of any Limited Partner, the total amount of
money and other capital contributed to the Partnership by such Partner (or the
predecessor holder of the Interests of such Partner) for its Interests.
"CAPITAL INVESTMENT" means the General Partner's or a Limited Partner's or a
Unit Holder's Original Investment, reduced with respect to any calendar year
(but not below zero) by the total of all (i) Sale or Refinancing Proceeds and
(ii) Net Cash Flow in excess of Cash Flow from Operations, each to the extent
distributed with respect to such year to the General Partner, such Limited
Partner or such Unit Holder. For the purpose of making such determination, (i)
any such reduction shall become effective only after the close of business on
the last day of the calendar year with respect to which such distributions are
made, and (ii) any Person making more than a single investment in Units,
Interests or general partnership interests shall be treated as having separate
Capital Investments in each such investment.
"CASH FLOW FROM OPERATIONS" means, with respect to any period, the amount
equal to (i) all payments of rent received by the Partnership during such
period, plus (ii) all interest income paid or payable to the Partnership with
respect to such period, plus (iii) the proceeds of the Front-End Expenses
Payment Loan (as defined in the Prospectus) to the extent received by the
Partnership during such period, minus (iv) all expenditures made directly by the
Partnership during such period, plus (v) all expenditures made during such
period for furnishings and equipment for the Hotel, but only to the extent that
such expenditures for furnishings and equipment, when added to all other
expenditures made for such purpose on or after the
2
<PAGE>
date of the Partnership's acquisition of the Hotel, exceed the following amounts
in the following years (which amounts are to be cumulated to the extent not
spent in prior years):
<TABLE>
<CAPTION>
YEAR AMOUNT
- - - - ---------------------------------------------- ----------------------------------------------
<S> <C>
1986.......................................... $408,250
1987 through 1997............................. 3% of the Hotel's gross receipts for each such
year
1998 and thereafter........................... 4% of the Hotel's gross receipts for each such
year
</TABLE>
"CODE" means the Internal Revenue Code of 1954, as amended.
"CLOSING DATE" means such date or dates designated by the General Partner
for the recognition of subscribers for Units as Unit Holders and the assignment
to them of the beneficial interests in the Interests, including the Initial
Closing Date and the Final Closing Date, provided that no such date shall occur
later than one year following the immediately preceding such date.
"DEALER MANAGER" means Shearson Lehman Brothers Inc.
"DEBT SERVICE" means all payments, if any, required to be made in connection
with any loan to the Partnership or any other loan secured by a lien on the
Hotel.
"DEPOSITARY RECEIPT" means a depositary receipt issued by the Assignor
Limited Partner to a Unit Holder evidencing the ownership of a Unit.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ESCROW AGENT" means a major bank to be selected by the General Partner.
"FINAL CLOSING DATE" means such date designated by the General Partner for
the purchase of the last Unit by a subscriber, but in no event later than 15
months after the date the Registration Statement is declared effective by the
Securities and Exchange Commission (or with respect to any particular state, an
earlier date if necessary to comply with the "Blue Sky" laws of any such state).
"FRONT-END FEES" means the fees and expenses paid by any Person for any
services rendered in connection with the organizational or acquisition phase of
the Partnership, including Organizational and Offering Expenses, Acquisition
Fees, Acquisition Expenses and any other similar fees, however designated.
"GENERAL PARTNER" means Shearson Union Square/GP Corp., a Delaware
corporation having an address at c/o Realty Investment Group, Shearson Lehman
Brothers Inc., American Express Tower 12th-Floor, World Financial Center, New
York, New York 10285-1230, Attention: A. George Kallop (telephone: (212)
298-2404) or any Person or Persons who, at the time of reference thereto, has
been admitted to the Partnership, as herein provided, as a successor to the
general partner interest of Shearson Union Square/GP Corp., or as an additional
General Partner, in each such Person's capacity as a general partner.
"HOTEL" means that certain 693-room hotel known as the Hyatt on Union
Square, located at the intersection of Post Street and Stockton Street on Union
Square in San Francisco, California, and all improvements thereon and all
repairs, replacements or renewals thereof, together with all personal property
acquired by the Partnership which is from time to time located thereon or
specifically used in connection therewith.
"INITIAL CLOSING DATE" means the date specified by the General Partner on
which the minimum of 2,000,000 Units are accepted and received by the General
Partner.
"INTEREST" means a limited partnership interest in the Partnership at $10
per Interest.
3
<PAGE>
"LIMITED PARTNERS" means all Unit Holders admitted as limited partners in
the Partnership upon exchange of a Unit for an Interest in accordance with
Section 12.2. For purposes of Article IX relating to cash distributions and
allocations of income, gain, loss, deduction and credit, and as specifically
provided for elsewhere in this Agreement or as the context may otherwise
require, the term "Limited Partner" shall be used interchangeably with the term
"Unit Holder."
"LIQUIDATION" means (i) when used with reference to the Partnership, the
earlier of (a) the date upon which the Partnership is terminated under Section
708(b)(l) of the Code, or (b) the date upon which the Partnership ceases to be a
going concern, and (ii) when used with reference to any Partner, the earlier of
(a) the date upon which there is a liquidation (within the meaning of clause (i)
above) of the Partnership or (b) the date upon which such Partner's entire
interest in the Partnership is terminated other than by transfer, assignment or
other disposition.
"NASAA GUIDELINES" means the guidelines for real estate and mortgage loan
programs as adopted by the North American Securities Administrators Association
as they exist on the date the Partnership's Registration Statement is declared
effective by the Securities and Exchange Commission.
"NET CASH FLOW" means all cash revenues and funds received by the
Partnership (including any reduction in previously provided reserves, other than
Sale or Refinancing Proceeds), less the sum of the following to the extent made
from such cash revenues and funds received by the Partnership (but not to the
extent made from any other sources, including, without limitation, from Sale or
Refinancing Proceeds, or cash reserves, and without duplication of any item of
deduction with any other item of deduction): (i) principal and interest payments
on indebtedness, if any, for which the Partnership is obligated; (ii) all cash
expenditures incurred incident to the commencement, operation, administration
and unwinding of the Partnership's business and investments, including those
expenses of the General Partner reimbursed by the Partnership; and (iii) such
additions to cash reserves as the General Partner shall determine are necessary.
"NOTIFICATION" means a writing, containing the information required by this
Agreement to be communicated to any Person, sent by registered, certified or
regular mail, postage prepaid, to such Person at the last known address of such
Person. The date of registry thereof or the date of the certified receipt
therefor in the case of registered or certified mail shall be deemed the date of
receipt of Notification; provided, however, that any communication containing
such information sent to such Person and actually received by such Person shall
constitute Notification for all purposes of this Agreement.
"OFFERING TERMINATION DATE" means the date of termination of the offering of
Units contemplated by Section 7.2, which shall be not later than 15 months after
the date the Registration Statement is declared effective by the Securities and
Exchange Commission (or with respect to any particular state, an earlier date if
necessary to comply with the "Blue Sky" laws of any such state).
"ORGANIZATION AND OFFERING EXPENSES" means those expenses incurred in
connection with the formation and qualification of the Partnership, the
registration of the Units under applicable Federal and state law and in
marketing, distributing and issuing the Units, and any other expenses actually
incurred and directly related to the offering and sale of the Units including
such expenses as (a) registration fees, filing fees and taxes, (b) the costs of
qualifying, printing, amending, supplementing, mailing and distributing the
Registration Statement and the Prospectus, including telephone and telegraphic
costs, (c) the costs of qualifying, printing, amending, supplementing, mailing
and distributing sales materials used in connection with the issuance and
marketing of the Units, including telephone and telegraphic costs, (d) salaries
and direct expenses of officers and employees of the General Partner and its
Affiliates while directly engaged in organizing the Partnership and in
registering, marketing, distributing, processing and establishing records of the
Units and establishing records and paying underwriters' commissions, (e)
accounting and legal fees incurred in connection therewith, (f) all advertising
expenses incurred in connection therewith, including the costs related to
investor and broker/dealer sales meetings and (g) interest expense incurred on
Partnership indebtedness the proceeds of which have been used or are to be used
to pay brokerage fees.
4
<PAGE>
"ORIGINAL INVESTMENT" means as to Unit Holders, $10 per Unit, as to Limited
Partners, $10 per Interest, and as to the General Partner, its total cash
contributions to the Partnership.
"PARTNER" means the General Partner or any Limited Partner.
"PARTNERSHIP" means the limited partnership created under this Agreement.
"PERSON" means any individual, partnership, corporation, trust or other
entity.
"PREFERRED RETURN" means the cumulative preferred return to Unit Holders and
Limited Partners equal to 12% per annum, compounded annually, on their aggregate
Capital Investments payable from Sale or Refinancing Proceeds. Such Preferred
Return shall be calculated from the Closing Dates as of which such Capital
Investments are made, but all distributions of Net Cash Flow (to the extent not
in excess of Cash Flow From Operations) shall count towards the Preferred
Return.
"PROSPECTUS" means the prospectus filed with the Securities and Exchange
Commission as part of the Registration Statement on Form S-11 relating to the
offering of Units.
"REGISTRATION STATEMENT" means the Partnership's Registration Statement on
Form S-11 filed with the Securities and Exchange Commission as amended from time
to time.
"RESERVES" means, with respect to any fiscal period, payments made or
amounts allocated during such period to reserves which shall be maintained in
amounts deemed sufficient by the General Partner for working capital and to pay
taxes, insurance, Debt Service, repairs, replacements or renewals, or other
costs and expenses, incident to the ownership or operation of the Hotel.
"SALE OR REFINANCING PROCEEDS" means the net cash proceeds received by the
Partnership as proceeds of the return of capital for any Partnership property or
as proceeds of any Partnership property received contemporaneously with, or
subsequent to, the refinancing, sale or other disposition of all or a portion of
such Partnership property (including, without limitation, all proceeds of sale
of the Hotel and all interest and other income earned on such proceeds prior to
their distribution) after retirement of any indebtedness applicable thereto and
after deducting any other expenses incurred in connection therewith.
"UNIT" means a beneficial unit of the economic and certain other rights in
the Interest assigned by the Assignor Limited Partner in the amount of $10 per
Unit as contemplated by Article XII.
"UNIT HOLDER" means each Person holding Units according to the books and
records of the Partnership. For purposes of Article IX relating to the Preferred
Return, cash distributions and allocations of income, gain, loss and deduction,
and as specifically provided for elsewhere in this Agreement, the term "Unit
Holder" shall include a "Limited Partner."
ARTICLE II
FORMATION; NAME AND OFFICES
2.1 FORMATION OF THE PARTNERSHIP. The parties hereto hereby form a limited
partnership pursuant to the provisions of the Revised Uniform Limited
Partnership Act of the State of Delaware.
2.2 NAME AND OFFICES OF PARTNERSHIP. The Partnership shall be conducted
under the name and style of Shearson Union Square Associates Limited
Partnership. The address of the place of business and principal office of the
Partnership, unless changed by the General Partner, shall be c/o Realty
Investment Group, Shearson Lehman Brothers Inc., American Express Tower--12th
Floor, World Financial Center, New York, New York 10285- 1230. Notification of
any such change in the Partnership's place of business and principal office
shall be given to all Unit Holders. The address of the Partnership's registered
office in the State of Delaware and the name and address of the Partnership's
registered agent for service of process in the State of Delaware is the
Corporation Trust Company, Corporation Trust Center, 1209 Orange Street,
Wilmington, Delaware 19801.
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ARTICLE III
TERM
3.1 TERM OF THE PARTNERSHIP. The Partnership shall commence on the date of
first filing, with the appropriate authority of the State of Delaware, of a
Certificate of Limited Partnership pursuant to the Revised Uniform Limited
Partnership Act of the State of Delaware and shall continue in full force and
effect until December 31, 2036 or until dissolution prior thereto pursuant to
the provisions hereof.
ARTICLE IV
PURPOSES OF THE PARTNERSHIP
4.1 PURPOSES OF THE PARTNERSHIP. The sole purpose and business of the
Partnership is to invest in, acquire, own, hold, maintain, mortgage, improve,
develop, sell, lease, enter into contracts for the management and operation of,
and otherwise deal with the Hotel for profit (and in connection therewith the
Partnership shall have the power to dispose of, in any manner, the Hotel or
interests therein) and to engage in any other activities related or incidental
to the foregoing. The Partnership shall not engage in any other business or
activity.
ARTICLE V
PRINCIPAL PLACE OF BUSINESS
5.1 PRINCIPAL PLACE OF BUSINESS. The principal place of business of the
Partnership shall be c/o Realty Investment Group, Shearson Lehman Brothers Inc.,
American Express Tower--12th Floor, World Financial Center, New York, New York
10285-1230, Attention: A. George Kallop. The General Partner may from time to
time change the principal place of business, and in the event of any such
change, the Unit Holders shall be notified in writing within 30 days prior to or
after any such change. In addition, in its discretion, the General Partner may
establish additional places of business for the Partnership.
ARTICLE VI
NAMES AND ADDRESSES OF PARTNERS
6.1 NAME AND ADDRESS OF GENERAL PARTNER. The General Partner of the
Partnership shall be Shearson Union Square/GP Corp., a Delaware corporation (the
"General Partner"), having its principal offices at
c/o Realty Investment Group, Shearson Lehman Brothers Inc., American Express
Tower--12th Floor, World Financial Center, New York, New York 10285-1230,
Attention: A. George Kallop.
6.2 NAME AND ADDRESS OF ASSIGNOR LIMITED PARTNER. The Assignor Limited
Partner of the Partnership shall be Shearson Union Square Depositary Corp., a
Delaware corporation having an address of Realty Investment Group, Shearson
Lehman Brothers Inc., American Express Tower--12th Floor, World Financial
Center, New York, New York 10285-1230, Attention: A. George Kallop.
ARTICLE VII
CAPITAL CONTRIBUTIONS
7.1 INITIAL CONTRIBUTION. The General Partner shall initially contribute
the sum of $1,000 to the Partnership. As of the date hereof, Shearson Union
Square Depositary Corp. has been admitted as Assignor Limited Partner to perform
the functions set forth below in Article XII. Except as set forth in Section
7.2, the Assignor Limited Partner shall not be required to make any additional
capital contributions to the Partnership.
7.2 PUBLIC OFFERING OF UNITS. The General Partner is authorized to accept
capital contributions from the Assignor Limited Partner in connection with the
sale of Units. Pursuant thereto, the General Partner
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shall cause the commencement of a public offering and sale of not fewer than
2,000,000 Units nor more than 7,174,100 Units representing a corresponding
number of Interests. The proceeds of such sale will be contributed to the
Partnership by the Assignor Limited Partner on behalf of the purchasers of such
Units as provided in Section 7.4. If the Initial Closing Date occurs, the
General Partner or its Affiliates will purchase any Units remaining unsold at
the Offering Termination Date.
7.3 SUBSCRIPTIONS. The General Partner is authorized to accept
subscriptions for Units and to provide for the purchase of such Units on each
Closing Date provided, however, that such subscriptions shall comply with the
suitability standards and minimum investment requirements set forth in the
Prospectus Employee benefit plans, Keogh Plans, or Individual Retirement
Accounts will not be allowed to purchase Units on or after the later of December
31, 1986, or the date 120 days after publication by the Department of Labor of
final regulations defining "plan assets" for purposes of ERISA.
7.4 ESCROW ACCOUNT. All subscription proceeds for Units shall be received
by the Partnership in trust and deposited in an escrow account with the Escrow
Agent. Subscriptions for Units shall be accepted or rejected by the General
Partner within 30 days after their receipt by the Partnership. On the Initial
Closing Date and thereafter upon each subsequent Closing Date, the Escrow Agent
shall release the subscription proceeds of each subscriber whose subscription is
accepted by the General Partner as of such date to the Partnership on behalf of
the Assignor Limited Partner, which shall be deemed to have contributed such
proceeds to the Partnership in accordance with Article XII. Subscribers shall
become Unit Holders of record as of each Closing Date.
7.5 DISTRIBUTIONS FROM ESCROW ACCOUNT. Until each Closing Date, each
subscriber's subscription proceeds shall be placed in escrow with the Escrow
Agent. Subscription payments deposited into escrow may not be withdrawn by
subscribers. The Escrow Agent shall invest the escrowed funds in bank time
deposits, certificates of deposit, money market accounts, government securities
and other instruments as the General Partner shall deem prudent. Within 75 days
after the end of the fiscal quarter following each Closing Date, the General
Partner shall cause distributions to be made to each Unit Holder of interest on
its subscription proceeds in an amount equal to the greater of (i) the PRO RATA
share of all interest actually earned on such subscription proceeds less escrow
fees and expenses or (ii) the PRO RATA share of all interest that would have
been earned on such subscription funds had such funds earned interest at a rate
equal to 2% per annum in excess of the yield during the same period of the
Shearson Daily Dividend Interest Fund. The amount distributable to each Unit
Holder shall be determined by applying the weighted average per diem rate of
interest of either (i) or (ii) above to each Unit Holder's funds for the period
of time beginning when such Unit Holder's funds were received by the Escrow
Agent and ending on the release of such Unit Holder's funds to the Partnership.
The weighted average per diem rate of interest shall be calculated based on the
period of time beginning with the date on which any funds are first deposited
into the escrow account and ending on the release of funds from the escrow
account. If the earnings on such proceeds are not sufficient to pay the greater
of the two amounts, then the excess of the greater amount over the lesser amount
shall be paid to such subscribers from the General Partner's own funds and not
from the funds of the Partnership.
7.6 ASSIGNMENT OF INTERESTS TO UNIT HOLDERS. Immediately upon the release
by the Escrow Agent of subscription proceeds from subscribers of Units and the
contribution of such proceeds to the Partnership, the records of the Partnership
shall reflect the number of Interests held in the name of the Assignor Limited
Partner and the amount of capital contributions in the amount of such
subscription proceeds representing the sale of Units. The Assignor Limited
Partner's rights and interest in such Interests shall be deemed to have been
transferred and assigned to the Unit Holders in accordance with Article XII.
7.7 PURCHASE OF UNITS BY GENERAL PARTNER OR AFFILIATES. The General
Partner and its Affiliates are not prohibited from purchasing Units. All or a
portion of selling commissions may be rebated to the General Partner, its
officers, directors and employees and certain Affiliates who purchase Units. Any
Units
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purchased by the General Partner or an Affiliate will count toward reaching the
required minimum of 2,000,000 Units.
ARTICLE VIII
COMPENSATION OF GENERAL PARTNER AND AFFILIATES
8.1 ACQUISITION FEES. The General Partner or its Affiliates may receive
Acquisition Fees in the aggregate amount of $4,880,000. Such Acquisition Fees
represent payment for the following:
(a) For its services rendered and to be rendered in the acquisition of
the Hotel by the Partnership, Stockton Union Square Investors, Inc., an
Affiliate of the General Partner shall receive an amount equal to
$2,396,875.
(b) For its services rendered in placing the First Mortgage Loan and the
Front-End Expenses Payment Loan, the General Partner shall receive an amount
equal to $2,083,125.
(c) For its services rendered in supervising the refurbishing of the
Hotel during the years 1986-1989, the General Partner shall receive an
amount equal to $400,000.
8.2 COMMISSIONS. An Affiliate of the General Partner may receive, as
compensation for the sale of Units, a commission as the dealer manager of the
offering of up to 7 1/2% of the gross proceeds derived from all sales of Units
made directly by such Affiliate or by others and may be reimbursed by the
Partnership for actual out-of-pocket expenses. Affiliates of the General Partner
may receive, as compensation for the sale of Units, a commission as a
participating broker-dealer in the offering of up to 7 1/2% of the gross
proceeds derived from all sales made by such Affiliate.
8.3 LOAN FEES. The General Partner or an Affiliate of the General Partner
may receive interest or other financing charges or fees on any loan made to the
Partnership, if the interest or other financing charges or fees on any such loan
is not in excess of the amount which would be charged by unaffiliated lending
institutions on comparable loans for the same purpose in the same locality. Any
financing charges or fees on any loan to the Partnership by the General Partner
or an Affiliate of the General Partner will be only those incurred by the
General Partner or such Affiliate in connection with the making of such loan. No
prepayment charge or penalty shall be permitted on any loan made to the
Partnership by the General Partner or an Affiliate of the General Partner. Prior
to the funding, refinancing, restructuring or renegotiation of any loan to the
Partnership by the General Partner or an Affiliate of the General Partner other
than the First Mortgage Loan, the Front-End Expenses Payment Loan and the Bridge
Financing as described in the Prospectus, the Partnership shall be required to
obtain a letter of opinion from an independent and qualified advisor who
satisfies the requirements for such advisor contained in the NASAA Guidelines
stating that the proposed loan is fair to the Partnership and at least as
favorable to the Partnership as that that would be made to an unaffiliated
borrower under similar circumstances. All mortgage financing obtained by the
Partnership or retained upon acquired properties (other than mortgage financing
described in the Prospectus) shall provide for (a) equal periodic payments on a
schedule that would be sufficient to fully amortize the loan over not more than
a 30-year period; or (b) payments of interest only, or payments of only a
portion of the interest and/or principal and accrual of the unpaid portion, in
each case for a term of not more than 10 years, provided, that at the end of
such ten year period, the payments for the remainder of the term of the
financing are equal periodic payments that would be sufficient to fully amortize
the then outstanding loan balance (including all accrued interest) over not more
than a 20-year period and, further provided, that all accrued interest must be
included in calculating the 25% exception referred to below. All such financing
(including existing financing on properties, other than the Hotel, acquired by
the Partnership) shall provide that no balloon payment may become due sooner
than the earlier of (i) ten years from the date the Partnership acquires the
property, or (ii) two years beyond the anticipated holding period of the
property, but not less than seven years from the date the Partnership acquires
the property. Subject to the foregoing limitations, in the case of a financing
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or refinancing of Partnership property, other than the Hotel, after the date of
acquisition, in no event may the balloon payment be due earlier than two years
beyond the anticipated holding period of the property (which shall be determined
from the date of the financing or refinancing). None of the foregoing
restrictions will apply to financing in an aggregate amount of up to 25% of the
aggregate of the total purchase price of all partnership properties, or 25% of
the fair market value of the properties if the properties are financed
subsequent to acquisition, or to interim financing, including construction
financing, with a full take-out commitment, or in the event that the Partnership
establishes a reserve equal to the amount of the balloon payment and holds the
reserve for purposes of making such balloon payment. The foregoing restrictions
may be waived or lessened by the General Partner without the consent of the
Limited Partners, but only with the prior written consent of the Commissioner of
Corporations of the State of California or pursuant to a change in the published
Rules of the Commissioner. Notwithstanding the foregoing, and other than with
respect to the First Mortgage Loan, the Front-End Expenses Payment Loan and the
Bridge Financing as described in the Prospectus, the General Partner and its
Affiliates shall be prohibited from providing Financing for the Partnership
except as permitted by Section V.I. of the NASAA Guidelines. "Financing" for
purposes of the preceding sentence shall mean indebtedness encumbering
Partnership properties, the principal amount of which is scheduled to be paid
over a period of not less than 48 months and not more than 50 percent of the
principal amount of which is scheduled to be paid during the first 24 months;
provided, however, that nothing in the foregoing definition of "Financing" shall
be construed as prohibiting a bona-fide pre-payment provision in the financing
agreement.
8.4 SUBORDINATED DISPOSITION FEE. The General Partner or an Affiliate of
the General Partner may receive a subordinated disposition fee (the
"Subordinated Disposition Fee") for providing substantial services in connection
with the sale, exchange or other disposition of the Hotel. The Subordinated
Disposition Fee shall not exceed an amount equal to the lesser of (i) one-half
of the competitive real estate commission in the locality of the Hotel
applicable at the date of the sale, exchange or other disposition, or (ii) 3% of
the gross proceeds of the sale, exchange or other disposition of the Hotel
(including (a) the fair market value of any property other than cash for which
the Hotel is sold, exchanged or otherwise disposed and (b) the aggregate amount
of indebtedness secured by any liens on the Hotel not satisfied at the time of
such sale, exchange or other disposition). The aggregate of all real estate
commissions and the Subordinated Disposition Fee payable to all parties in
connection with the sale, exchange or other disposition of the Hotel shall not
exceed the amount of one real estate commission that is reasonable, customary
and competitive in light of the size, type and location of the Hotel and the
complexity of the transaction in which the Hotel is sold, exchanged or otherwise
disposed of and, in any event, shall not exceed 6% of the gross proceeds of the
sale, exchange or other disposition of the Hotel (including (a) the fair market
value of any property other than cash for which the Hotel is sold, exchanged or
otherwise disposed and (b) the aggregate amount of indebtedness secured by any
liens on the Hotel not satisfied at the time of such sale, exchange or other
disposition). The Subordinated Disposition Fee shall be paid only to the extent
available after making provision for the payment to the Unit Holders of Sale or
Refinancing Proceeds at least equal to the amount of their Capital Investment
plus their Preferred Return.
ARTICLE IX
INCOME, LOSSES AND CASH DISTRIBUTIONS
9.1 DISTRIBUTIONS OF NET CASH FLOW.
(a) Subject to the provisions of Section 9.1(b) Net Cash Flow for any
calendar month of any fiscal year shall be distributed 99% to the Unit Holders,
in proportion to the number of Units held by each Unit Holder, and 1% to the
General Partner until the Unit Holders, as a group, have received an aggregate
cumulative, compounded distribution of Net Cash Flow for each fiscal year equal
to 12% of their Capital Investments, and thereafter 90% to the Unit Holders, in
proportion to the number of Units held by each Unit Holder, and 10% to the
General Partner. Distributions of Net Cash Flow, to the extent available and
permitted to be distributed under the terms of any loan secured by a lien on the
Hotel, shall be made
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quarterly, commencing at the end of the first full fiscal quarter of 1987. The
amount of Net Cash Flow to be distributed, if any, shall be calculated as of the
last day of each calendar month with respect to the Unit Holders of record as of
the last day of each such month, by allocating Net Cash Flow for the calendar
quarter to each day in such calendar quarter on a pro-rata basis, and each
quarterly distribution of Net Cash Flow shall be in an amount equal to the sum
of the amounts so determined for each calendar month within such quarter. At the
end of each fiscal year, the aggregate amount of Net Cash Flow distributable
pursuant to this Section 9.1(a), not including amounts distributed pursuant to
Section 9.1(b), shall be redetermined on an annual basis for such fiscal year.
If, based on such redetermination, it is determined that the General Partner
received quarterly distributions for such prior fiscal year in excess of the
distribution of Net Cash Flow the General Partner would have been received if
such prior distributions had been based on the aggregate Net Cash Flow for the
entire prior fiscal year, the General Partner shall pay such excess to the
Partnership, and the amount of such excess shall be added to Reserves.
(b) To the extent that Net Cash Flow for any calendar year exceeds Cash Flow
From Operations for such calendar year, such excess shall be distributed, as a
return of capital, 99% to the Unit Holders, in proportion to the number of Units
held by each Unit Holder, and 1% to the General Partner, and each such
distribution shall reduce the Capital Investment of the General Partner, the
Assignor Limited Partner and each Unit Holder in the respective amounts of such
excess distributed to them, PROVIDED that in no event shall the aggregate of all
distributions made by virtue of this Section 9.1(b) to the General Partner or
any Unit Holder exceed the General Partner's or such Unit Holder's unreturned
Original Investment.
9.2 DISTRIBUTIONS OF SALE OR REFINANCING PROCEEDS. Sale or Refinancing
Proceeds shall be distributed as follows:
(a) First, all Sale or Refinancing Proceeds shall be distributed 99% to the
Unit Holders, in proportion to the number of Units held by each Unit Holder,
subject to Section 9.2(d), and 1% to the General Partner until the Unit Holders
have received cumulative distributions of (i) Sale or Refinancing Proceeds in an
amount equal to their Capital Investment plus (ii) an aggregate amount of Net
Cash Flow and Sale or Refinancing Proceeds equal to their aggregate Preferred
Return. Distributions of Sale or Refinancing Proceeds shall first be applied to
the payment of any unpaid Preferred Return and then to the return of Original
Investment.
(b) Next, any remaining Sale or Refinancing Proceeds shall be applied to the
payment of the Subordinated Disposition Fee, if any.
(c) Next, any remaining Sale or Refinancing Proceeds shall be distributed
90% to the Unit Holders, in proportion to the number of Units held by each Unit
Holder, subject to Section 9.2(d), and 10% to the General Partner.
(d) Notwithstanding any provision to the contrary in this Agreement, if the
Capital Accounts with respect to each Unit of all Unit Holders are not equal at
the time of any distribution to the Unit Holders of Sale or Refinancing
Proceeds, any such distribution of Sale or Refinancing Proceeds distributable to
the Unit Holders shall be made as follows:
(i) first, such amounts shall be distributed with respect to any Unit
with a Capital Account immediately prior to such distribution showing a
balance which is greater in amount (or lesser in deficit) than the Capital
Account for any other Unit until the balance in such Capital Account after
such distribution equals the balance in the Capital Account which was next
lesser in amount (or greater in deficit) before such distribution;
(ii) next, such amounts shall continue to be distributed with respect to
each successive Unit showing a Capital Account balance which is the then
greatest in amount (or least in deficit) as in clause (i) above until either
(x) the balances of the Capital Accounts with respect to the Units of all
Unit Holders are equal or (y) all such amounts have been distributed; and
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(iii) thereafter, such amounts shall be distributed as provided in
Section 9.2(a), (b) or (c) above, as applicable.
Distributions of Sale or Refinancing Proceeds shall be made only after all
capital account adjustments for the partnership taxable year during which a
liquidation occurs, including, but not limited to, distributions of Net Cash
Flow and allocations of income, gain, loss and deduction (but before
distributions made pursuant to the preceding sentence) have been made.
Distributions of Sale or Refinancing Proceeds shall be made after the close
of each calendar quarter in which Sale or Refinancing Proceeds have been
received by the Partnership. The amount of the Sale or Refinancing Proceeds to
be distributed, if any, shall be calculated as of the last day of each calendar
month in which Sale or Refinancing Proceeds have been received by the
Partnership with respect to the Unit Holders of record as of the last day of
each such calendar month and each quarterly distribution, if any, of Sale or
Refinancing Proceeds shall be in an amount equal to the sum of the amounts so
determined for each calendar month within such quarter.
9.3 ALLOCATIONS OF PROFITS OR LOSSES.
(a) The profits or losses for tax purposes of the Partnership for any
taxable year, other than any profits or losses attributable to the sale or other
disposition of all or any substantial part of the Hotel, shall be allocated
between the Unit Holders as a class and the General Partner in the same
proportion that Net Cash Flow (other than the excess of Net Cash Flow over Cash
Flow From Operations, to the extent distributed pursuant to Section 9.1(b)) for
such taxable year is allocated between the Unit Holders as a class and the
General Partner, or, if there are no distributions of Net Cash Flow for the
taxable year, 99% of such profits or losses shall be allocated to the Unit
Holders and 1% of such profits and losses shall be allocated to the General
Partner, with all profits or losses allocated to the Unit Holders allocated
among such Unit Holders in proportion to the number of Units held by each Unit
Holder, subject to the provisions in Section 9.3(e) below; provided, however,
that the books of the Partnership shall be closed immediately prior to the
Initial Closing Date and any such profits or losses incurred prior to the
Initial Closing Date shall be allocated 99.99% to the General Partner and .01%
to the Assignor Limited Partner. Subject to Section 9.3(e), for purposes of
allocating that portion of profits and losses allocable to the Unit Holders as a
class among the Unit Holders, commencing with the beginning of the calendar
month during which the Initial Closing occurs, the Partnership will determine
profits or losses for purposes of this Section 9.3(a) by closing the
Partnership's books as of the end of each calendar quarter, and by allocating
the portion of such net profit or loss for each calendar quarter that is
allocable to the Unit Holders to each day in such calendar quarter on a pro-rata
basis.
(b) The profits of the Partnership from any sale or other disposition of all
or any substantial part of the Hotel, after deducting any expenses relating to
such sale or other disposition, shall be allocated as follows: first, there
shall be allocated to the General Partner an amount equal to the greater of (i)
1% of such profits or (ii) the amount distributable (in excess of the General
Partner's net positive Capital Account balance) to the General Partner as Sale
or Refinancing Proceeds from such sale or other disposition in accordance with
Section 9.2; and second, all remaining profits shall be allocated among the Unit
Holders in accordance with Section 9.3(f). Notwithstanding the allocation in the
first sentence of this Section 9.3(b), if, after such allocation, the deficit
balance, if any, in the Capital Account of the General Partner would be greater
in absolute amount than the Potential Unrealized Gain (as hereinafter defined)
of the Partnership on the date of such allocation, then the allocation of
profits to the Unit Holders under this Section 9.3(b) shall be reduced and the
allocation of profits to the General Partner under this Section 9.3(b) shall be
increased to the extent necessary to cause the deficit balance in the Capital
Account of the General Partner after such allocation to be equal in absolute
amount to such Potential Unrealized Gain. Notwithstanding the allocation in the
first sentence of this Section 9.3(b), if, at any time that profits are realized
by the Partnership on the sale or other disposition of all or any substantial
part of the Hotel, any current or anticipated reduction of the Partnership's
indebtedness or any future distribution of cash to
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the General Partner, as calculated by the General Partner, would cause the
deficit balance in the Capital Account of the General Partner to be greater in
absolute amount than its share of the Partnership's indebtedness after such
reduction or distribution, then an allocation to the General Partner equal in
absolute amount to profits under this Section 9.3(b) shall be made to the extent
necessary to cause the deficit balance in the General Partner's Capital Account
to be equal in absolute amount to the General Partner's share of the
Partnership's indebtedness after such reduction or distribution. "Potential
Unrealized Gain" shall equal the amount of profits which would be realized by
the Partnership for Federal income tax purposes if all assets of the Partnership
were sold for their fair market value as determined by the General Partner (and
all installment receivables of the Partnership were collected) on the date of
such allocation. Notwithstanding anything to the contrary in this Agreement, if
the General Partner has a deficit balance in its Capital Account following the
Liquidation of its interest in the Partnership, as determined after taking into
account all Capital Account adjustments for the Partnership taxable year during
which such Liquidation occurs (other than those made pursuant to this sentence)
and after adjusting Capital Accounts for actual or anticipated profits or losses
allocable among the Partners in accordance with, or as if there had been, an
actual disposition of the Hotel at its fair market value, the General Partner
will make a Capital Contribution (the "Deficit Contribution") which, when added
to amounts (if any) to be contributed by such General Partner under Section 9.6
at or before the time such General Partner is required to make the Deficit
Contribution, is equal to such deficit balance. The amount of the Deficit
Contribution shall, upon Liquidation of the Partnership, be distributed to the
Unit Holders in accordance with their positive Capital Account balances. The
Deficit Contribution shall be made on or before the end of the Partnership
taxable year during which such Liquidation occurs (or, if later, within 90 days
after the date of such Liquidation).
(c) The losses of the Partnership from any sale or other disposition of all
or any substantial part of the Hotel shall be allocated as follows: 99% of such
losses shall be allocated among the Unit Holders in accordance with Section
9.3(g), and 1% of such losses shall be allocated to the General Partner.
(d) "Profits" or "losses" as used herein include, without limitation, each
item of Partnership income, gain, loss and deduction. Any investment tax credit
of the Partnership for a fiscal year shall be allocated as profits of the
Partnership (other than any profits attributable to the sale or other
disposition of all or any substantial part of the Hotel) in accordance with
paragraph (a) of this Section 9.3 and shall be allocated only among those
Partners who were partners (for Federal income tax purposes) on the date the
property with respect to which such credit is earned was placed in service by
the Partnership. Any other credit of the Partnership for a fiscal year shall be
allocated in the same proportions as the item of income, gain, loss, deduction
or other Capital Account adjustment attributable to the receipt or expenditure
which gave rise to the credit. Any depreciation recapture resulting from any
sale or other disposition of the Hotel shall be allocated in the same manner as
were the deductions giving rise to such depreciation recapture. No Partner shall
relinquish such Partner's share of "Unrealized Receivables" (as such term is
defined in Section 751(c) of the Internal Revenue Code of 1954, as amended, (or
any similar provision enacted in lieu thereof)) attributable to depreciation
recapture in the case of a distribution or constructive distribution for tax
purposes of property arising in connection with a change in a Partner's profit
or loss sharing ratio, including as a result of the admission to the Partnership
of another Person as a partner.
(e) The losses from operations of the Partnership allocable to the Unit
Holders for the period from the first day of the calendar month in which the
Initial Closing Date occurs through December 31, 1986 shall be allocated among
such Unit Holders on the basis of interim closings of the Partnership's books as
of the close of business on the day preceding the first day of the calendar
month in which the Initial Closing Date occurs, as of the close of business on
the day preceding the first day of the calendar month in which each subsequent
Closing Date occurs in 1986 (if any) and on December 31, 1986. Such losses for
each period between such dates (herein called a "Period") shall be allocated
among those Unit Holders whose beneficial interests in the Interests were
assigned to them by the Assignor Limited Partner at or before the
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date at the beginning of such Period (herein such Unit Holders are called the
"Eligible Unit Holders"), as follows:
(i) If the Capital Accounts with respect to each Unit of all Eligible
Unit Holders are equal at the end of the Period, then such losses shall be
allocated among the Eligible Unit Holders in proportion to the number of
Units held by each Unit Holder.
(ii) If the Capital Accounts with respect to each Unit of all Eligible
Unit Holders are not equal at the end of the Period, then such losses for
such Period shall be allocated first, to each Eligible Unit Holder having a
Unit with a Capital Account immediately prior to such allocation showing a
balance which is greater in amount (or lesser in deficit) than the Capital
Account for any other Unit of an Eligible Unit Holder, until the balance in
such Capital Account after such allocation equals the balance in the Capital
Account of the Unit of an Eligible Unit Holder which was next greater in
amount (or next lesser in deficit) before such allocation; thereafter, such
losses shall continue to be allocated to each successive group of Eligible
Unit Holders having a Unit with a Capital Account showing a balance which
then is the greatest in amount (or least in deficit), as above, until either
(x) the balances of the Capital Accounts with respect to the Units of all
Eligible Unit Holders are equal or (y) all such losses have been allocated.
Further, in the event that (a) the Capital Account balances with respect to
the Units of all Eligible Unit Holders are not equal after all profits or losses
for 1986 have been allocated and all cash distributions for such year have been
made, or (b) there occurs a Closing Date after 1986, losses from operations for
any year after 1986 shall first be allocated in accordance with clause (ii) of
this Section 9.3(e) (with each calendar month in such year being treated as a
Period) until such Capital Account balances are equal. After such balances are
equal, all such losses allocable to the Eligible Unit Holders shall be allocated
in accordance with Section 9.3(a).
(f) The profits of the Partnership from any sale or other disposition of all
or any substantial part of the Hotel which are allocable to the Unit Holders
shall be allocated among the Unit Holders of record as of the last day of the
calendar month in which such profits are reportable for Federal income tax
purposes as follows:
(i) If the Capital Accounts with respect to each Unit are equal at the
time such profits are allocated to the Unit Holders, then such profits shall
be allocated among the Unit Holders in proportion to the number of Units
held by each Unit Holder.
(ii) If the Capital Accounts with respect to each Unit are not equal at
the time such profits are allocated to the Unit Holders, then such profits
shall be allocated first, to each Unit Holder having a Unit with a Capital
Account immediately prior to such allocation showing a balance which is
smaller in amount (or a deficit which is greater in amount) than the Capital
Account for any other Unit, until the balance in such Capital Account after
such allocation equals the balance in the Capital Account of the Unit which
was next smaller in amount (or next greater in deficit) before such
allocation; thereafter, such profits shall continue to be allocated to each
successive group of Unit Holders having a Unit with a Capital Account
showing a balance which then is the smallest in amount (or greatest in
deficit), as above, until either (x) the balances of the Capital Accounts
with respect to all Units are equal or (y) all such profits have been
allocated. After such balances are equal, such profits shall be allocated in
accordance with clause (i) above.
(g) The losses of the Partnership from any sale or other disposition of all
or any substantial part of the Hotel which are allocable to the Unit Holders
shall be allocated among the Unit Holders of record as
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of the last day of the calendar month in which such losses are reportable for
Federal income tax purposes as follows:
(i) If the Capital Accounts with respect to each Unit are equal at the
time such losses are allocated to the Unit Holders, then such losses shall
be allocated among the Unit Holders in proportion to the number of Units
held by each Unit Holder.
(ii) If the Capital Accounts with respect to each Unit are not equal at
the time such losses are allocated to the Unit Holders, then such losses
shall be allocated first, to each Unit Holder having a Unit with a Capital
Account immediately prior to such allocation showing a balance which is
greater in amount (or lesser in deficit) than the Capital Account for any
other Unit until the balance in such Capital Account after such allocation
equals the balance in the Capital Account of the Unit which was next greater
in amount (or next lesser in deficit) before such allocation; thereafter,
such losses shall continue to be allocated to each successive group of Unit
Holders having a Unit with a Capital Account showing a balance which then is
the greatest in amount (or least in deficit), as above, until either (x) the
balances of the Capital Accounts with respect to all Units are equal or (y)
all such losses have been allocated. After such balances are equal, such
losses shall be allocated in accordance with clause (i) above.
9.4 STATUS OF LIMITED PARTNERS. Limited Partners shall be deemed to be
Unit Holders for purposes of this Article IX.
9.5 DATE OF ASSIGNMENT OR TRANSFER. For purposes of Section 9.1, Section
9.2 and Section 9.3, Unit Holders will be deemed to have been assigned or
transferred their beneficial interests in the Interests on the first day of the
calendar month in which their beneficial interests in the Interests have been
assigned or transferred to them. If the General Partner determines that the Code
does not allow the full-month convention described in this Section 9.5 for
purposes of allocating taxable items attributable to a Unit, the Partnership
shall allocate taxable items attributable to a Unit that is assigned or
transferred during a year between the Assignor Limited Partner or transferor and
assignee or transferee of such Unit in accordance with the method that the
General Partner determines is required by the Code and if the General Partner
determines that more than one method is permitted, then by the method that the
General Partner determines is preferable, taking into account both the desire to
match income and distributions and the ease of administration.
9.6 CAPITAL ACCOUNTS. The General Partner shall establish and maintain the
Capital Accounts in accordance with and as required by Section 704 of the Code
and the Treasury Regulations promulgated thereunder, as the same may be amended
from time to time. A separate subsidiary Capital Account with respect to the
Assignor Limited Partner's Capital Account shall be maintained and adjusted for
each Unit Holder in accordance with the principles contained in this section.
Upon the liquidation of the Partnership, the General Partner will contribute to
the Partnership an amount equal to the lesser of (i) any deficit balance in its
Capital Account or (ii) the excess of 1.01% of the total Capital Contributions
of the Limited Partners (including contributions by the Assignor Limited
Partner) over the amount of capital previously contributed by the General
Partner.
9.7 CONDITIONS PRECEDENT TO RETURN OF CAPITAL CONTRIBUTIONS. Except as
otherwise expressly provided in this Agreement, a Limited Partner shall not be
entitled to the return of any part of its Capital Contribution authorized under
this Agreement, nor may the Assignor Limited Partner be entitled to same on
behalf of a Unit Holder until:
(a) The certificate of limited partnership of the Partnership has been
cancelled or amended to set forth the withdrawal or reduction of such
Limited Partner's Capital Contribution;
(b) All liabilities of the Partnership, except liabilities to the
General Partner and to Limited Partners on account of their contributions,
have been paid or there remains property of the Partnership sufficient to
pay them; and
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(c) The consent of all the Partners has been obtained in person or
through their lawful attorney-in-fact.
9.8 INTEREST OF GENERAL PARTNER. Notwithstanding anything to the contrary
that may be expressed or implied herein, the interests of the General Partner in
each item of Partnership income, gain, loss, deduction or credit will be equal
to at least 1% of each of those items at all times during the existence of the
Partnership. In determining the interest of the General Partner in those items,
Interests or Units owned by the General Partner shall not be taken into account.
9.9 ALLOCATIONS AND ADJUSTMENTS TO CAPITAL ACCOUNTS. It is intended that
the allocations in this Article IX effect an allocation for federal income tax
purposes in a manner consistent with Sections 704 and 706 of the Code and comply
with any limitations or restrictions therein. The General Partner shall have
complete discretion to make the allocations pursuant to this Article IX and the
allocations and adjustments to capital accounts in any manner consistent with
Sections 704 and 706 of the Code. The General Partner may amend the provisions
of this Agreement pursuant to Article XX and Article XXI as appropriate as a
result of the promulgation of final Treasury Regulations under Sections 704 and
706 of the Code, if in the opinion of counsel such an amendment is advisable to
reflect allocations among the Unit Holders and the General Partner consistent
with those regulations.
9.10 CONSENT TO METHODS OF DISTRIBUTION AND ALLOCATION. The methods
hereinabove set forth by which distributions and allocations are made and
apportioned are hereby expressly consented to by each Partner (including the
Assignor Limited Partner on behalf of Unit Holders) as an express condition to
becoming a Partner.
ARTICLE X
POWERS, RIGHTS AND DUTIES OF THE GENERAL PARTNER
10.1 GENERAL PARTNER'S EXCLUSIVE AUTHORITY TO MANAGE PARTNERSHIP
AFFAIRS. The General Partner shall have exclusive authority to manage the
operations and affairs of the Partnership and to make all decisions regarding
the business of the Partnership and the Limited Partners and Unit Holders shall
have no right to participate in the making of such Partnership decisions.
Pursuant to the foregoing, it is understood and agreed that the General Partner
shall have all of the rights and powers of a general partner as provided in the
Delaware Revised Uniform Limited Partnership Act and as otherwise provided by
law, and any action taken by the General Partner shall constitute the act of and
serve to bind the Partnership. Persons dealing with the Partnership are entitled
to rely conclusively on the power and authority of the General Partner as set
forth in this Agreement.
10.2 POWERS OF THE GENERAL PARTNER. The General Partner is hereby granted
the right, power and authority to do on behalf of the Partnership all things
which, in its sole judgment, are necessary, proper or desirable to carry out the
aforementioned duties and responsibilities, including, but not limited to, the
right, power and authority: (i) to enter into a dealer manager agreement with
the Dealer Manager providing for the sale of the Units; (ii) to incur all
reasonable expenditures; (iii) to employ and dismiss from employment any and all
employees, agents, independent contractors, brokers, attorneys and accountants;
(iv) to invest Partnership funds in the Hotel; (v) to borrow money and as
security therefor, if such borrowing is secured, to pledge, mortgage and
otherwise encumber Partnership assets; (vi) to own or improve any property
incident to the protection of the Hotel or the ownership of property subsequent
to the foreclosure of the Hotel; (vii) to do any and all of the foregoing at
such price and upon such terms as the General Partner deems proper; (viii) to
execute, acknowledge and deliver any and all instruments to effectuate any and
all of the foregoing; and (ix) invest any Reserves in such investments as the
General Partner shall deem prudent.
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10.3 MANAGEMENT POLICIES. The General Partner shall observe the following
policies:
(a) The General Partner shall act in a manner consistent with the
objectives of the Partnership as set forth in the Prospectus.
(b) Prior to acquisition of the Hotel, the Partnership shall obtain an
appraisal of the fair market value of the Hotel by a qualified independent
appraiser who is a member of a nationally recognized society of appraisers.
Such appraisal shall be based on the value of improvements and other factors
that are standard in the industry. Such appraisal shall be maintained in the
records of the Partnership for no less than 5 years following the making of
the investment in the Hotel and during such period shall be available for
inspection by any Limited Partner or Unit Holder upon reasonable notice.
(c) The Partnership shall not: (i) issue any Units or Interests after
the Final Closing Date or issue Units or Interests in exchange for property,
(ii) make loans to the General Partner or its Affiliates, (iii) operate in
such a manner as to be classified as an "investment company" for purposes of
the Investment Company Act of 1940, (iv) directly or indirectly pay or award
any finders' fees, commissions or other compensation to any person engaged
by a potential investor for investment advice as an inducement to such
advisor to advise the purchaser regarding the purchase of Units; provided,
however, that the General Partner shall not be prohibited from paying the
normal sales commissions payable to a registered broker- dealer or other
properly licensed person for selling Units, (v) make loans or investments in
real estate mortgages, (vi) invest in or underwrite the securities of other
issuers (provided, however, that the gross offering proceeds may be
temporarily invested in money market investments pending investment in the
Hotel and any Reserves may be invested in such investments as the General
Partner shall deem prudent), (vii) redeem or repurchase Units, (viii) confer
upon the General Partner or any Affiliate of the General Partner an
exclusive right to sell or exclusive employment to sell the Hotel, (ix)
invest in junior trust deeds unless received in connection with the sale of
the Hotel, (x) invest in other limited partnerships or joint ventures or
enter into joint venture arrangements, (xi) other than the acquisition of
the Hotel, purchase or lease any property in which the General Partner or
any of its Affiliates has an interest, (xii) sell or lease property to the
General Partner or any of its Affiliates, (xiii) acquire property in
exchange for Interests or Units, (xiv) reinvest in other properties any Sale
or Refinancing Proceeds or Net Cash Flow, (xv) pay, directly or indirectly,
a commission or fee (except as permitted by the NASAA Guidelines) to the
General Partner or any of its affiliates in connection with the reinvestment
or distribution of Sale or Refinancing Proceeds or (xvi) accept the
assignment of the Purchase Agreement (as described in the Prospectus) from
an Affiliate of the General Partner unless the terms of such assignment are
such that (a) the purchase price of the Hotel shall be no greater than the
cost of the Hotel to such Affiliate of the General Partner (except for
compensation to such Affiliate paid in accordance with Section IV of the
NASAA Guidelines), (b) there will be no difference in the interest rates of
loans secured by the Hotel at the time the Hotel was acquired by such
Affiliate and the time the Hotel will be acquired by the Partnership, and
(c) there will be no other benefit to such Affiliate arising out of such
assignment of the Purchase Agreement apart from compensation otherwise
permitted by the NASAA Guidelines, provided, however, that the Partnership
may pay an Affiliate of the General Partner the fee described in Section
8.l(a) and a nominal assignment consideration of not more than $100.
(d) Pursuant to the requirements of the NASAA Guidelines, an amount not
less than 80% of the Limited Partners' and Unit Holders' payments for
Interests and Units reduced by .1625% for each 1% of "financing" of the
Hotel will be committed to investment in the Hotel. As defined under the
NASAA Guidelines, such amount is equal to the amount of Limited Partners'
and Unit Holders' payments for Interests and Units actually used to invest
in the Hotel or actually paid or allocated to the purchase, development,
construction or improvement of the Hotel by the Partnership (including the
purchase of the Hotel, working capital reserves allocable thereto not in
excess of 5% of gross offering proceeds and other cash payments such as
interest and taxes, but excluding Front End Fees). "Financing" as defined in
the NASAA Guidelines means the indebtedness encumbering the Hotel,
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the principal amount of which is scheduled to be paid over a period of not
less than 48 months, and not more than 50 percent of the principal amount of
which is scheduled to be paid during the first 24 months.
10.4 LIMITATION ON GENERAL PARTNER'S OBLIGATION TO MANAGE. Subject to the
provisions of Section 10.8, the General Partner shall devote such time to
affairs of the Partnership as the General Partner, in its sole discretion, shall
deem appropriate. Notwithstanding anything contained herein to the contrary, the
General Partner shall have no obligation to manage or operate the Hotel on
behalf of the Partnership.
10.5 OTHER BUSINESS ACTIVITIES OF THE GENERAL PARTNER. Subject to the
provisions of Section 10.8, the General Partner may have other business
interests and may engage in other activities, in addition to those relating to
the Partnership, including the rendering of advice or services of any kind to
other investors and making of other investments. The pursuit of such ventures,
even if competitive with the business of the Partnership, shall not be deemed
wrongful or improper.
10.6 GENERAL PARTNER'S DISCRETION TO MAKE CERTAIN ELECTIONS UNDER THE
INTERNAL REVENUE CODE. The General Partner may, in its sole discretion, make
(and if made, may revoke) the election referred to in Section 754 of the
Internal Revenue Code of 1954, as amended, or any similar provision enacted in
lieu thereof. Each of the Partners and Unit Holders will, upon request, supply
the information necessary to properly give effect to such election.
10.7 CAPITAL RESERVES. The General Partner shall establish and maintain a
working capital reserve for operating expenses, contingencies, such additional
funding requirements for the Hotel as deemed necessary in the discretion of the
General Partner, and other anticipated costs relating to Partnership affairs and
operations by initially retaining an amount equal to at least 3% of the
aggregate amount of the gross offering proceeds and thereafter funding such
reserve with Net Cash Flow and Sale or Refinancing Proceeds in such amounts as
determined to be reasonably necessary from time to time by the General Partner.
The General Partner shall invest the working capital reserve in such investments
as the General Partner shall deem prudent. The General Partner may, in its
discretion, distribute from time to time any portion of such reserve which the
General Partner determines to be in excess of the amounts required for the
purposes enumerated above.
10.8 FIDUCIARY OBLIGATION OF THE GENERAL PARTNER. The General Partner
shall fulfill the same fiduciary obligation to the Unit Holders as that owed to
the Limited Partners under this Agreement and applicable state law.
10.9 REIMBURSEMENT OF GENERAL PARTNER FOR CERTAIN PARTNERSHIP
EXPENSES. All of the Partnership's expenses shall be billed directly to and
paid by the Partnership. Reimbursement to the General Partner and its Affiliates
shall not be allowed, except for:
(a) Organizational and Offering Expenses (but not in excess of 15% of
the Limited Partners' and Unit Holders' payments for Interests and Units,
all of which excess shall be paid by the General Partner from its own
funds); and
(b) (i) the actual cost of goods and materials used for or by the
Partnership and obtained from an entity not affiliated with the General
Partner or an Affiliate of the General Partner; (ii) the actual cost of
administrative services necessary for the prudent operation of the
Partnership which could be performed directly for the Partnership by
independent parties, including legal, accounting, transfer agent, data
processing, duplicating services and administration of investor accounts,
and Partnership reports and communications to investors. All such
transactions shall be pursuant to the terms of a written contract between
the Partnership and the General Partner or its Affiliate which precisely
describes the services to be rendered or the goods or materials to be
provided and the compensation therefor. No reimbursement shall be permitted
for services for which the General Partner or Affiliates receive a separate
fee or for (x) salaries, fringe benefits, travel expenses and other
administrative items which are incurred by or allocated to any Controlling
Person or which are not directly
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attributable to the rendering of services to the Partnership and (y) any
expenses incurred in performing services for the Partnership, such as rent,
depreciation, utilities, capital equipment and other administrative items.
"Controlling Person," for this purpose, shall mean any person, regardless of
title, who performs executive or senior management functions for the General
Partner or Affiliates similar to those of chairman or member of the board of
directors, officers, executive management and senior management, or any
person who either holds 5% or more equity interest in the General Partner or
its Affiliates or has the power to direct or cause the direction of the
General Partner or its Affiliates, whether through the ownership of voting
securities, by contract, or otherwise, or, in the absence of a specific role
or title, any person having the power to direct or cause the direction of
the management level employees and policies of the General Partner or its
Affiliates. In no event shall any amount charged to the Partnership as a
reimbursable expense by the General Partner or its Affiliates exceed the
lesser of the actual cost of such services or the amount which the
Partnership would be required to pay to independent parties for comparable
services. "Costs" for purposes of this paragraph shall include the price of
goods and materials paid to independent third parties and direct costs
incurred by the General Partner or its Affiliates in the transaction,
including overhead directly attributable to the transaction but excluding
general or administrative overhead. "Costs of Services" for purposes of this
paragraph means the pro rata cost of personnel, including an allocation of
overhead directly attributable to such personnel, based on the amount of
time spent on such services, or other method of allocation acceptable to the
Partnership's independent certified public accountants.
10.10 GOVERNMENTALLY REQUIRED REPORTS. The General Partner shall cause to
be prepared and timely filed, with appropriate federal and state regulatory and
administrative bodies, all reports required to be filed under applicable laws,
rules and regulations.
10.11 GENERAL PARTNER'S FIDUCIARY RESPONSIBILITY FOR PARTNERSHIP FUNDS AND
ASSETS. The General Partner shall have fiduciary responsibility for the
safekeeping and use of all funds and assets of the Partnership, whether or not
in its immediate possession or control. The General Partner shall not employ, or
permit another to employ, such funds or assets in any manner other than for the
exclusive benefit of the Partnership nor shall the Partnership's funds be
commingled with the funds of any other person.
10.12 NONRECOURSE LOANS. A creditor who makes a nonrecourse loan to the
Partnership shall not have or acquire at any time, as a result of making the
loan, any direct or indirect interest in the profits, capital or property of the
Partnership, other than as a creditor or secured creditor, as the case may be.
10.13 LIMITATIONS ON GENERAL PARTNER'S AUTHORITY. Anything in this
Agreement to the contrary notwithstanding, the General Partner shall have no
authority to:
(a) pay for any services performed by the General Partner or Affiliates
of the General Partner (except if the General Partner or its Affiliates
render services to the Partnership under extraordinary circumstances and the
General Partner or its Affiliates are independently engaged in the business
of rendering such services and the reimbursement therefor is limited to the
lesser of the cost of such services to the General Partner or its Affiliates
or 90% of the rate that would be paid to unaffiliated third parties for
comparable services as authorized under the NASAA Guidelines and except as
permitted in Article VIII); nor shall the General Partner or an Affiliate of
the General Partner receive any rebate or give-up in connection with the
Partnership's activities (except that selling commissions may be rebated to
the General Partner or its Affiliates as provided in Section 7.7), nor shall
the General Partner or an Affiliate of the General Partner participate in
reciprocal business arrangements which shall circumvent this prohibition;
(b) do any act in contravention of this Agreement;
(c) do any act which would make it impossible to carry on the ordinary
business of the Partnership;
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(d) confess a judgment against the Partnership;
(e) execute or deliver any general assignment for the benefit of the
creditors of the Partnership;
(f) possess Partnership property or assign the rights of the Partnership
in specific property for other than a Partnership purpose;
(g) admit a person as a General Partner, except as provided in this
Agreement; or
(h) admit a person as a Limited Partner, except as provided in this
Agreement.
10.14 GENERAL PARTNER'S RIGHTS IN THE EVENT OF CERTAIN ERISA
DETERMINATIONS. The General Partner shall have the right, in its sole
discretion, in the event interests in the Partnership are determined to be "plan
assets" as defined under the Employment Retirement Income Security Act of 1974,
(i) to amend the Partnership Agreement so as to comply with applicable fiduciary
requirements to which they or the Partnership might be subject and charge the
Partnership for all related expenses, (ii) to apply for a prohibited transaction
exemption from the Department of Labor, (iii) to dissolve and terminate the
Partnership, or (iv) to withdraw as a General Partner from the Partnership.
10.15 GENERAL PARTNER'S AUTHORITY TO LIST AND DE-LIST UNITS. The General
Partner is authorized to list the Units for trading on any exchange or
over-the-counter market, or to remove the Units from listing in its sole
discretion.
10.16 ACTIONS TO PRESERVE PARTNERSHIP STATUS FOR TAX PURPOSES. The General
Partner may, upon advice of counsel, take whatever actions are necessary to
assure that the Partnership is classified as a partnership, rather than as an
association taxable as a corporation, and to avoid a termination of the
Partnership for Federal income tax purposes.
ARTICLE XI
MEETINGS AND VOTING RIGHTS OF LIMITED
PARTNERS AND UNIT HOLDERS
11.1 MEETINGS. Meetings of the Limited Partners and Unit Holders for any
purpose may be called by the General Partner at any time and shall be called by
the General Partner upon receipt of a written request for such a meeting signed
by 10% or more of the outstanding Interests of the Limited Partners (including
the Interests of the Assignor Limited Partner held for the benefit of the Unit
Holders). Notice of such meeting shall be sent within 10 days after receipt of
such request. Any such request shall state the purpose of the proposed meeting
and the matters proposed to be acted upon at such meeting. Meetings shall be
held at the principal office of the Partnership or at such other place as may be
designated by the General Partner. The Assignor Limited Partner, for this
purpose, shall vote in accordance with the written directions of the Unit
Holders.
11.2 NOTICE. Meetings to be held pursuant to Section 11.1 shall be held
not fewer than 15 days nor more than 60 days after receipt by the General
Partner of the written request for such meeting as specified in Section 11.1.
Notice to be given pursuant to Section 11.1 shall be given either personally or
by mail to each Limited Partner and Unit Holder at his record address, or at
such other address which he may have furnished in writing to the General
Partner. Such notice shall contain a verbatim statement of any resolution
proposed by the Limited Partners or Unit Holders and of any proposed amendment
to this Agreement. If a meeting is adjourned to another time or place, and if
any announcement of the adjournment of time or place is made at the meeting, it
shall not be necessary to give notice of the adjourned meeting. The presence in
person or by proxy of Limited Partners holding a majority of the Interests
(including those held by the Assignor Limited Partner for the Unit Holders)
shall constitute a quorum at all meetings of the Limited Partners; provided,
however, that if no such quorum is present, holders of a majority of such
Interests so present or so represented may adjourn the meeting from time to time
without further notice, until a quorum shall have been obtained. No notice of
the time, place or
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purpose of any meeting of Limited Partners or Unit Holders need be given to any
Limited Partner or Unit Holder who attends in person or is represented by proxy
(except when a Limited Partner or Unit Holder attends a meeting for the express
purpose of objecting at the beginning of the meeting to the transaction of any
business on the ground that the meeting is not lawfully called or convened), or
to any Limited Partner or Unit Holder entitled to such notice who, in a writing,
executed and filed with the records of the meeting, either before or after the
time thereof, waives such notice.
11.3 RECORD DATE. For the purpose of determining the Limited Partners
entitled to vote and the Unit Holders entitled to direct the voting of the
Assignor Limited Partner at any meeting of the Limited Partners, or any
adjournment thereof, the General Partner or the Limited Partners and Unit
Holders requesting such meeting or vote may designate, in advance, a date as the
record date of any such determination of Limited Partners and Unit Holders. Such
date shall not be more than 50 days nor less than 10 days before any such
meeting. A list of the names and addresses of all Limited Partners and Unit
Holders shall be maintained as a part of the books and records of the
Partnership and shall be made available upon reasonable request of any Limited
Partner or Unit Holder or his representative at his cost. At each meeting of
Limited Partners and Unit Holders, the Limited Partners and the Assignor Limited
Partner on behalf of the Unit Holders either present or represented by proxy,
shall elect such officers and adopt such rules for the conduct of such meeting
as they shall deem appropriate.
11.4 POWERS OF LIMITED PARTNERS. Limited Partners shall have the right to
vote only on the following matters, and Limited Partners holding a majority of
Interests (including those held by the Assignor Limited Partner for the Unit
Holders), without the concurrence of the General Partner, may cause any or all
of the following:
(a) amendment of this Agreement, subject to the conditions that such
amendment (i) may not in any manner allow the Assignor Limited Partner,
Limited Partners or Unit Holders to take part in the management or control
of the Partnership's business or otherwise modify their limited liability,
and (ii) may not, without the consent of the General Partner, alter the
rights, powers and duties of the General Partner as set forth in Article X,
or the interest of such General Partner in items of income, gain, loss,
deduction and credit or distributions of Net Cash Flow or Sale or
Refinancing Proceeds as set forth in Section 9.1 and 9.2 of this Agreement;
(b) the approval or disapproval of the sale of the Hotel other than as
contemplated by the Prospectus;
(c) the termination and dissolution of the Partnership; and
(d) the removal of the General Partner and election of a replacement
therefor.
The rights of Limited Partners to vote upon the matters specified in (a)-(d)
above, and the Limited Partners' right to elect a successor General Partner
following the removal, bankruptcy, withdrawal or dissolution of the General
Partner pursuant to Section 13.1, shall be null and void AB INITIO and of no
effect or existence and shall not be exercisable if (a) a court of competent
jurisdiction shall have entered a final judgment to the effect that the
existence or exercise of such powers is contrary to the provisions of the
Delaware Revised Uniform Limited Partnership Act or a comparable statute, or if
specific legislation is enacted in Delaware so providing; or (b) if prior to or
within 15 days of such vote, the Partnership receives an opinion of counsel
(obtained by the General Partner or any Unit Holder), other than counsel for the
General Partner or any Affiliate of the General Partner, satisfactory to Limited
Partners holding a majority of Interests (including those Interests held by the
Assignor Limited Partner for the Unit Holders), to the effect that (i) the
existence or exercise of such rights may adversely affect the status of the Unit
Holders, the Assignor Limited Partner or the Limited Partners as Limited
Partners or Unit Holders, as the case may be, including their limited liability
or (ii) the election of a successor General Partner would cause the Partnership
to be classified as an association taxable as a corporation for Federal income
tax purposes. For purposes of this Section 11.4, counsel will be deemed
satisfactory to the Limited Partners holding a
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majority of Interests (including those Interests held by the Assignor Limited
Partner for Unit Holders) if proposed by the General Partner and approved in
writing within 45 days by such Limited Partners holding a majority of Interests;
provided that if holders of 10% or more of the outstanding Units have proposed
counsel for this purpose, such proposed counsel, and not counsel proposed by the
General Partner, shall be submitted for such approval. Any such opinion must
describe with particularity the specific power interpreted by court ruling or
prescribed by statute. The approval of an opinion of counsel or the existence of
a final court judgment with respect to a particular contemplated action shall
not affect the Limited Partners' or Unit Holders' rights to vote on other or
future actions or the existence of such rights as are provided in this
Agreement. Notwithstanding the foregoing, any Unit Holder or Limited Partner may
independently, and at its own cost and expense, obtain a ruling of a court of
competent jurisdiction that the exercise of a particular power by the Unit
Holders or Limited Partners will not cause the Unit Holders or Limited Partners
to lose their limited liability.
11.5 ONE INTEREST, ONE VOTE; VOTING BY PROXY. Whenever the Limited
Partners are entitled by this Agreement to vote on any particular matter, each
Limited Partner shall be entitled to cast one vote per Interest, and a Unit
Holder shall be entitled to direct the Assignor Limited Partner to cast one vote
per Unit owned by such Unit Holder. Every proxy must be signed by the Limited
Partner or Unit Holder or his attorney-in-fact. No proxy shall be valid after
the expiration of 11 months from the date thereof unless otherwise provided in
the proxy. Every proxy shall be revocable at the direction of the Limited
Partner or the Unit Holder executing it. Only the votes of Limited Partners of
record on the record date, whether at a meeting or otherwise, shall be counted.
The Unit Holders may give proxies only to the Assignor Limited Partner. The
Assignor Limited Partner will vote separately in accordance with the directions
of each Unit Holder.
11.6 MAJORITY OF INTERESTS INCLUDES UNIT HOLDERS' INTERESTS. For purposes
of this Article XI, Limited Partners holding a majority of Interests include the
Assignor Limited Partner and the Interests it owns of record and votes at the
direction of the Unit Holders.
11.7 NO MANAGEMENT BY LIMITED PARTNERS OR UNIT HOLDERS. No Limited Partner
or Unit Holder shall take part in the management or control of the business of
the Partnership or transact any business in the name of the Partnership. No
Limited Partner or Unit Holder shall have the power or authority to bind the
Partnership or to sign any agreement or document in the name of the Partnership.
11.8 VOTING OF INTERESTS PURCHASED BY GENERAL PARTNER, ITS AFFILIATES OR
EMPLOYEES. For purposes of this Article XI and Section 13.1, neither the
General Partner nor any of its Affiliates shall be permitted to vote any Units
purchased by the General Partner or such Affiliates pursuant to Section 7.7. Any
individual officer, director, shareholder or employee of the General Partner or
its Affiliates who acquire any Units in their individual capacities shall be
entitled to vote on the matters specified in this Article XI and in Section
13.1. In all other respects and for all other purposes, the General Partner and
any of its Affiliates shall be treated as Unit Holders with respect to any Units
owned by them.
ARTICLE XII
ASSIGNMENT OF ASSIGNED LIMITED PARTNERSHIP INTERESTS
TO UNIT HOLDERS AND RIGHTS OF UNIT HOLDERS
12.1 ASSIGNMENT OF INTERESTS: TIMING, PROCEDURES AND RIGHTS AND
LIABILITIES.
(a) On each Closing Date, the Assignor Limited Partner shall contribute to
the Partnership the proceeds of the sale of Units received and accepted by the
General Partner on or before such Closing Date, on behalf of the purchasers of
Units. The Assignor Limited Partner thereupon shall hold such Interests (and
shall keep and simultaneously supply the Partnership with a list containing the
name, address and number of Units purchased by each Unit Holder, which list
shall be available for inspection by any Unit Holder on written request) and the
purchase of such Units shall be entered on the books and
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records of the Partnership. The Partnership shall, at the request of Unit
Holders and upon payment of a nominal fee determined by the General Partner to
cover the actual cost of issuance to each such Unit Holder, issue to the order
of the respective Unit Holders Depositary Receipts registered in the names of
such Unit Holders (or their nominees) in respect of the Units held. By
subscribing and tendering payment for Units a Unit Holder shall be deemed to
have consented and be obligated to all the terms, condition, rights or
obligations set forth herein.
(b) The Assignor Limited Partner, by the execution of this Agreement,
irrevocably transfers and assigns to the Unit Holders all of the Assignor
Limited Partner's rights and interest in and to the Interests, except as
otherwise provided herein, as of the time of release by the Escrow Agent to the
Assignor Limited Partner or to the Partnership on behalf of the Assignor Limited
Partner of any payments for Units. The rights and interest so transferred and
assigned shall include the following:
(i) all rights to receive distributions of Net Cash Flow and Sale or
Refinancing Proceeds pursuant to Section 9.1 and Section 9.2 in respect of
Interests;
(ii) all rights in respect of allocations of items of income, gain, loss
and deduction pursuant to Section 9.3;
(iii) all rights to inspect books and records and to receive reports
pursuant to Article XVIII;
(iv) all rights which Limited Partners have, or may have in the future,
under the Delaware Revised Uniform Limited Partnership Act, including the
right to sue to enforce obligations of the Partnership, except as otherwise
provided herein; and
(v) the right to instruct the Assignor Limited Partner with respect to
the voting of the Interests related to the Units (the Assignor Limited
Partner having no right to vote with respect to any Unit or Interest without
instructions from the record owners of the applicable Units) and rights to
call meetings.
(c) The General Partner, by the execution of this Agreement, irrevocably
consents to and acknowledges that (i) the foregoing transfer and assignment by
the Assignor Limited Partner to the Unit Holders of the Assignor Limited
Partner's rights and interest in the Interests is effective, and (ii) the Unit
Holders are intended to be third party beneficiaries of all rights and
privileges of the Assignor Limited Partner with respect to the Interests. The
General Partner covenants and agrees that, in accordance with the foregoing
transfer and assignment, all the Assignor Limited Partner's rights and
privileges with respect to Interests may be exercised by the Unit Holders
including, without limitation, (i)-(v) in paragraph (b) above.
(d) The Assignor Limited Partner shall not be liable to any Unit Holder for
any action or nonaction by it in reliance upon advice, written notice, request
or direction from a Unit Holder believed by the Assignor Limited Partner to be
genuine and to have been signed or presented by the proper person(s).
(e) Each Unit Holder shall be liable for and to the extent of any liability
imposed upon the Assignor Limited Partner in its capacity as a Limited Partner
of the Partnership with respect to such Unit Holder's Units for returns of
Partnership distributions in accordance with The Delaware Revised Uniform
Limited Partnership Act.
12.2 UNIT HOLDERS MAY BE REQUIRED TO BECOME LIMITED PARTNERS. The General
Partner may at any time require the Unit Holders to become Limited Partners, and
may take such other action with respect to the manner in which Units or
Interests are being or may be transferred or traded, as it may deem necessary or
appropriate, in order to preserve the status of the Partnership as a partnership
rather than an association taxable as a corporation for Federal income tax
purposes, to prevent termination of the Partnership for Federal income tax
purposes, to prevent any violations of Federal or state securities laws arising
from such transfers or trading, to insure that Unit Holders will be treated as
limited partners for Federal income tax purposes or if, in the judgment of the
General Partner, changes in the Federal income
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tax laws cause the free transferability of the Units to potentially adversely
affect a majority of Unit Holders.
12.3 ISSUANCE AND TRANSFER OF RECEIPTS. Depositary Receipts evidencing the
Units shall be issued upon request of a Unit Holder in registered form and shall
be freely transferable unless otherwise restricted under applicable federal or
state securities or tax laws. The transferee of a Depositary Receipt shall not
be recognized as an assignee of Interests unless and until such transfer is
accepted and recorded by the transfer agent of the Partnership in respect of the
Units.
12.4 DEFERRAL OF REGISTRATION OF TRANSFERS OF UNITS TO AVOID TERMINATION OF
THE PARTNERSHIP. The registration of any transfer (other than a transfer by
will or intestacy upon death of the transferor) of a Unit or Interest may be
deferred in the discretion of the General Partner if such assignment, when added
to the total of all other Interests and Units assigned within the period of 12
consecutive months prior to the proposed date of assignment, would, in the
opinion of counsel to the Partnership, result in a termination of the
Partnership under Section 708 of the Internal Revenue Code of 1954, as amended.
The General Partner will give written notice to all Limited Partners and Unit
Holders in the event that registrations of transfer should be suspended for such
reason. Any deferred registrations of transfers will be made (in chronological
order to the extent practicable) as of the first day of a fiscal semiannual
period after the end of any such 12-month period).
12.5 TRANSFER FEE. The Partnership will charge a transfer fee equal to
$150 in connection with the purchase or sale of Units and Interests. Such fee
may be increased from time to time upon written notice from the General Partner
to Unit Holders and Limited Partners if the General Partner determines that the
actual, reasonable and necessary expenses incurred by the Partnership in
facilitating such transfers exceed $150. Such fee may be waived in the
discretion of the General Partner. Each transfer must comply with applicable
state blue sky laws and requirements of the National Association of Securities
Dealers, Inc. The Partnership may require evidence that any such applicable laws
and standards have been met before agreeing to any transfer of Units.
ARTICLE XIII
REMOVAL, BANKRUPTCY, INSOLVENCY, DISSOLUTION OR
WITHDRAWAL OF THE GENERAL PARTNER
13.1 ELECTION OF SUCCESSOR GENERAL PARTNER. Upon the removal, adjudication
of bankruptcy, insolvency, dissolution or withdrawal of the General Partner,
Limited Partners shall have 90 days to elect to continue the business of the
Partnership and elect a successor General Partner pursuant to Section 11.4.
Except for a withdrawal of the General Partner pursuant to Section 10.14, the
General Partner shall not withdraw from the Partnership without giving Limited
Partners and Unit Holders 60 days' prior written notice. If the Limited Partners
fail to so elect a successor General Partner, the Partnership shall be dissolved
and terminated.
13.2 RIGHTS OF FORMER GENERAL PARTNER; PURCHASE OF FORMER GENERAL PARTNER'S
PARTNERSHIP INTEREST. In the event the Partnership is not dissolved and
terminated pursuant to Section 13.1, the General Partner shall become a special
Limited Partner of the Partnership. In its capacity as such special Limited
Partner, such former General Partner shall have no right to participate in the
management of the affairs of the Partnership nor shall it have any right to vote
in any vote requiring the consent of the Limited Partners or Unit Holders and
shall not be entitled to any allocation of income, gain or losses of the
Partnership or any distributions, allocable or payable in either case to the
Limited Partners or Unit Holders, but shall instead retain the share of the
profits, gains, losses, and distributions which it held in its capacity as
General Partner under this Agreement, until such time, if at all, as the General
Partner's interest is acquired as described in this Agreement. The Partnership
or any successor General Partner elected by the Limited Partners shall have the
option, but not the obligation, to acquire the interest in the Partnership of
any General Partner upon the removal, adjudication of bankruptcy, insolvency,
dissolution or involuntary
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withdrawal of such General Partner upon payment to the former General Partner of
the fair market value of such interest, such value to be determined by agreement
between the General Partner so removed and the Partnership, or, in the absence
of such agreement, by arbitration in accordance with the rules of the American
Arbitration Association. The expense of arbitration shall be borne equally by
the General Partner so removed and the Partnership. Fair market value of the
interest of the General Partner so removed shall be the amount the General
Partner would receive upon dissolution and termination of the Partnership
assuming that such dissolution or termination occurred on the date the General
Partner was removed and the assets of the Partnership were sold for their then
fair market value without any compulsion on the part of the Partnership to sell
such assets. The method of payment to the General Partner shall be fair and
reasonable and shall protect the liquidity and solvency of the Partnership, in
each case as determined by agreement, as aforesaid, or by arbitration in
accordance with the rules of the American Arbitration Association. The method of
payment shall be deemed presumptively fair if it provides for payment in the
form of an interest bearing promissory note maturing in no fewer than 5 years,
payable in equal installments in each year.
13.3 VALUATION OF FORMER GENERAL PARTNER'S PARTNERSHIP INTEREST IN EVENT OF
VOLUNTARY WITHDRAWAL, DISSOLUTION OR LIQUIDATION. In the event of the voluntary
withdrawal of the General Partner from the Partnership or the voluntary
dissolution or voluntary liquidation of the General Partner, then, upon the
election, if any, of the Limited Partners to continue the business of the
Partnership and to appoint a successor general partner, the interest in the
Partnership of the General Partner shall be valued at One Dollar ($1) and shall
be transferred to such successor general partner for One Dollar ($1).
ARTICLE XIV
TRANSFER OF A PARTNERSHIP INTEREST
14.1 SUBSTITUTE LIMITED PARTNERS. The General Partner may, pursuant to
this Article XIV, admit as a substitute Limited Partner any successor in
interest to a Limited Partner who is either deceased or under legal disability
or who is an assignee of a Limited Partner.
14.2 ASSIGNMENT OF LIMITED PARTNERSHIP INTERESTS. Subject to the
provisions of this Article XIV, compliance with the suitability standards
imposed by the Partnership, applicable "Blue Sky" laws and the applicable rules
of any other governmental authority, a Limited Partner shall have the right to
assign the whole or any portion of his Interests (but not fewer than 500
Interests unless to an Individual Retirement Account or Keogh Plan and then not
fewer than 200 Interests) by a written assignment, the terms of which are not in
contravention of any of the provisions of this Agreement. Any assignment in
contravention of any provisions of this Article XIV shall be of no force and
effect and shall not be binding upon or recognized by the Partnership.
(a) Except as provided in (b) below, an assignee of an Interest who is
not admitted as a substitute Limited Partner shall have no right to require
any information or account of the Partnership's transaction or to inspect
the Partnership's books; he shall only be entitled to receive distributions
from the Partnership and the share of income, gain, loss, deduction and
credit attributable to the Interests acquired by reason of such assignment
from the first day of the calendar quarter following the calendar quarter in
which the written instrument of assignment, executed by the assignor and in
form and substance reasonably satisfactory to the General Partner, and other
documents reasonably deemed necessary or appropriate by the General Partner
(as, for example, evidence that the assignee meets investor suitability
standards) shall have been received by the Partnership.
(b) Anything herein to the contrary notwithstanding, both the
Partnership and the General Partner shall be entitled to (i) treat the
assignor of such interests as the absolute owner thereof in all respects,
and shall incur no liability for allocations of income, gain, loss,
deduction or credit for distributions or for transmittal of reports and
notices required to be given to holders of Interests, until the first day of
the calendar quarter following the calendar quarter in which the Partnership
shall have
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received the written assignment executed by the assignor in form and
substance reasonably satisfactory to the General Partner and other documents
reasonably deemed necessary or appropriate by the General Partner (including
evidence of the assignee's compliance with standards imposed by applicable
blue sky laws) or (ii) treat the assignee as a substitute Limited Partner in
the place of his assignor, should the General Partner deem in its absolute
discretion, that such treatment is in the best interests of the Partnership
for any of its purchases or for any of the purposes of this Agreement.
14.3 CONDITIONS PRECEDENT TO AN EFFECTIVE ASSIGNMENT. No assignee shall
have the right to become a substituted Limited Partner in place of his assignor
and no assignment of Interests shall be effective unless all of the following
conditions are satisfied:
(a) The General Partner or counsel to the General Partner shall be of
the opinion that such assignment (i) complies with applicable state
securities laws and with the Partnership's suitability standards, (ii) will
not result in the Partnership being classified other than as a partnership
for Federal income tax purposes and (iii) will not result in the termination
of the Partnership pursuant to Section 708 of the Code;
(b) The Interests being assigned by the assignor shall consist of at
least five hundred (500) Interests (in the case of an IRA or Keogh Plan two
hundred (200) Interests or such higher number of Interests as may be
required by applicable state law) and if the assignor shall assign less than
all of his Interests, such assignor shall retain at least five hundred (500)
Interests (in the case of an IRA or Keogh Plan two hundred (200) Interests
or such higher number of Interests as may be required by applicable state
law);
(c) The written consent of the General Partner to such substitution (but
not such assignment) shall be obtained, the granting of which shall not be
unreasonably withheld;
(d) A duly executed written instrument of assignment setting forth the
intentions of the assignor that the assignee shall become a substituted
Limited Partner in his place shall have been filed with the Partnership;
(e) The assignor and assignee shall execute and acknowledge such other
instruments as the General Partner reasonably deems necessary or desirable
to effect such assignment and admission, including, but not limited to,
evidence of the assignee's compliance with standards imposed by any
applicable "Blue Sky" laws, the written acceptance and adoption by the
assignee of the provisions of this Agreement and his execution,
acknowledgment and delivery to the General Partner of a special power of
attorney, the form and content of which are more fully described in Article
XXI hereof; and
(f) The Partnership shall have received from the assignor or assignee a
transfer fee equal to $150 (subject to adjustment from time to time in
accordance with Section 12.5) to cover the expenses of such transfer, but
such transfer fee may be waived by the General Partner, in its discretion.
14.4 SUBSTITUTE LIMITED PARTNERS SUBJECT TO THIS AGREEMENT. Any person
admitted to the Partnership as a substituted Limited Partner shall be subject to
all the provisions of this Agreement as if an original party to it.
14.5 AMENDMENT TO REFLECT CHANGE OF LIMITED PARTNER. The General Partner
shall, at the end of each calendar quarter in which there has been a change in
the identity of the Limited Partner, amend this Agreement to reflect such
change.
14.6 DEATH OR LEGAL DISABILITY OF A LIMITED PARTNER. Upon the death or
legal disability of an individual who is a Limited Partner, his personal
representative shall have all of the rights of a Limited Partner for the purpose
of settling or managing his estate, and such power as the decedent or
incompetent possessed to constitute a successor as an assignee of his interests
in the Partnership and to join with such assignee in making application to
substitute such assignee as a Limited Partner. However, such personal
representative shall not have the right to become a substituted Limited Partner
in the place of his
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predecessor in interest unless the conditions of this Article XIV (other than
the requirement that the assignor execute and acknowledge instruments) are first
satisfied.
14.7 BANKRUPTCY, INSOLVENCY, DISSOLUTION OR OTHER CESSATION OF A LIMITED
PARTNER. Upon the adjudication of bankruptcy or insolvency, dissolution or
other cessation of existence as a legal entity of a Limited Partner which is not
an individual, the authorized representative of such entity shall have all of
the rights of a Limited Partner for the purpose of effecting the orderly winding
up and disposition of the business of such entity and such power as such entity
possessed to constitute a successor as an assignee of its interest in the
Partnership and to join with such assignee in making application to substitute
such assignee as a Limited Partner. However, such representative shall not have
the right to become a substituted Limited Partner in the place of his
predecessor in interest unless the conditions of this Article XIV (other than
the requirement that the assignor execute and acknowledge instruments) are first
satisfied.
14.8 TRANSFERS IN VIOLATION OF THIS ARTICLE XIV. Any assignment, sale,
exchange or other transfer in contravention of any of the provisions of this
Article XIV shall be void and ineffectual, and shall not bind or be recognized
by the Partnership.
14.9 ASSIGNMENT OF UNITS TO UNIT HOLDERS. The provisions of this Article
XV shall not apply to the transfer and assignment by the Assignor Limited
Partner of Units to Unit Holders in accordance with Section 12.1.
ARTICLE XV
INDEMNIFICATION
15.1 INDEMNIFICATION OF GENERAL PARTNER, ASSIGNOR LIMITED PARTNER, AND
RELATED PARTIES. Neither the General Partner nor the Assignor Limited Partner,
nor any officer, director, partner, employee, Affiliate or assign of the General
Partner or the Assignor Limited Partner shall be liable, responsible or
accountable in damages or otherwise to the Partnership or to any Limited Partner
or Unit Holder for any loss suffered by the Partnership or any Limited Partner
or Unit Holder which arises out of any error in judgment or is incurred by
reason of any action or inaction which was taken in good faith in connection
with the activities of the Partnership or in dealing with third parties on
behalf of the Partnership, if the General Partner or the Assignor Limited
Partner determine, in good faith, that such course of conduct is in the best
interest of the Partnership and such course of conduct does not constitute
fraud, misconduct, breach of fiduciary duty or negligence (gross or ordinary) in
accordance with the exercise of reasonable business judgment. The Partnership
shall indemnify and save harmless the General Partner and the Assignor Limited
Partner, their officers, directors, partners, employees, Affiliates and assigns
(herein the "Indemnified Parties") against loss, damage or liability and related
expenses (including attorneys' fees) incurred by reason of any such action or
inaction performed or omitted in connection with the activities of the
Partnership or in dealing with third parties on behalf of the Partnership if
such action or inaction is in the best interest of the Partnership and if such
action or inaction does not constitute fraud, misconduct, breach of fiduciary
duty or negligence (ordinary or gross). An Affiliate of an Indemnified Party
will be indemnified hereunder only to the extent it is acting within the scope
of the duties of the General Partner. All judgments against the Partnership and
the General Partner or the Assignor Limited Partner, wherein such Partner is
entitled to indemnification, must first be satisfied from Partnership assets
before such Partner shall be responsible for such obligations. The satisfaction
of any indemnification and any saving harmless shall be from and limited to the
Partnership assets, and no Limited Partner or Unit Holder shall have any
personal liability on account thereof. The Partnership shall not pay for any
insurance covering liability of the Indemnified Parties for actions or omissions
for which indemnification is not permitted hereunder; provided however, that
this shall not preclude the naming of the General Partner, the Assignor Limited
Partner or any of their Affiliates as additional insured parties on policies
obtained for the benefit of the Partnership to the extent there is no additional
cost to the Partnership.
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15.2 LIMITATIONS ON INDEMNIFICATION. Notwithstanding the provisions of
Section 15.1, (i) the Assignor Limited Partner shall not be indemnified by the
Partnership against any loss, damage or liability and related expenses
(including attorneys' fees) incurred by reason of any action or inaction
performed or omitted by the Assignor Limited Partner in connection with
activities of the Assignor Limited Partner exclusively in its capacity as
Assignor Limited Partner on behalf of Unit Holders, and (ii) no Indemnified
Party or the Partnership shall be indemnified against any liabilities,
settlements or related expenses of lawsuits, claims or actions alleging
violations of any federal or state securities laws or for expenses incurred in
successfully defending such lawsuits, claims or actions unless: (A) the General
Partner or other persons or entities seeking indemnification are successful in
defending such lawsuit, claim or action and such indemnification of litigation
costs is specifically approved by a court of law which shall have been advised
as to the current position of the Securities and Exchange Commission, the
Commissioner of Corporations of the State of California and other relevant state
securities commissioner or administrator regarding indemnification for
violations of securities laws or (B) in the case of a settlement, both the
settlement is approved and the court finds that indemnification of the
settlement and related costs should be made.
15.3 INDEMNIFICATION OF LIMITED PARTNERS AND UNIT HOLDERS. The Partnership
will indemnify, to the extent of Partnership assets, each Limited Partner and
Unit Holder against any claim of liability asserted against a Limited Partner or
Unit Holder solely because he is a Limited Partner or Unit Holder in the
Partnership.
ARTICLE XVI
DISSOLUTION AND TERMINATION
16.1 DATE OF DISSOLUTION. The Partnership shall be dissolved and its
business wound up upon the earlier to occur of:
(a) The Offering Termination Date, if subscriptions for at least
2,000,000 Units have not been received and accepted by the General Partner
on or prior to such date;
(b) The date of disposition of all or substantially all of the assets of
the Partnership;
(c) The date of the removal, adjudication of bankruptcy or insolvency,
dissolution or withdrawal of the General Partner, unless the Limited
Partners elect to continue the business of the Partnership in accordance
with Section 13.1;
(d) The date on which Limited Partners who hold a majority of Interests
vote in favor of dissolution or termination pursuant to Section 11.4; or
(e) December 31, 2036.
16.2 DISTRIBUTIONS IN LIQUIDATION. Upon dissolution of the Partnership,
and after payment of all of the debts, liabilities and obligations of the
Partnership and the expenses of dissolution and liquidation and the setting up
of any reserves for contingencies that the General Partner deems necessary,
distributions in liquidation of the Partnership shall be made in the manner of
Net Cash Flow in accordance with Section 9.1, or Sale or Refinancing Proceeds in
accordance with Section 9.2, as appropriate, when consideration is given to the
sources of the funds distributed in the liquidation.
16.3 TERMINATION. Upon completion of the liquidation of the Partnership,
the Partnership shall terminate and the General Partner shall have the authority
to execute and record a certificate of cancellation of the Partnership, as well
as any and all other documents required to effectuate the dissolution and
termination of the Partnership.
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ARTICLE XVII
NOTICES
17.1 NOTICES. Whenever any notice is required or permitted to be given
under any provision of this Agreement, such notice shall be in writing, signed
by or on behalf of the person giving the notice, and shall be deemed to have
been given on the earlier to occur of the date of actual delivery, or if mailed,
the date mailed, postage prepaid, addressed to the person or persons to whom
such notice is to be given (or at such other address as shall be stated in a
notice similarly given):
(a) If to the General Partner, such notice shall be given at c/o Realty
Investment Group, Shearson Lehman Brothers Inc., American Express
Tower--12th Floor, World Financial Center, New York, New York 10285-1230,
Attention: A. George Kallop; and
(b) If to a Limited Partner or a Unit Holder, such notice shall be given
at the address shown on the books and records of the Partnership and the
Assignor Limited Partner, unless such Limited Partner or Unit Holder shall
have requested the Partnership in writing at least 30 days before the date
of mailing to send notices to a different address.
ARTICLE XVIII
ACCOUNTING, REPORTS AND STATEMENTS
18.1 FISCAL YEAR. The fiscal year of the Partnership shall end on December
31 of each year.
18.2 INSPECTION OF RECORDS. Limited Partners and Unit Holders and their
designated representatives shall be permitted access to all records of the
Partnership at the principal office of the Partnership during reasonable
business hours and shall have the right to make copies thereof.
18.3 INCOME TAX RETURNS. Within 75 days after the end of each fiscal year
of the Partnership, the General Partner shall prepare, or cause to be prepared,
a United States income tax return for the Partnership; and, in connection
therewith, shall send to each person who was a Limited Partner or a Unit Holder
on the first day of any month during such preceding fiscal year, such tax
information as shall be necessary for the preparation by such person of his
Federal income tax return and required state income and other tax returns. The
General Partner shall pay to each such person a penalty of $.0005 per Unit or
Interest held by such person per day for every day after the end of March (or if
such period ends on a Sunday or holiday, the next following business day) that
such tax information has not been mailed to such person, except that no such
penalty shall be payable where any delay is occasioned by events or acts which
are beyond the control of the General Partner.
18.4 QUARTERLY FINANCIAL REPORTS. Commencing with the first full quarter
after the Initial Closing Date and within 60 days after the close of each
quarter other than the last quarter of the fiscal year, the General Partner
shall furnish to each person who was a Limited Partner or Unit Holder at any
time during the quarter then ended, a report containing (i) a balance sheet,
which may be unaudited, (ii) a statement of income for the quarter then ended,
which may be unaudited, and (iii) a cash flow statement for the quarter then
ended, which may be unaudited. Such report also shall set forth details with
respect to the progress of the Partnership's business and unaudited financial
and other relevant information regarding the Partnership and its activities
during the quarter, including a statement of any transactions with the General
Partner or its Affiliates and of fees, commissions, compensation, reimbursements
and other benefits paid or accrued to the General Partner or its Affiliates for
such quarter, showing the amount paid or accrued to each recipient and the
services performed, and including a statement setting forth in detail the source
of any distributions paid to Limited Partners and Unit Holders for or during the
quarter, including the amount of distributions made from reserves or from funds
generated through operations. The Partnership will also make available to
Limited Partners and Unit Holders, upon request with 45 days after the end of
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each quarter, the quarterly report on Form 10- Q filed by the Partnership with
the Securities and Exchange Commission, or a quarterly report containing at
least as much information as the report on Form 10-Q.
18.5 ANNUAL FINANCIAL REPORTS. Within 120 days after the end of each
fiscal year, the General Partner will furnish to Limited Partners and Unit
Holders (i) an annual report containing audited financial statements of the
Partnership, including a balance sheet and statements of income, partner's
equity and changes in financial position and a cash flow statement, for the year
then ended, all of which, except the cash flow statement, shall be prepared in
accordance with generally accepted accounting principles, together with the
report of the independent certified public accountants thereon, containing an
unqualified opinion or an opinion containing no material qualification, (ii) a
statement of any transactions with the General Partner or its Affiliates and of
fees, commissions, compensation, reimbursements and other benefits paid or
accrued to the General Partner or its Affiliates for the last quarter and for
such year, showing the amount paid or accrued to each recipient and the services
performed and (iii) a statement setting forth in detail the source of any
distributions paid to the Limited Partners and Unit Holders for or during the
last quarter and such fiscal year, including the amount of distributions made
from reserves, from funds generated through operations or from funds derived
from the sale, refinancing or other disposition of the Partnership assets. Such
report shall also include a report of the activities of the Partnership during
such fiscal year and a table comparing any forecasts previously provided to
Limited Partners or Unit Holders with the actual results of the Partnership and
the Hotel during such fiscal year. Limited Partners and Unit Holders will also
be furnished a reconciliation between the financial information contained in the
annual report and the information received for their federal tax returns. The
audited financial statements referenced in (i) shall include verification by
such accountants of the costs reimbursed to the General Partner and its
Affiliates. The method of verification shall be in accordance with generally
accepted auditing standards.
18.6 TAX MATTERS PARTNER. The General Partner is hereby appointed the "Tax
Matters Partner" for purposes of section 6231(a)(7)(A) of the Code.
ARTICLE XIX
BANK ACCOUNTS
19.1 BANK ACCOUNTS. The General Partner shall open and maintain a bank
account or accounts into which shall be deposited all funds of the Partnership.
Withdrawals from such account or accounts shall be made upon the authorized
signature or signatures of such person or persons the General Partner shall
designate.
ARTICLE XX
AMENDMENTS
20.1 AMENDMENTS. This Agreement may be amended at any time and from time
to time and, if amended, the General Partner shall file, or cause to be filed,
an amendment of the certificate of limited partnership with the appropriate
authorities, in the even that the General Partner determines the filing of such
amendment to be necessary or appropriate.
ARTICLE XXI
SPECIAL POWER OF ATTORNEY
21.1 APPOINTMENT OF GENERAL PARTNER AS ATTORNEY-IN-FACT; PURPOSES OF
SPECIAL POWER OF ATTORNEY. Each Limited Partner and Unit Holder hereby
irrevocably makes, constitutes and appoints the General Partner, with full power
of substitution, its true and lawful attorney-in-fact, for it and in its name,
place and stead, to make, execute, sign, acknowledge, swear to, deliver, record
and file any document or instrument which
29
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may be considered necessary or desirable by the person executing the same to
carry out fully the provisions of this Agreement, including, without limitation,
the following:
(a) The execution of this Agreement, any separate certificate of limited
partnership, any certificate of doing business under an assumed name, and
any other certificate, instrument or document which may be required to be
filed, or which the General Partner deems advisable to file, under the laws
of any state or the regulation of any governmental agency, as well as any
amendments to the foregoing; and
(b) Any instrument or documents which may be required or appropriate to
effect the continuation of the Partnership, to approve the choice of and to
admit any additional or substituted Limited Partners, to dissolve and
terminate the Partnership, to consent to the return to the Limited Partners
of all or any part of their respective capital contributions or to effect
any reduction in the Partnership's capital by reason of distributions to the
Partners.
Notwithstanding the foregoing, this special power of attorney shall not
confer the authority on the attorney-in-fact to act on behalf of the principal
grantor for purposes of the voting procedures set forth in Section 11.4.
21.2 NATURE AND EXERCISE OF SPECIAL POWER OF ATTORNEY. The foregoing
special power of attorney shall be one which:
(a) is a special power of attorney coupled with an interest, is
irrevocable and shall survive the death or legal incapacity of the grantor;
(b) may be exercised by the General Partner for each Limited Partner and
Unit Holder by facsimile signature or by executing any instrument with a
single signature as attorney-in-fact for all Limited Partners and Unit
Holders; and
(c) shall survive the delivery of any assignment of an Interest or Unit,
except that where the assignee of the Interests has been approved by the
General Partner for admission to the Partnership as a substituted Limited
Partner and the transfer of a Unit has been recorded on the books and
records of the Partnership, this special power of attorney shall survive the
delivery of such assignment for the sole purpose of enabling the General
Partner to execute, acknowledge and file any instrument or document
necessary to effect the foregoing.
ARTICLE XXII
MISCELLANEOUS
22.1 BINDING EFFECT. Except as herein otherwise provided to the contrary,
this Agreement shall be binding upon and inure to the benefits of the parties
hereto, their personal representatives, successors and assigns.
22.2 APPLICABLE LAWS. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware.
22.3 EXECUTION IN COUNTERPARTS. This Agreement may be executed in several
counterparts, and all so executed shall constitute one agreement, binding on all
of the parties hereto, notwithstanding that all of the parties are not signatory
to the original or the same counterpart.
22.4 SEVERABILITY. In the event that any sentence, paragraph, provision,
section or article of this Agreement is declared by a court of competent
jurisdiction to be void, such sentence, paragraph, provision, section or article
shall be deemed severed from the remainder of the Agreement and the balance of
the Agreement shall remain in effect.
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22.5 HEADINGS. Titles or captions contained in this Agreement are inserted
only as a matter of convenience and for reference. Such titles and captions
shall not be construed to define, limit, extend or describe the scope of this
Agreement nor the intent of any provision hereof.
22.6 SINGULAR AND PLURAL; GENDER. Whenever required by the context hereof,
the singular shall include the plural, and vice versa; the masculine gender
shall include the feminine and neuter genders, and vice versa.
IN WITNESS WHEREOF, the parties hereto have executed this Second Amended and
Restated Agreement of Limited Partnership as of the day and year first above
written.
GENERAL PARTNER:
SHEARSON UNION SQUARE/GP CORP.
By: /s/ ELIZABETH R. HICKS
--------------------------------------
Its: VICE PRESIDENT
ASSIGNOR LIMITED PARTNER:
SHEARSON UNION SQUARE
DEPOSITARY CORP.
By: /s/ ELIZABETH R. HICKS
--------------------------------------
Its: VICE PRESIDENT
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UNION SQUARE HOTEL PARTNERS, L.P.
3 WORLD FINANCIAL CENTER, 29TH FLOOR, NEW YORK, NEW YORK 10285
PROXY FOR SPECIAL MEETING
THIS PROXY IS SOLICITED ON BEHALF OF
THE GENERAL PARTNER OF UNION SQUARE HOTEL PARTNERS, L.P.
The undersigned hereby appoints Union Square Depositary Corp. as Proxy, with
the power to appoint a substitute, and hereby authorizes it to represent and
vote separately in accordance with the directions below, one vote per unit of
the economic and certain other rights attributable to the limited partnership
interests in Union Square Hotel Partners, L.P. ("the Partnership") held as of
record by the undersigned on January 10, 1997, at the Special Meeting of the
Partnership to be held on February 14, 1997, or at any adjournment or
postponement thereof.
In its discretion, the Proxy is authorized to vote upon such other business
as may properly be brought before the Special Meeting or any postponement or
adjournment thereof.
YOU ARE ENCOURAGED TO SPECIFY YOUR CHOICES BY MARKING THE APPROPRIATE BOXES
ON THE REVERSE SIDE, BUT YOU NEED NOT MARK ANY BOXES IF YOU WISH TO VOTE IN
ACCORDANCE WITH THE GENERAL PARTNER'S RECOMMENDATION. PLEASE SIGN AND DATE THIS
CARD ON THE REVERSE. A RETURN ENVELOPE IS ENCLOSED FOR YOUR CONVENIENCE IN
RETURNING THIS CARD.
<PAGE>
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED
BELOW. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR ITEM 1.
THE GENERAL PARTNER RECOMMENDS A VOTE FOR ITEM 1.
Item 1. A proposal to approve the sale of the Partnership's principal asset,
the real property located at 345 Stockton Street, San Francisco, California and
the related improvements and personalty commonly known as the "Grand Hyatt San
Francisco" (collectively, the "Hotel"), pursuant to a Purchase and Sale
Agreement and Joint Escrow Instructions, dated as of November 4, 1996, providing
for (x) the sale of the Hotel by the Partnership to HT-Hotel Equities, Inc.
("HT-Hyatt"), an affiliate of California Hyatt Corporation (the operator of the
Hotel), subject to certain conditions, for $126,900,000 in cash and the
assumption by HT-Hyatt of the Partnership's outstanding nonrecourse indebtedness
in favor of Hyatt Corporation, which indebtedness is secured by a third deed of
trust on the Hotel, and (y) the assumption by HT-Hyatt of all obligations of the
Partnership under the lease arrangement pursuant to which California Hyatt
Corporation operates the Hotel, all as more fully described in the enclosed
Proxy Statement.
FOR: / / AGAINST: / / ABSTAIN: / /
DATE _____________________________
__________________________________
SIGNATURE(S)
__________________________________
SIGNATURE(S)
NOTE: Please sign exactly as name
appears hereon. Joint owners
should each sign. When signing as
attorney, executor, administrator,
trustee or guardian, please give
full title as such.
YOUR VOTE IS IMPORTANT TO US. PLEASE COMPLETE, DATE, AND SIGN THE ABOVE PROXY
CARD AND RETURN IT PROMPTLY IN THE ACCOMPANYING POSTAGE-PAID ENVELOPE.
