UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
OR
[ ] TRANSITION PERIOD PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number: 33-6678
UNION SQUARE HOTEL PARTNERS, L. P.
----------------------------------------------------
Exact name of registrant as specified in its charter
Delaware 13-3389008
---------------- ------------------
State or other jurisdiction I.R.S. Employer Identification No.
of incorporation or organization
ATTN: Andre Anderson
3 World Financial Center,
29th Floor, New York, New York 10285
- ------------------------------- --------
Address of principal executive offices zip code
Registrant's telephone number, including area code: (212) 526-3237
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
DEPOSITARY UNITS OF LIMITED PARTNERSHIP INTEREST
-----------------------------------
Title of Class
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of the Registrant's knowledge, in definitive proxy
or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. (x)
Aggregate market value of the voting stock held by non-affiliates of the
registrant: Not applicable.
Documents Incorporated by Reference:
Portions of Parts I, II, III and IV are incorporated by reference to the
Partnership's Annual Report to Unitholders for the year ended December 31,
1996, filed as an exhibit under Item 14.
PART I
Item 1. Business
(a) General Development of Business.
Union Square Hotel Partners, L.P. (the "Partnership), formerly Shearson
Union Square Associates L.P. (see Item 10. "Certain Matters Involving
Affiliates"), is a Delaware limited partnership formed in June 1986. The
general partner of the Partnership is Union Square/GP Corp. (the "General
Partner"), formerly Shearson Union Square/GP Corp. (see Item 10.
"Certain Matters Involving Affiliates"), a Delaware corporation and an
affiliate of Lehman Brothers Inc. ("Lehman"), formerly Shearson Lehman
Brothers Inc. (see Item 10. "Certain Matters Involving Affiliates").
The Partnership was formed to acquire the Hyatt on Union Square (the
"Property" or "Hotel") located in San Francisco, California and operated
under a long-term lease (the "Operating Lease") by California Hyatt
Corporation ("California Hyatt"), a subsidiary of Hyatt Corporation
("Hyatt"). Additional information concerning the Operating Lease is
incorporated by referenced to Note 3 "Real Estate" of the Notes to the
Financial Statements contained in the Partnership's Annual Report to
Unitholders for the year ended December 31, 1996, filed as an exhibit
under Item 14. The Hotel was renamed the Grand Hyatt San Francisco on
February 1, 1990.
Between September 24, 1986, the date of the initial closing, and March
26, 1987, the date of the final closing, 7,174,100 depositary units of
limited partnership interest ("Units", holders of Units are herein
referred to as "Unitholders") were issued. The net proceeds of the
offering, after payment of offering and organization costs and
acquisition fees, aggregated $67,650,091.
The Partnership commenced operation on August 29, 1986 with the
acquisition of the Hotel for a purchase price of $127,727,472. The
purchase price, related costs and establishment of initial reserve
accounts were funded by the issuance of (1) a first mortgage loan (the
"Mortgage Loan") for $70,000,000 from the Bank of Nova Scotia ("BNS");
(2) a loan payable secured by a second mortgage on the Hotel (the "Loan
Payable") for $13,325,000; and (3) a note payable (the "Note Payable")
for $55,000,000. The Note Payable was issued by an affiliate of the
General Partner to enable the Partnership to consummate the purchase of
the Hotel and was repaid in full on January 13, 1987 from the proceeds of
the offering.
Sale of Hotel; Liquidation of the Partnership. The Hotel was sold on
February 21, 1997, following the receipt of approval from holders of a
majority of the Partnership's outstanding Units, which was obtained at a
special meeting of the Partnership held on February 14, 1997 (the
"Special Meeting"). The General Partner desires to dissolve the
Partnership in 1997 and to make one or more liquidating distributions in
accordance with the terms of the Partnership Agreement. For further
information concerning the sale of the Hotel and planned liquidation,
please refer to Item 7. "Management's Discussion and Analysis of
Financial Condition and Results of Operations" contained herein, and to
Note 3 "Real Estate", Note 4 "Restructuring Agreement and Subsequent
Agreement Modifications", Note 5 "Transactions with Related Parties" and
Note 8 "Subsequent Event" of the Notes to the Financial Statements
contained in the Partnership's Annual Report to Unitholders for the year
ended December 31, 1996, filed as an exhibit under Item 14.
(b) Financial Information About Industry Segments.
Prior to the sale of the Hotel, the Partnership's sole business had been
to own and lease the Hotel. All of the Partnership's revenues and assets
have related solely to such industry segment.
(c) Narrative Description of Business.
As the Hotel constituted the principal asset of the Partnership, the
Partnership Agreement requires that the Partnership's assets, consisting
principally of the net proceeds from the sale of the Hotel, be
distributed to partners, and that the Partnership thereafter be
liquidated and dissolved. Any such distributions will be made only after
satisfaction of all debts, liabilities and obligations of the
Partnership, payment of other expenses and the establishment of any
reserves for contingencies that the General Partner deems necessary. For
further information concerning the sale of the Hotel and planned
liquidation, please refer to Item 7. "Management's Discussion and
Analysis of Financial Condition and Results of Operations" contained
herein, and to Note 3 "Real Estate", Note 4 "Restructuring Agreement and
Subsequent Agreement Modifications", Note 5 "Transactions with Related
Parties" and Note 8 "Subsequent Event" of the Notes to the Financial
Statements contained in the Partnership's Annual Report to Unitholders
for the year ended December 31, 1996, filed as an exhibit under Item 14.
Employees.
The Partnership's business is managed by the General Partner, and the
Partnership has no employees. The Hotel's staff are employees of
California Hyatt.
Item 2. The Property
The Hotel is 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 room, conference and banquet
facilities and has two full service restaurants and one lounge.
Additional information regarding the Hotel is incorporated by reference
to Note 3 "Real Estate" of the Notes to the Financial Statements
contained in the Partnership's Annual Report to Unitholders for the year
ended December 31, 1996, filed as an exhibit under Item 14.
Item 3. Legal Proceedings
Incorporated by reference to Note 7 "Litigation" of the Notes to the
Financial Statements contained in the Partnership's Annual Report to
Unitholders for the year ended December 31, 1996, filed as an exhibit
under Item 14.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to the Unitholders for a vote through the
solicitation of proxies or otherwise during the fourth quarter of the
Partnership's past fiscal year.
To obtain approval for the sale of the Partnership's Hotel, a proxy
solicitation statement was mailed to Limited Partners on January 10, 1997
and a supplement was mailed on February 3, 1997. At the Special Meeting,
the sale was approved by unitholders holding a majority of the
outstanding units.
PART II
Item 5. Market for the Partnership's Limited Partnership interests and
Security Holder Matters
(a) Market Information. There is no established trading market for the
Units.
(b) Holders. The number of Unitholders of record as of December 31, 1996
was 5,766.
(c) Dividends. Cash distributions have remained suspended since the
second quarter of 1988. However, pursuant to the settlement of class
actions against the Partnership and others (the "Settlement"), Shearson
Lehman Brothers Inc. ("Shearson") paid cash distributions to class member
Limited Partners, in the amount of $.40 per Unit on February 12, 1993,
$.30 per Unit on February 14, 1992 and $.10 per Unit on March 8, 1991,
for the fiscal years ended December 31, 1992, 1991 and 1990,
respectively.
As the Hotel constituted the principal asset of the Partnership, the
Partnership Agreement requires that the Partnership's assets, consisting
principally of the net proceeds from the sale of the Hotel, be
distributed to partners, and that the Partnership thereafter be
liquidated and dissolved. Any such distributions will be made only after
satisfaction of all debts, liabilities and obligations of the
Partnership, payment of other expenses and the establishment of any
reserves for contingencies that the General Partner deems necessary.
Item 6. Selected Financial Data
Selected Partnership financial data for the five years ended December 31 is
shown below. This data should be read in conjunction with the Partnership's
financial statements which are incorporated by reference to the Partnership's
Annual Report to Unitholders for the year ended December 31, 1996, filed as an
exhibit under Item 14.
For the Years ended December 31,
1996 1995 1994 1993 1992
Total Income $12,230,697 $ 9,051,456 $ 7,005,899 $ 5,412,650 $ 4,255,525
Net Loss (5,562,891) (9,717,080) (11,015,227) (12,404,566) (13,825,960)
Net Loss
Per Unit(1) (0.77) (1.34) (1.52) (1.71) (1.91)
Long-term
obligations(2) 141,139,246 135,589,637 130,684,497 126,508,947 122,783,001
Total Assets 103,896,271 103,454,110 106,774,719 109,887,083 115,656,493
Cash Distributions
Per Unit(1) .00 .00 .00 .00 .40(3)
(1) Based on 7,174,100 units outstanding.
(2) Accrued interest is not included in long-term obligations with the
exception of interest accrued on the Loan Payable which, according to the
original terms thereof, is not payable currently. In addition, pursuant
to the Restructuring, past due interest on the Mortgage Loan was deferred
and is due and payable upon maturity of the Mortgage Loan. Accordingly,
such deferred interest is included as a long-term obligation.
(3) Paid by Shearson pursuant to the Settlement.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Liquidity and Capital Resources
- -------------------------------
The Partnership's liquidity and capital resources were substantially
impacted by the sale of the Hotel on February 21, 1997. The Partnership
received net proceeds from the sale of $6.9 million, which were deposited
in the Blocked Account described below. Additionally, the Partnership
was reimbursed for actual and accrued costs relating to the sale in the
amount of $1,794,116. The transaction resulted in a gain on sale of
approximately $31,900,000, which will be reflected in the Partnership's
Statement of Operations in the first quarter of 1997. Pursuant to the
transaction, the General Partner utilized a portion of the sale proceeds
to repay in full the First Deed of Trust Note held by BNS, which
indebtedness was approximately $86,900,000 as of February 21, 1997.
Additionally, $30,000,000 was paid to Capital Growth Mortgage Investors,
L.P. ("Capital Growth"), the holder of a Second Deed of Trust Note
secured by the Hotel.
The General Partner desires to dissolve the Partnership in 1997 and to
make one or more liquidating distributions in accordance with the terms
of the Partnership Agreement. Any such distributions will be made only
after satisfaction of all debts, liabilities and obligations of the
Partnership (excluding the amount of the unsecured debt obligations
forgiven as described in Note 5. "Transactions with Related Parties" of
the Notes to the Financial Statements contained in the Partnership's
Annual Report to Unitholders for the year ended December 31, 1996, filed
as an exhibit under Item 14.), payment of other expenses of the
transaction and of the dissolution and liquidation of the Partnership,
and the establishment of any reserves for contingencies that the General
Partner deems necessary.
On January 24, 1997, Cal Kan, Inc., a limited partner of Capital Growth,
filed a purported derivative and class action complaint in the Court of
Chancery in the State of Delaware against the Partnership, the General
Partner, Lehman Brothers Holdings, Inc. ("Lehman") and the general
partner of Capital Growth (the "Cal Kan Litigation"). Capital Growth is
also a nominal defendant in the action. The complaint alleges that (a)
the Allocation and Release Agreement between the Partnership and Capital
Growth (the "Allocation Agreement"), constitutes (i) a waste of Capital
Growth's assets, serving no valid business purpose of Capital Growth,
(ii) a fraudulent conveyance by the Partnership and (iii) a violation of
the Partnership Agreement and of the Capital Growth partnership
agreement; (b) in connection with the sale of the Hotel, the General
Partner, Capital Growth's general partner and Lehman each breached
various fiduciary duties alleged to be owed to the plaintiffs, including
by usurping opportunities that should have been available to Capital
Growth; and (c) the defendants' actions relating to the foregoing
constituted a conspiracy among such parties. The plaintiffs seek
injunctive relief to prevent the Partnership from distributing to
Unitholders and the General Partner any cash proceeds from the sale of
the Hotel, and instead seek to have a receiver appointed following the
Sale to effect an application of such cash proceeds to the Second
Mortgage Note in a greater amount than was agreed to in the Allocation
Agreement. Repayment of the First Mortgage Note would be permitted. No
request was made to enjoin the Special Meeting or consummation of the
Sale. The plaintiffs also request that the court award unspecified
damages and litigation expenses.
In order not to delay or otherwise impair the sale of the Hotel, and
pursuant to a demand by Cal Kan, on February 21, 1997, the Partnership
and Capital Growth entered into a Non-Distribution and Security Agreement
and other related agreements (collectively, the "Non-Distribution
Agreement"). Pursuant to the Non-Distribution Agreement, the Partnership
deposited certain net sales proceeds from the transaction, in the amount
of $6,911,149, which otherwise would have been available to the
Partnership under the Allocation Agreement, in a restricted bank account
(the "Blocked Account") with a nationally-recognized commercial bank.
The terms of the Non-Distribution Agreement generally prohibit the
release of funds from the Blocked Account until April 21, 1997, and allow
Capital Growth a security interest in the Blocked Account to secure
certain of the Partnership's obligations to Capital Growth under the Non-
Distribution Agreement, and certain obligations which may be determined
by the Cal Kan Litigation. The funds in the Blocked Account will be
released to the Partnership, free from Capital Growth's security
interest, on April 22, 1997, unless the Blocked Account is extended by
agreement between the Partnership and Capital Growth, or by court order.
A preliminary injunction hearing is currently scheduled for April 21,
1997, to determine whether the Partnership should be prohibited from
making distributions to its unitholders pending resolution of the Cal Kan
Litigation. However, the parties to the lawsuit have discussed an
agreement pursuant to which they would forego the preliminary injunction
hearing provided the parties request and receive a trial date that would
allow for completion of a full trial on the merits before June 21, 1997,
and as long as the Partnership agrees not to make distributions to
unitholders before that date. The Partnership is awaiting a ruling from
the court on this request. Although the outcome of litigation of this
nature cannot be predicted with certainty, the Partnership's assessment
of the Cal Kan Litigation is that the Partnership has strong defenses to
the claims against it and that the Partnership is entitled to the
benefits of the Allocation Agreement negotiated on behalf of the
Partnership.
No assurance can be made that the Cal Kan Litigation or any other claim
which may arise will be resolved in a timely manner or without
significant expense to the Partnership. In light of the Cal Kan
Litigation, the General Partner cannot accurately predict whether it will
make a liquidating distribution within 120 days of the completion of the
sale of the Hotel as had been stated in the Proxy Statement. The General
Partner does not currently expect to make any liquidating distribution
prior to a final resolution of the Cal Kan Litigation, although it
reserves the right to do so. In addition, any expense to the Partnership
of obtaining such a resolution (including without limitation the costs of
defending the matter and any other claim which may arise, and the
amount, if any, of any damages or settlement payments to be borne by the
Partnership) would reduce the amount of net cash proceeds otherwise
available for distribution.
After settling the Partnership's remaining liabilities and establishing a
reserve for contingencies, the General Partner currently estimates that
approximately $12 million ($1.67 per unit) would be available for
distribution but for the Cal Kan Litigation.
In view of the then pending sale of the Hotel, the Partnership's real
estate at cost, less accumulated depreciation at December 31, 1996, was
recorded on the Partnership's Balance Sheet as "Property held for
disposition," without any impact to net income.
Results of Operations
1996 versus 1995
- ----------------
The average occupancy rate and average room rate at the Hotel for the year
ended December 31, 1996 were 85.8% and $158.15, respectively, compared to 81.3%
and $142.25, respectively, for 1995.
For the year ended December 31, 1996, the Partnership incurred a net loss of
$5,562,891, compared to a net loss of $9,717,080 for the year ended December
31, 1995. The decrease in the Partnership's net loss is primarily attributable
to an increase in rental and interest income, and a decrease in depreciation
and amortization, which was partially offset by increases in general and
administrative expenses and interest expense.
For the year ended December 31, 1996, rental income included operating
income of $10,664,266, compared to $7,677,616 for the year ended
December 31, 1995. The improvement for 1996 is due primarily to improved
Hotel operating results. Operating results were positively impacted by
higher average occupancy and room rates at the Hotel during 1996 compared
to 1995, which resulted in increases in room sales, food and beverage
sales and telecommunication sales during 1996 compared to 1995. Interest
income for the year ended December 31, 1996 was $157,781, compared to
$123,210 for the year ended December 31, 1995. The increase in 1996 is
due primarily to higher average cash balances being maintained by the
Partnership.
Total expenses were $17,793,588 for the year ended December 31, 1996,
compared to $18,768,536 for the year ended December 31, 1995. The
decrease is due primarily to lower depreciation and amortization, due to
the Partnership's real estate being reclassified at September 30, 1996,
as Property held for disposition. This decrease was partially offset by
higher interest expense resulting from the compounding of interest on the
principal debt balances and higher general and administrative expenses.
General and administrative expenses were $265,869 for the year ended
December 31, 1996, compared to $206,467 for the year ended
December 31, 1995. The increase in 1996 is due primarily to the payment
to the City of San Francisco for 1994, 1995 and 1996 taxes on business
receipts and an increase in Partnership administrative services relating
to the proxy solicitation. The increases were partially offset by
decreases in consulting, legal and audit fees.
1995 versus 1994
- ----------------
The average occupancy rate and average room rate for the year ended
December 31, 1995 were 81.3% and $142.25, respectively, compared to 75.5%
and $141.17, respectively, for 1994.
For the year ended December 31, 1995, the Partnership incurred a net loss
of $9,717,080, compared to a net loss of $11,015,227 for the year ended
December 31, 1994. The decrease in the Partnership's net loss was
primarily attributable to an increase in rental income and interest
income, which was partially offset by an increase in interest expense.
For the year ended December 31, 1995, rental income included operating
income of $7,677,616, compared to $5,816,107 for the same period in 1994.
The improvement for the year ended December 31, 1995 was largely due to
improved Hotel operating results. Operating results were positively
impacted by higher average occupancy and room rates at the Hotel during
1995 compared to 1994, which resulted in increases in room sales, food
and beverage sales, telecommunication sales and other rental income for
1995. Interest income for the year ended December 31, 1995 was $123,210,
compared with $39,454 for the same period in 1994. The increase in 1995
was due primarily to the higher cash balances being maintained by the
Partnership and higher interest rates.
Total expenses were $18,768,536 for the year ended December 31, 1995,
compared to $18,021,126 for the year ended December 31, 1994. The
increase primarily was due to higher interest expense resulting from the
compounding of interest on the principal debt balance and an increased
prime rate during 1995. This increase was partially offset by lower
depreciation and amortization.
Item 8. Financial Statements and Supplementary Data
Incorporated by reference to the Partnership's Annual Report to
Unitholders for the year ended December 31, 1996, filed as an exhibit
under Item 14 and Schedule III.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
The Partnership has no officers or directors. The General Partner, Union
Square/GP Corp., formerly Shearson Union Square/GP Corp., is an affiliate
of Lehman, and has offices at the same location as the Partnership. The
General Partner manages and controls substantially all of the
Partnership's affairs and has general responsibility and ultimate
authority in all matters affecting the Partnership business. All of the
officers and directors of the General Partner are also officers and
employees of Lehman.
Certain officers of the General Partner are now serving (or in the past
have served) as officers or directors of entities which act as general
partners of a number of real estate limited partnerships which have
sought relief under the United States Bankruptcy Code. The partnerships
which have filed bankruptcy petitions own real estate which has been
adversely affected by the economic conditions in the markets in which
that real estate is located and, consequently, the partnerships sought
the protection of the bankruptcy laws primarily to protect the
partnerships' assets from loss through foreclosure.
The Officers and/or Directors of the General Partner are as follows:
Name Office
Jeffrey C. Carter President, Director and Chief Financial Officer
Rocco F. Andriola Director and Vice President
Regina Hertl Vice President
Michael Marron Vice President
There is no family relationship among any of the foregoing directors or
officers. All of the foregoing directors have been elected to serve one-
year terms. The business experience and age of each of the directors and
officers of the General Partner of the Partnership is detailed below.
Jeffrey C. Carter, 51, is a Senior Vice President of Lehman Brothers in
the Diversified Asset Group. Mr. Carter joined Lehman Brothers in
September 1988. From 1972 to 1988, Mr. Carter held various positions
with Helmsley-Spear Hospitality Services, Inc. and Stephen W. Brener
Associates, Inc. including Director of Consulting Services at both firms.
From 1982 through 1987, Mr. Carter was President of Keystone Hospitality
Services, an independent hotel consulting and brokerage company. Mr.
Carter received his B.S. degree in Hotel Administration from Cornell
University and an M.B.A. degree from Columbia University.
Rocco F. Andriola, 38, is a Managing Director of Lehman Brothers in its
Diversified Asset Group and has held such position since October 1996.. Since
joining Lehman Brothers in 1986, Mr. Andriola has been involved in a wide range
of restructuring and asset management activities involving real estate and
other direct investment transactions. From June 1991 through September 1996,
Mr. Andriola held the position of Senior Vice President in Lehman's Diversified
Asset Group. From June 1989 through May 1991, Mr. Andriola held the position
of First Vice President in Lehman's Capital Preservation and Restructuring
Group. From 1986-89, Mr. Andriola served as a Vice President in the Corporate
Transactions Group of Shearson Lehman Brothers' office of the general counsel.
Prior to joining Lehman Brothers, Mr. Andriola practiced corporate and
securities law at Donovan Leisure Newton & Irvine in New York. Mr. Andriola
received a B.A. from Fordham University, a J.D. from New York University School
of Law, and an LL.M in Corporate Law from New York University's Graduate School
of Law.
Regina M. Hertl, 38, is a First Vice President of Lehman Brothers in its
Diversified Asset Group and is responsible for the investment management of
commercial and residential real estate, and a venture capital portfolio. From
January 1988 through December 1988, Ms. Hertl was Vice President of the Real
Estate Accounting Group within the Controller's Department of Shearson Lehman
Brothers. From September 1986 through December 1987, she was an Assistant Vice
President responsible for real estate accounting analysis within the
Controller's Department at Shearson. From September 1981 to September 1986,
Ms. Hertl was employed by the accounting firm of Coopers & Lybrand. Ms. Hertl,
who is a Certified Public Accountant, graduated from Manhattan College in 1981
with a B.S. degree in Accounting.
Michael Marron, 33, is a Vice President of Lehman Brothers and has been a
member of the Diversified Asset Group since 1990 where he has actively managed
and restructured a diverse portfolio of syndicated limited partnerships. Prior
to joining Lehman Brothers, Mr. Marron was associated with Peat Marwick
Mitchell & Co. serving in both its audit and tax divisions from 1985 to 1989.
Mr. Marron received a B.S. degree from the State University of New York at
Albany in 1985 and is a Certified Public Accountant.
Certain Matters Involving Affiliates
On July 31, 1993, Shearson Lehman Brothers Inc. ("Shearson") sold certain of
its domestic retail brokerage and asset management businesses to Smith Barney,
Harris Upham & Co. Incorporated ("Smith Barney"). Subsequent to this sale,
Shearson changed its name to Lehman Brothers Inc. The transaction did not
affect the ownership of the Partnership or the Partnership's General Partner.
However, the assets acquired by Smith Barney included the name "Shearson."
Consequently, effective October 21, 1993, the General Partner changed its name
to Union Square/GP Corp., and effective December 29, 1993, the Partnership
changed its name to Union Square Hotel Partners, L.P. to delete any reference
to "Shearson."
Item 11. Executive Compensation
All of the directors and executive officers of the General Partner are
employees of Lehman Brothers Inc. They do not receive any salaries or
other compensation from the Partnership.
Item 12. Security Ownership of Certain Beneficial Owners and Management
(a) Security ownership of certain beneficial owners
To the knowledge of the General Partner, no person owned more than 5% of
the outstanding Units as of December 31, 1996.
(b) Security ownership of management
As of December 31, 1996, none of the officers and directors of the General
Partner owned any Units.
(c) Changes in control
None.
Item 13. Certain Relationships and Related Transactions
All of the officers and directors of the General Partner are employees of
Lehman Brothers Inc. Information regarding transactions with affiliates is
incorporated by reference to Note 5 "Transactions with Related Parties" of the
Notes to Financial Statements contained in the Partnership's Annual Report to
Unitholders for the year ended December 31, 1996, filed as an exhibit under
Item 14.
PART IV
Item 14. Exhibits, Financial Statements, and Reports on Form 8-K
(a)(1) Financial Statements:
Balance Sheets - At December 31, 1996 and 1995 (1)
Statements of Operations - For the years ended
December 31, 1996, 1995 and 1994 (1)
Statements of Partners' Deficit - For the years
ended December 31, 1996, 1995 and 1994 (1)
Statements of Cash Flows - For the years ended
December 31, 1996, 1995 and 1994 (1)
Notes to the Financial Statements (1)
Report of Independent Public Accountants (1)
(1) Incorporated by reference to the Partnership's Annual Report to
Unitholders for the year ended December 31, 1996, which is filed as an
exhibit under Item 14.
(a)(2) Financial Statement Schedules:
Schedule III - Real Estate and Accumulated Depreciation F-1
Report of Independent Public Accountants on Schedule III
- Real Estate and Accumulated Depreciation F-2
All other schedules for which provision is made in the
applicable accounting regulations of the Securities and Exchange
Commission have been omitted as (1) the information required is
disclosed in the financial statements and notes thereto; (2) the
schedules are not required under the related instructions; or
(3) the schedules are inapplicable.
(a)(3) Exhibits: See Exhibit Index contained herein.
(b) Reports on Form 8-K: On November 8, 1996, the Partnership
filed a Form 8-K which provided a discussion of definitive
agreements executed by the Partnership relating to the proposed
sale of the Hotel, the Grand Hyatt San Francisco.
On February 21, 1997, the Partnership filed a Form 8-K which
announced the closing of the sale of the Hotel, the Grand Hyatt
San Francisco, to Grand Hyatt SF General Partnership ("GH").
(c) Exhibit Index
Exhibit Number
3.a Amended and Restated Agreement of Limited Partnership of Shearson Union
Square Associates dated August 18, 1986 (included in Amendment No. 2 to
registration Statement No. 33-6678) incorporated by reference.*
10.a Stipulation and Agreement of Compromise and Settlement filed in the Court
of Chancery of the State of Delaware in and for New Castle County on June
8, 1990.*
10.b Documents for Restructuring of Indebtedness Encumbering the Grand Hyatt
Union Square Hotel among Shearson Union Square Associates Limited
Partnership, as Borrower, and The Bank of Nova Scotia, as First Lien
Holder, Capital Growth Mortgage Investors, L.P., as Second Lien Holder,
Hyatt Corporation, as Third Lien Holder, and California Hyatt
Corporation, as Hotel Manager dated June 30, 1992.*
10.c Purchase and Sale Agreement and Joint Escrow Instructions dated as of
November 5, 1996 (Incorporated by reference from Exhibit (10)(a) to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1996).*
10.d Allocation and Release Agreement dated as of November 1, 1996
(Incorporated by reference from Exhibit (10)(b) to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended September 30, 1996).*
10.e Consent and Release Agreement dated as of November 1, 1996 (Incorporated
by reference from Exhibit (10)(c) to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1996).*
10.f Non-Distribution and Security Agreement dated as of February 21, 1997,
between Union Square Hotel Partners, L.P. and Capital Growth Mortgage
Investors, L.P.
13.1 Annual Report to Unitholders for the year ended December 31, 1996.
27.1 Financial Data Schedule
______________________
*Previously filed.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
UNION SQUARE HOTEL PARTNERS, L.P.
BY: Union Square GP/Corp.
General Partner
Date: March 28, 1997
BY: s/Jeffrey C. Carter/
Name: Jeffrey C. Carter
Title: President, Director and
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
UNION SQUARE/GP CORP.
General Partner
Date: March 28, 1997
BY: s/Jeffrey C. Carter/
Name: Jeffrey C. Carter
Title: President, Director and
Chief Financial Officer
Date: March 28, 1997
BY: s/Rocco F. Andriola/
Name: Rocco F. Andriola
Title: Director and Vice
President
Date: March 28, 1997
BY: s/Regina Hertl/
Name: Regina Hertl
Title: Vice President
Date: March 28, 1997
BY: s/Michael Marron/
Name: Michael Marron
Title: Vice President
EXHIBIT 13.1
UNION SQUARE HOTEL PARTNERS, L.P.
1996 ANNUAL REPORT TO UNITHOLDERS
Message to Investors
Presented for your review is the 1996 Annual Report for Union Square Hotel
Partners, L.P. (the "Partnership"). This report includes an update on the sale
of the Partnership's hotel, the Grand Hyatt San Francisco (the "Hotel"), and
the Partnership's audited financial statements for the year ended December 31,
1996.
Sale of Hotel and Liquidation of the Partnership
As previously reported, the Partnership entered into a Purchase and Sale
Agreement and Joint Escrow Instructions (the "Purchase and Sale Agreement")
dated November 4, 1996, providing for a sale of the Hotel to an affiliate of
California Hyatt Corporation, the current operator of the Hotel ("California
Hyatt"). At the same time, the General Partner entered into separate
agreements with the Partnership's second mortgage holder and its other
unsecured lenders. These agreements were an Allocation and Release Agreement
(the "Allocation Agreement") with Capital Growth Mortgage Investors, L.P.
("Capital Growth"), the holder of the second deed of trust note secured by the
Hotel, as well as certain unsecured indebtedness of the Partnership, and a
Consent and Release Agreement (the "Consent Agreement") with certain affiliates
of the General Partner (other than Capital Growth) that also are holders of
unsecured indebtedness of the Partnership. Because the general partner of
Capital Growth is an affiliate of the Partnership's General Partner, the
Partnership and Capital Growth each engaged their own independent investment
banking firm to negotiate the terms of the Allocation Agreement and render a
fairness opinion.
The General Partner is pleased to report that on February 21, 1997, the
Partnership consummated the sale of the Hotel to Grand Hyatt SF General
Partnership ("GH"), an affiliate of California Hyatt. The Hotel was sold for
$126,900,000 in cash and the assumption of certain nonrecourse debt, in the
approximate amount of $3.9 million as of December 31, 1996, owed to an
affiliate of GH (the "Transaction"). The Transaction was conditioned upon the
consent of limited partners holding a majority of the Partnership's outstanding
Units, which was obtained at a special meeting of the Partnership held on
February 14, 1997. As part of the Transaction, GH assumed all obligations of
the Partnership with respect to the Hotel's current management arrangements.
In connection with the Transaction, the General Partner utilized approximately
$86,900,000 to repay in full the first deed of trust note held by the Bank of
Nova Scotia. Additionally, in accordance with the Allocation Agreement,
$30,000,000 was paid to Capital Growth in full satisfaction of all of the
Partnership's secured and unsecured obligations to Capital Growth (subject to
the outcome of the Cal Kan Litigation discussed below). Finally, pursuant to
the Consent Agreement, certain affiliates of the General Partner other than
Capital Growth, agreed to fully release the Partnership from all of its
unsecured indebtedness to them in an aggregate amount of $14,334,757 as of
February 21, 1997.
While it is the General Partner's desire to dissolve the Partnership in 1997
and to make one or more liquidating distributions in accordance with the terms
of the Partnership Agreement, we do not intend to make any liquidating
distribution prior to a final resolution of the Cal Kan Litigation, as more
fully discussed in the Litigation section below. Additionally, we must
emphasize that the timing and amount of any distributions to limited partners
may be affected by any resolution of and expenses relating to the Cal Kan
Litigation. After settling the Partnership's remaining liabilities and
establishing a reserve for contingencies, the General Partner currently
estimates that approximately $12 million ($1.67 per unit) would be available
for distribution but for the Cal Kan Litigation.
Litigation
As previously reported, certain litigation has been commenced in the Court of
Chancery in the State of Delaware by Cal Kan Inc., a limited partner of Capital
Growth, against the Partnership, the General Partner, the general partner of
Capital Growth and others, challenging the Allocation Agreement (the "Cal Kan
Litigation"). Although the outcome of litigation of this nature cannot be
predicted with certainty, the Partnership's assessment of the Cal Kan
litigation is that the Partnership has strong defenses to the claims against it
and that the Partnership is entitled to the benefits of the Allocation
Agreement negotiated on behalf of the Partnership. However, in order not to
delay or otherwise impair the sale of the Hotel, and pursuant to a demand by
Cal Kan, on February 21, 1997, the Partnership and Capital Growth entered into
a Non-Distribution and Security Agreement and other related agreements
(collectively, the "Non Distribution Agreement"). The Non-Distribution
Agreement involved depositing certain net sales proceeds from the Transaction,
in the approximate amount of $6,900,000, which otherwise would have been
available to the Partnership under the Allocation Agreement, in a restricted
bank account (the "Blocked Account") with a nationally-recognized commercial
bank. The terms of the Non-Distribution Agreement generally prohibit the
release of funds from the Blocked Account prior to April 21, 1997, and allow
Capital Growth a security interest in the Blocked Account to secure certain of
the Partnership's obligations to Capital Growth under the Non-Distribution
Agreement, and certain obligations which may be determined by the Cal Kan
Litigation. The funds in the Blocked Account will be released to the
Partnership, free from Capital Growth's security interest, on April 22, 1997,
unless the Blocked Account is extended by agreement between the Partnership and
Capital Growth, or by court order.
A preliminary injunction hearing is currently scheduled for April 21, 1997, to
determine whether the Partnership should be prohibited from making
distributions to its unitholders pending resolution of the Cal Kan Litigation.
However, the parties to the lawsuit have discussed an agreement pursuant to
which they would forego the preliminary injunction hearing provided the parties
request and receive a trial date that would allow for completion of a full
trial on the merits before June 21, 1997, and as long as the Partnership agrees
not to make distributions to unitholders before that date. We are awaiting a
ruling from the court on this request.
Summary
The General Partner is pleased to have successfully completed the sale of the
Hotel. Additionally, we are hopeful that the Cal Kan Litigation can be
resolved in a timely manner and that it will not impact the liquidating
distribution and dissolution of the Partnership. We will update you on
developments in future correspondence. In the interim, questions regarding the
Partnership should be directed to your Financial Consultant or First Data
Investor Services Group. All requests for a change of address should be
submitted in writing to the Partnership's transfer agent, Service Data
Corporation, 2424 South 130th Circle, Omaha, NE 68144-2596. Both First Data
Investor Services Group and Service Data Corporation can be reached at (800)
223-3464.
Very truly yours,
Union Square/GP Corp.
The General Partner
s/Jeffrey C. Carter/
Jeffrey C. Carter
President
March 28, 1997
Balance Sheets At December 31, At December 31,
1996 1995
Assets
Real estate, at cost (Note 3):
Land $ -- $ 32,231,229
Building -- 80,121,007
Furniture, fixtures and equipment -- 29,586,047
-- 141,938,283
Less accumulated depreciation -- (43,176,995)
-- 98,761,288
Property held for disposition 96,076,204 --
Cash and cash equivalents 5,291,387 3,378,174
Replacement reserve receivable (Note 3) 1,283,862 500,440
Rent receivable (Note 4) 520,710 318,626
Deferred charges, net of
accumulated amortization of
$4,307,099 in 1996
and $3,849,203 in 1995 724,108 495,582
Total Assets $103,896,271 $103,454,110
Liabilities and Partners' Deficit
Liabilities:
Accounts payable and accrued expenses $ 72,765 $ 51,645
Due to affiliates (Note 5) 11,798 10,397
Mortgage loan payable (Note 4) 70,000,000 70,000,000
Accrued interest 13,537,078 13,104,156
Deferred interest 9,672,070 8,800,319
Notes and loans - affiliates (Notes 4 and 5) 57,585,170 53,016,740
Loan payable - Hyatt (Note 4) 3,882,006 3,772,578
Total Liabilities 154,760,887 148,755,835
Partners' Deficit:
General Partner (1,191,866) (1,136,237)
Limited Partners (49,672,750) (44,165,488)
Total Partners' Deficit (50,864,616) (45,301,725)
Total Liabilities and Partners' Deficit $103,896,271 $103,454,110
Statements of Partners' Deficit
For the years ended December 31, 1996, 1995 and 1994
General Limited
Partner Partners Total
Balance at December 31, 1993 $(928,914) $(23,640,504) $(24,569,418)
Net loss (110,152) (10,905,075) (11,015,227)
Balance at December 31, 1994 (1,039,066) (34,545,579) (35,584,645)
Net loss (97,171) (9,619,909) (9,717,080)
Balance at December 31, 1995 (1,136,237) (44,165,488) (45,301,725)
Net loss (55,629) (5,507,262) (5,562,891)
Balance at December 31, 1996 $ (1,191,866) $(49,672,750) $(50,864,616)
Statements of Operations
For the years ended December 31, 1996 1995 1994
Income
Rental income (Notes 3 and 4):
Operating income $10,664,266 $7,677,616 $5,816,107
Replacement escrow, net 1,406,715 1,247,873 1,147,573
Interest income 157,781 123,210 39,454
Miscellaneous income 1,935 2,757 2,765
Total Income 12,230,697 9,051,456 7,005,899
Expenses
Interest expense (Notes 4 and 5) 13,761,446 13,159,716 12,337,774
Depreciation and amortization 3,766,273 5,402,353 5,474,406
General and administrative 265,869 206,467 208,946
Total Expenses 17,793,588 18,768,536 18,021,126
Net Loss $(5,562,891) $(9,717,080)$(11,015,227)
Net Loss Allocated (Note 2):
To the General Partner $ (55,629) $ (97,171) $ (110,152)
To the Limited Partners (5,507,262) (9,619,909) (10,905,075)
$(5,562,891) $(9,717,080)$(11,015,227)
Per limited partnership unit
(7,174,100 outstanding) $(.77) $(1.34) $(1.52)
Statements of Cash Flows
For the years ended December 31, 1996 1995 1994
Cash Flows From Operating Activities:
Net loss $(5,562,891) $(9,717,080) $(11,015,227)
Adjustments to reconcile net loss
to net cash provided
by operating activities:
Depreciation and amortization 3,766,273 5,402,353 5,474,406
Rental income from replacement escrow (1,406,715) (1,247,873) (1,147,573)
Increase in deferred interest
on notes and loans - affiliate 4,568,430 4,125,104 3,682,402
Increase in accrued interest
on loan payable - Hyatt 109,428 -- --
Increase (decrease) in cash arising
from changes in operating assets
and liabilities:
Rent receivable (202,084) (124,382) (40,703)
Receivable - life safety system -- -- 6,287
Accounts payable and accrued expenses 21,120 (31,741) 31,668
Due to affiliates 1,401 (979) 1,004
Accrued and deferred interest 1,304,673 2,304,087 4,262,789
Net cash provided
by operating activities 2,599,635 709,489 1,255,053
Cash Flows From Investing Activities:
Deferred charges (686,422) -- --
Proceeds from replacement
reserve receivable 623,293 836,939 1,385,996
Additions to real estate (623,293) (836,939) (1,385,996)
Net cash used for investing activities (686,422) -- --
Cash Flows From Financing Activities:
Loan payable - Hyatt -- -- (75,000)
Net cash used for financing activities -- -- (75,000)
Net increase in cash and cash equivalents 1,913,213 709,489 1,180,053
Cash and cash equivalents,
beginning of period 3,378,174 2,668,685 1,488,632
Cash and cash equivalents,
end of period $5,291,387 $3,378,174 $2,668,685
Supplemental Disclosure
of Cash Flow Information:
Cash paid during the period
for interest $7,778,915 $6,730,525 $4,392,583
Notes to the Financial Statements
December 31, 1996, 1995 and 1994
1. Organization
Union Square Hotel Partners, L. P. (the "Partnership"), formerly Shearson Union
Square Associates Limited Partnership (see below), was formed in June 1986
under the Delaware Revised Uniform Limited Partnership Act for the purpose of
acquiring the Hyatt on Union Square (the "Hotel"), located in San Francisco,
California, subject to a long-term operating lease.
Initial capital of $1,000 was contributed by Union Square/GP Corp. (the
"General Partner"), formerly Shearson Union Square/GP Corp. (see below), a
Delaware corporation and an affiliate of Lehman Brothers Inc. The agreement of
limited partnership authorized the issuance of a maximum of 7,174,100
Depository Units (the "Units") which represent Partnership interests. At March
26, 1987, an aggregate of 7,174,100 units were issued, and the offering was
terminated.
On July 31, 1993, Shearson Lehman Brothers Inc. sold certain of its domestic
retail brokerage and asset management businesses to Smith Barney, Harris Upham
& Co. Incorporated ("Smith Barney"). Subsequent to the sale, Shearson changed
its name to Lehman Brothers Inc. ("Lehman"). The transaction did not affect
the ownership of the General Partner. However, the assets acquired by Smith
Barney included the name "Shearson." Consequently, effective October 21, 1993,
the General Partner changed its name to Union Square/GP Corp., and effective
December 29, 1993, the Partnership changed its name to Union Square Hotel
Partners, L. P.
On February 21, 1997, the Partnership closed on the sale of the Hotel (see Note
3). The General Partner intends to dissolve the Partnership in 1997 (see Note
7).
2. Significant Accounting Policies
Basis of Accounting - The accompanying financial statements of the Partnership
have been prepared on the accrual basis of accounting.
Accounting for Impairment - In March 1995, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards No. 121, "Accounting
for the Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed
Of" ("FAS 121"), which requires impairment losses to be recorded on longlived
assets used in operations when indicators of impairment are present and the
undiscounted cash flows estimated to be generated by those assets are less than
the assets' carrying amount. FAS 121 also addresses the accounting for
long-lived assets that are expected to be disposed of. The Partnership adopted
FAS 121 in the fourth quarter of 1995.
Property Held for Disposition - Property held for disposition, which consists
of land, building and personal property, are recorded at the lower of cost less
accumulated depreciation or fair market value less costs to sell. Effective
September 30, 1996, the Partnership reclassified its real estate to "Property
held for disposition" and subsequently the property was no longer depreciated
in accordance with FAS 121. Cost includes the initial purchase price of the
property plus closing costs, acquisition and legal fees, and capital
improvements. Depreciation of real property was computed using the straight
line method based on an estimated useful life of 40 years. Depreciation of
personal property was computed under the straight-line method over an estimated
useful life of 7 years.
When building and personal property additions were sold or otherwise disposed
of, the asset account and related accumulated depreciation account were
relieved, and any gain or loss was included in operations.
Fair Value of Financial Instruments - Statement of Financial Accounting
Standards No. 107, "Disclosures about Fair Value of Financial Instruments"
("FAS 107"), requires that the Partnership disclose the estimated fair values
of its financial instruments. Fair values generally represent estimates of
amounts at which a financial instrument could be exchanged between willing
parties in a current transaction other than in forced liquidation. However, in
many instances current exchange prices are not available for certain of the
Partnership's financial instruments, since no active market generally exists
for such financial instruments.
Fair value estimates are subjective and are dependent on a number of
significant assumptions based on management's judgment regarding future
expected loss experience, current economic conditions, risk characteristics of
various financial instruments, and other factors. In addition, FAS 107 allows
a wide range of valuation techniques, therefore, comparisons between entities,
however similar, may be difficult.
Deferred Charges - The following fees and costs have been capitalized and are
amortized on a straight-line basis over the following periods:
Mortgage consent fee 7 years
Mortgage and loan
origination fee 10-1/3 years
Mortgage loan
placement fee 10-1/3 years
Loan negotiation fee 10-1/3 years
Costs associated with the sale of the Hotel totaling $686,422 were deferred at
December 31, 1996 and will be recognized as a reduction of the gain on sale of
the Hotel in 1997.
Offering Costs - Offering costs are nonamortizable and have been deducted from
the Limited Partners' capital.
Income Taxes - No income tax provision (benefit) has been recorded on the books
of the Partnership, as the respective shares of taxable income (loss) are
reportable by the partners on their individual tax returns.
Partnership Agreement - Pursuant to the terms of the Partnership Agreement, all
profits and losses incurred prior to the month in which Unitholders were first
admitted shall be allocated 99.99% to the General Partner and .01% to the
Assignor Limited Partner. Thereafter, all income, profits and losses shall be
allocated 99% to the Unitholders and 1% to the General Partner, except for the
profits from the sale or other disposition of all or any substantial part of
the Hotel.
Profits of the Partnership from the sale or other disposition of all or any
substantial part of the Hotel shall be allocated to the General Partner in an
amount equal to the greater of 1% of the profits or the amount distributable to
the General Partner as sale or refinancing proceeds from such sale. All
remaining profits shall be allocated among the Unitholders.
Net cash flow shall be distributed 99% to the Unitholders and 1% to the General
Partner until each Unitholder has received an aggregate cumulative compounded
distribution for each fiscal year equal to 12% of their capital investment
("Preferred Return"). Thereafter, distributions shall be allocated 90% to the
Unitholders and 10% to the General Partner.
Sale or refinancing proceeds shall be distributed 99% to the Unitholders
and 1% to the General Partner until such time as the Unitholders have
received cumulative distributions of sale or refinancing proceeds in an
amount equal to their unreturned original investment plus an aggregate
amount of the net cash flow and sale or refinancing proceeds equal to
their aggregate Preferred Return. Any remaining sale or refinancing
proceeds shall first be applied to the payment to the General Partner of
a subordinated disposition fee, if any, equal to 3% of sales
proceeds and thereafter shall be allocated 90% to the Unitholders and
10% to the General Partner.
Cash and Cash Equivalents - Cash and cash equivalents consist of short- term,
highly liquid investments which have maturities of three months or less from
date of issuance. The carrying amount approximates fair value because of the
short maturity of these instruments.
Concentration of Credit Risk - Financial instruments which potentially subject
the Partnership to a concentration of credit risk principally consist of cash
in excess of the financial institutions' insurance limits. The Partnership
invests available cash with high credit quality financial institutions.
Use of Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Reclassifications - Certain prior year amounts have been reclassified in order
to conform to the current year's presentation.
3. Real Estate
The Partnership's real estate consists of a 693-room hotel known as The Grand
Hyatt San Francisco (formerly "Hyatt on Union Square") located in Union Square
in San Francisco, California. The Hotel was originally constructed in 1973 and
was purchased by the Partnership on August 29, 1986.
The Hotel was purchased subject to an operating lease with California Hyatt
Corporation ("California Hyatt"), a subsidiary of Hyatt Corporation ("Hyatt"),
which provides for an initial term of 20 years expiring on December 31, 1994
and two 10-year renewal options. On August 19, 1986, the first 10-year renewal
option was exercised, extending the lease term to December 31, 2004.
Rent payable under the lease has been modified by the restructuring agreement
effective June 30, 1992 (see Note 4). Pursuant to the terms of the operating
lease, California Hyatt is required to maintain a reserve fund on behalf of the
Partnership ("FF&E Reserve Fund") for the replacement of furnishings and
equipment in the Hotel. This reserve is funded by the operating revenues of
the Hotel and will be funded at 3% of the Hotel's gross receipts through 1997
and 4% thereafter. During 1988, the Partnership and California Hyatt mutually
agreed upon a renovation program which was to be effected for a cost not
expected to exceed $20,000,000. During 1989 and early 1990, the renovation
program was completed. The Hotel was renamed The Grand Hyatt San Francisco and
reopened on February 1, 1990. Other conditions of the renovation program
provided that 70% of the 1990 replacement escrow was to be applied to the
Partnership's liability to California Hyatt in 1990. From January 1, 1991 to
June 30, 1992, 70% of replacement escrow income was to be applied to the
outstanding balance of the loan payable to Hyatt. As of December 31, 1990,
$20,676,768 related to the renovation program was expended. In connection with
the reopening of the Hotel in 1990, the Partnership recorded a write-down in
the carrying value of personal property which was replaced during the
renovation, based on the original purchase price allocated to such property.
During 1991, the Partnership and California Hyatt reached an agreement on the
revised terms of California Hyatt's contribution to the renovation program.
This contribution was to be 10% of the total renovation costs, in excess of
funds provided by the FF&E Reserve, up to a maximum of $2,000,000. As a result
of the revised agreement, the total contribution from California Hyatt (which
was fully funded at December 31, 1991) amounted to $1,874,379, and accordingly,
a reduction in the renovation contribution in the amount of $125,621 was
recorded. In addition, renovation costs in excess of $20,000,000 were to be
assumed and capitalized by the Partnership.
Asbestos was removed or abated where necessary, in conjunction with the
installation of sprinklers and other life safety systems. As disclosed in the
original prospectus, the Hotel contains asbestos in certain areas which have
been determined to be nonhazardous and in conformity with all current statutes.
The following is summarized information with respect to the operations of the
Hotel provided by the lessee for the years ended December 31, 1996, 1995 and
1994 (See Note 4):
1996 1995 1994
Hotel revenues $47,087,070 $41,595,914 $38,252,425
Hotel expenses (29,461,753) (27,868,103) (26,698,442)
Gross operating profit 17,625,317 13,727,811 11,553,983
Less:
Adjustments to gross operating profit:
FF&E reserve 1,406,715 1,247,873 1,147,573
Taxes 1,630,190 1,510,965 1,491,415
Other adjustments 2,554,337 2,219,162 2,213,762
5,591,242 4,978,000 4,852,750
Adjusted gross operating profit $12,034,075 $ 8,749,811 $ 6,701,233
Rental income to the Partnership $10,664,266 $ 7,677,616 $ 5,816,107
Sale of Hotel
On November 4, 1996, the Partnership and HT-Hotel Equities, Inc. ("HT"), an
affiliate of California Hyatt Corporation, the current operator of the Hotel,
entered into a Purchase and Sale Agreement and Joint Escrow Instructions (the
"Purchase and Sale Agreement") providing for the sale of the Hotel, subject to
certain conditions, for $126,900,000 in cash and the assumption by HT of
certain of the Partnership's debt of approximately $3.9 million owed to an
affiliate of HT (collectively, the "Transaction"), all as more fully described
in the Purchase and Sale Agreement. HT will assume all obligations of the
Partnership with respect to the Hotel's current management arrangements. As
permitted under the Purchase and Sale Agreement, on February 14, 1997, HT
assigned its rights and obligations to Grand Hyatt SF General Partnership
("GH"), an affiliate of California Hyatt Corporation.
The sale of the Hotel was conditioned upon the consent of limited partners
holding a majority of the Partnership's outstanding units, which was obtained
at a special meeting of the Partnership held on February 14, 1997.
On February 21, 1997, the Partnership completed the sale of the Hotel. The
Partnership received certain net proceeds from the sale in the amount of
$6,911,149. These proceeds were deposited into a restricted bank account
pursuant to the Non-Distribution and Security Agreement discussed in Note 7,
after payment in full of the Partnership's first mortgage note and $30,000,000
in full satisfaction of the Partnership's obligation to Capital Growth Mortgage
Investors, L.P.
The General Partner intends to dissolve the Partnership in 1997 and to make one
or more liquidating distributions in accordance with the terms of the
Partnership Agreement. Any such distributions will be made only after
satisfaction of all debts, liabilities and obligations of the Partnership
(excluding the amount of the unsecured debt obligations forgiven), payment of
other expenses of the Transaction, the dissolution and liquidation of the
Partnership, settlement of the Cal Kan Litigation discussed in Note 7, and the
establishment of any reserves for contingencies that the General Partner deems
necessary.
4. Restructuring Agreement and Subsequent Agreement Modifications
Under the terms of the Mortgage Loan, a regular installment of interest in the
amount of $3,394,650 was due on January 2, 1992. Under the terms of the note
payable to BNS ("BNS Note Payable"), $1 million in principal and $341,502 in
accrued interest was due on December 31, 1991. None of the foregoing payments
were made, and the Partnership did not have sufficient funds to make such
payments. On January 9, 1992, the Partnership received a notice from BNS that
the Partnership was in default on its obligations with respect to the Mortgage
Loan and BNS Note Payable. Such defaults entitled BNS to accelerate the
Mortgage Loan and BNS Note Payable subject to any defenses available to the
Partnership. On January 21, 1992, an affiliate of the General Partner, which
guaranteed the BNS Note Payable, fulfilled its commitment to repay the
outstanding balance of the BNS Note Payable. On March 3, 1992, the Partnership
received a notice whereby the bank declared the entire principal and interest
under the Mortgage Loan immediately due and payable. On March 9, 1992, BNS
recorded, with the San Francisco County Recorder, a Notice of Default and
Election to Sell under Deed of Trust (the "Default Notice").
The default on the Mortgage Loan also constituted an event of default under the
"Loan Payable" (Second Mortgage), the Supplemental Loan (defined below) and the
Loan Payable - Hyatt (defined below). On March 25, 1992, the Partnership
received a notice of acceleration from the holder of the Loan Payable, which
declared the entire principal and accrued interest on the loan due and payable.
On June 30, 1992, the Partnership consummated a restructuring of its financing
and property leasing arrangements (the "Restructuring").
Mortgage Loan Payable - First Deed of Trust Note Under the terms of the
Restructuring, the outstanding principal amount of the Note - $70,000,000 -
continued to accrue interest at the annual rate of 9.699%. Payments of interest
were limited, however, to the Partnership's cash flow from the Hotel. Minimum
interest payments (the "Minimum Payments") were required to be made quarterly
and were computed on the principal balance of the First Deed of Trust (the
"Bank Portion"), less a $15,000,000 principal participation purchased by Lehman
Brothers Lending Corp., formerly Shearson Lending Corp., an affiliate of the
General Partner (the "Lehman Portion"). The par rate for the Minimum Payments
were as follows: 6.5% through January 2, 1994; 7.5% through January 2, 1995;
8.5% through January 2, 1996; and 9.699% thereafter until maturity on January
2, 1997. The amount of any accrued and unpaid interest was added to the
principal of the First Deed of Trust Note.
Lehman Brothers Holdings Inc. (the "Guarantor"), formerly Shearson Lehman
Brothers Holdings Inc., an affiliate of the General Partner, provided a payment
guaranty (the "Guaranty") to the First Mortgagee with respect to the Minimum
Payments required to be made through July 3, 1993. The Guarantor could, at its
sole option, extend the Guaranty for successive one-year periods through the
maturity date of the First Deed of Trust Note. In the event that the Guarantor
did not elect to extend the Guaranty, the Partnership's interest payments
thereafter would be due and payable quarterly, rather than semi-annually as
previously provided. On April 27, 1993, the Guarantor elected not to renew the
Guaranty of the minimum pay rate commencing July 4, 1993.
BNS waived immediate repayment of the past due interest which was also
purchased by Lehman Brothers Lending Corp., but the amount will accrue interest
at the Bank's "prime" rate plus 1%. The balance is due upon maturity of the
note.
On December 31, 1996, the Partnership executed an extension agreement (the
"Extension Agreement") with BNS to modify and extend the First Deed of Trust
Note until April 2, 1997, at which time the entire outstanding principal and
accrued interest balances are due and payable. Under the terms of the
Extension Agreement, the Bank Portion and the Lehman Portion will accrue
interest at LIBOR plus 2.5% and LIBOR plus 1.0%, respectively. As conditions to
the extension, a minimum interest payment of $1,333,613, accrued interest on
the Bank Portion of the note totaling $2,000,000 and $165,000 representing an
extension fee were paid on January 2, 1997. Monthly interest payments are
required on the Bank Portion beginning February 2, 1997 with interest accruing
on the Lehman Portion.
Based on the borrowing rates currently available to the Partnership for
mortgage loans with similar maturities, the fair value of the mortgage loan
payable approximated carrying value as of December 31, 1996.
Pursuant to the sale of the Hotel on February 21, 1997, the Partnership used a
portion of the proceeds from the sale to repay the Mortgage Loan in full.
Loan Payable - Affiliate - Second Deed of Trust Note In connection with the
Restructuring, Capital Growth Mortgage Investors, L.P. ("Capital Growth"), the
holder of the Second Deed of Trust in the Hotel, agreed to reduce the interest
rate applicable to the note from 12.5% to 11%. The reduction of the interest
rate is effective from and after January 2, 1992. Capital Growth also agreed to
waive the mandatory prepayments of interest of $261,199, $1,014,379 and
$1,996,457, otherwise required to be paid on January 2, 1995, January 2, 1996
and January 2, 1997, respectively. Capital Growth also agreed to waive any
prepayment (or yield maintenance) charges in connection with the prepayment of
all or any portion of the principal or accrued interest under the Loan Payable.
On November 4, 1996, the Partnership entered into an Allocation and Release
Agreement (the "Allocation Agreement") with Capital Growth. Pursuant to the
Allocation Agreement, Capital Growth agreed, subject to certain limitations, to
temporarily forebear during the pendency of the sale of the Hotel from pursuing
a foreclosure action on the Loan Payable, and to accept approximately $30
million in repayment of all of the Partnership's obligations to Capital Growth
(including unsecured debt obligations totaling $4,706,884 as of February 21,
1997 and the obligation to reimburse Capital Growth for certain costs). The
remaining second mortgage debt obligation totaling $12,852,548 as of February
21, 1997 was forgiven. Capital Growth's willingness to accept these terms was
conditioned on, among other matters, the proposed Transaction being consummated
by March 31, 1997. The general partner of Capital Growth is an affiliate of the
General Partner. Consequently, the Partnership and Capital Growth each engaged
an independent, nationally recognized investment banking firm to negotiate the
allocation of proceeds available from the sale of the Hotel (after the payment
of transaction costs, the making of closing adjustments, and the repayment of
the first deed of trust note) between the Partnership and Capital Growth.
The Partnership was advised by its independent investment banking firm that, in
such firm's opinion as investment bankers, the allocation of available proceeds
to be made between the Partnership and Capital Growth pursuant to the
Allocation Agreement was 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 negotiated with an unaffiliated lender in
similar circumstances.
Capital Growth also agreed to automatically extend the maturity date of the
Second Deed of Trust Note to the same maturity date as the First Deed of Trust
Note, so long as the maturity date is no later than January 2, 1999.
In addition, as a condition to the effectiveness of the Allocation Agreement,
certain affiliates of the General Partner, other than Capital Growth, entered
into a Consent and Release Agreement (the "Consent Agreement"), pursuant to
which they agreed to fully release the Partnership from the Partnership's
unsecured indebtedness to them in an aggregate amount of $14,334,757 as of
February 21, 1997.
Loan Payable - Hyatt - Third Deed of Trust Note In connection with the
Restructuring, Hyatt Corporation ("Hyatt") the holder of a Third Deed of Trust
Note collateralized by the Hotel forgave $2,000,000 of the outstanding
indebtedness under the Third Deed of Trust Note. Hyatt also reduced the
interest rate from 1% above the prime rate to the lesser of (i) the prime rate
or (ii) 8%. Hyatt also agreed to a deferral of interest to the extent that the
interest payments otherwise required to be paid under the note are not
available from cash flow. Hyatt also agreed to extend the maturity date of
said Third Deed of Trust Note to January 2, 1997, the maturity date of the
First Deed of Trust Note. The Partnership made principal payments of $75,000
during 1994 and 1993 and $250,000 during 1992. Additionally, in accordance
with the Third Deed of Trust Note, the Partnership accrued interest of $109,428
in 1996.
In connection with the Transaction, Hyatt agreed to extend the maturity date of
the Third Deed of Trust Note to April 2, 1997. Pursuant to the sale of the
Hotel on February 21, 1997, GH assumed the Partnership's outstanding obligation
to Hyatt in the amount of $3,926,250 as of February 21, 1997.
As of December 31, 1996, it is not practicable for the Partnership to estimate
the fair value of this financial instrument as no quoted market price exists
and the cost of obtaining an independent valuation appears excessive
considering the materiality of the instrument to the Partnership.
Operating lease - California Hyatt Corporation California Hyatt Corporation
operates the Hotel under the terms of a lease agreement ("the Lease") with the
Partnership. California Hyatt agreed to change the amount to be retained by
California Hyatt under the terms of the Lease effective July 1, 1992 through
December 31, 1996, from an amount equal to 20% of the Hotel's net profit to an
amount equal to (i) 1% percent of the Hotel's gross revenues plus (ii) 7.5% of
the Hotel's net profit. California Hyatt agreed that after December 31, 1996
and until the First Deed of Trust Note matures, but in any event not after
January 2, 1999, the amount to be retained by California Hyatt will be an
amount equal to (i) 1% of the Hotel's gross revenues plus (ii) 10% of the
Hotel's net profit. Thereafter, the amount to be retained by California Hyatt
will return to 20% of the Hotel's net profit as required by the Lease for
periods prior to the restructuring. Amounts due to the Partnership will be
remitted 20 days after the end of each month.
Furthermore, California Hyatt agreed that the Partnership will have the
unilateral right to terminate the Lease, without cause, at any time from the
date of the restructuring through December 31, 1998, upon payment of a fee (the
"Early Termination Fee") in a fixed amount ranging from $10,000,000 to
$16,032,500, which amount increases with the passage of time. California Hyatt
further agreed that upon payment of the Early Termination Fee (as defined in
the Lease), it would cause Hyatt to forgive the entire amount of indebtedness
under the Third Deed of Trust Note.
In addition, California Hyatt agreed that the Partnership may terminate the
Lease, without the payment of a termination fee, in the event that (i) the
Hotel generates a deficit for any calendar year and (ii) the Partnership
prepays all indebtedness due under the Third Deed of Trust Note. California
Hyatt may, however, cure any such deficit and avoid a termination of the Lease
by paying the amount of such deficit to the Partnership.
Pursuant to the sale of the Hotel on February 21, 1997, GH assumed the
Operating Lease with California Hyatt and all of the Partnership's obligations
thereunder.
5. Transactions with Related Parties
BNS Note Payable In order to effect the renovation program, the Partnership
obtained the consent of BNS for various modifications of the Mortgage Loan
which permitted the use of substantially all of the Partnership's reserve funds
for reinvesting into the Hotel and also permitted Hyatt Corporation to provide
financing to the Partnership. In consideration for such consent, the
Partnership paid a fee of $1,000,000 to the First Mortgagee which was evidenced
by a note, bearing interest at 9.699%, compounded annually, due either upon the
sale of the Hotel or December 31, 1991, whichever occurred first. As a result
of the Partnership's failure to pay the principal and accrued interest on
December 31, 1991, the note was declared in default. The lender pursued its
remedies under which, Lehman Holdings, Inc. ("LB Holdings"), formerly Shearson
Lehman Holdings Inc., was required to make payment as guarantor of the note. LB
Holdings fulfilled its guarantee of payment of the $1,000,000 plus interest
thereon to the First Mortgagee in January 1992. As a result, the Partnership
was obligated to LB Holdings in the amount of $1,341,502, plus accrued
interest, in the form of a note which bore interest at 9.699% and became
payable upon the sale of the property. Pursuant to the Restructuring, the note
was assigned to Capital Growth by LB Holdings on June 30, 1992. The
Partnership's obligation to Capital Growth is included in Notes & loans -
affiliates.
Upon the sale of the Hotel on February 21, 1997, the Partnership's debt
obligation to Capital Growth in the amount of $2,150,319 was forgiven pursuant
to the Allocation Agreement.
Settlement Loan - As required under the class action settlement, on March 4,
1991, an affiliate of the General Partner and the Partnership entered into the
Settlement Loan up to a maximum of $10 million, bearing interest at an annual
simple interest rate of 5%. Proceeds of the loan were to be used to the extent
needed to fund operating and fixed expenses. On the effective date of the
loan, $8,217,302 of the proceeds were used to retire an interim loan plus
accrued interest. On July 12, 1991, the remaining proceeds of $1,782,698 were
drawn and used to pay a portion of the interest with respect to the First
Mortgage Loan indebtedness. As of December 31, 1996 and 1995, the full
principal balance of $10,000,000 remains outstanding. Accrued interest on the
Settlement Loan totaled $2,883,077 and $2,383,077 as of December 31, 1996 and
1995, respectively. The outstanding principal and accrued interest matures and
becomes payable upon the sale of the property or upon a refinancing which
provides proceeds sufficient to repay other existing indebtedness.
Upon the sale of the Hotel on February 21, 1997, the Partnership's debt
obligation to affiliates of the General Partner in the amount of $12,954,308
was forgiven pursuant to the Consent Agreement.
Supplemental Loan - On July 12, 1991, a note was issued from an affiliate of
the General Partner in the amount of $1,611,953 (the "Supplemental Loan"),
which was subsequently assigned to Capital Growth pursuant to the Restructuring
on June 30, 1992. The Supplemental Loan specifically provided for the proceeds
to be used to pay a portion of the interest with respect to the Mortgage Loan.
The note bears interest at an annual rate of prime plus 1%. The entire note
balance remains outstanding at December 31, 1996 and 1995. The outstanding
principal and accrued interest mature and become payable upon the sale of the
Property or upon a refinancing which provides proceeds sufficient to repay
other existing indebtedness and is compounded quarterly. As of December 31,
1996, the accreted balance of the Supplemental Loan is $2,467,214 and the
accrued interest applicable to the note is $56,736.
The letter of default issued March 3, 1992 by the Bank of Nova Scotia also
constituted an event of default under the Supplemental Loan. The default was
cured through the restructuring of the Mortgage Loan Payable (see Note 4).
Upon the sale of the Hotel on February 21, 1997, the Partnership's debt
obligation on the Supplemental Loan in the amount of $2,556,565 was forgiven
pursuant to the Allocation Agreement.
Restructuring Expense Note - In order to provide the Partnership with the funds
to cover the costs of restructuring and other administrative expenses in 1992,
Lehman Lending Corp. committed to lend the Partnership up to $1,000,000.
Advances borrowed under this agreement accrue interest at prime plus 1%, and
all principal and accrued interest will be due and payable on the maturity date
of the Bank of Nova Scotia Note. The entire $1,000,000 is outstanding as of
December 31, 1996 and 1995. Accrued interest as of December 31, 1996 and 1995
was $367,271 and $274,559, respectively.
Upon the sale of the Hotel on February 21, 1997, the Partnership's debt
obligation to Lehman Lending Corp. in the amount of $1,380,449 was forgiven
pursuant to the Consent Agreement.
A summary of Notes and loans - affiliate is summarized as follows:
December 31, 1996 1995
BNS Note Payable (Note 5) $ 1,933,485 $ 1,762,536
Settlement loan (Note 5) 10,000,000 10,000,000
Supplemental loan (Note 5) 2,467,214 2,250,176
Second Deed of Trust (Note 4) 42,184,471 38,004,028
Restructuring Expense Note (Note 5) 1,000,000 1,000,000
$ 57,585,170 $53,016,740
As of December 31, 1996, it is not practicable for the Partnership to estimate
the fair value of this class of financial instruments as no quoted market price
exists and the cost of obtaining an independent valuation appears excessive to
the Partnership.
Fees and Compensation - The General Partner and its affiliates earned fees and
compensation in connection with syndication and acquisition services rendered
to the Partnership of approximately $10,000,000. Under the terms of the
Partnership Agreement, the General Partner and its affiliates are entitled to
be reimbursed for out-of-pocket expenses. For the years ended December 31,
1996, 1995, and 1994, out-of-pocket expenses were $10,773, $7,604 and $4,703,
respectively. At December 31, 1996 and 1995, $11,798 and $10,397,
respectively, remained unpaid.
Cash and Cash Equivalents - Cash and cash equivalents were on deposit with an
affiliate of the General Partner during a portion of 1996 and all of 1995. As
of December 31, 1996, no cash and cash equivalents were on deposit with an
affiliate of the General Partner or the Partnership.
6. Reconciliation of Financial Statement Net Loss and Partners' Deficit
to Federal Income Tax Basis Net Loss and Partners' Deficit
1996 1995 1994
Financial statement net loss $(5,562,891) $(9,717,080) $(11,015,227)
Tax basis depreciation over financial
statement deprecation (1,688,994) (769,274) (936,081)
Tax basis amortization over financial
statement amortization (291,450) (291,450) (291,450)
Other 88,474 (13,569) 1,033
Federal income tax basis net loss $(7,454,861) $(10,791,373) $(12,241,725)
1996 1995 1994
Financial statement partners' deficit $(50,864,616) $(45,301,725) $(35,584,645)
Current year financial statement net
loss over federal income tax basis
net loss (1,891,970) (1,074,293) (1,226,498)
Cumulative financial statement net loss over
federal income tax basis net loss (21,252,883) (20,178,590) (18,952,092)
Federal income tax basis partners'
deficit $(74,009,469) $(66,554,608) $(55,763,235)
Because many types of transactions are susceptible to varying interpretations
under Federal and State income tax laws and regulations, the amounts reported
above may be subject to change at a later date upon final determination by the
taxing authorities.
7. Litigation
On January 24, 1997, Cal Kan, Inc., a limited partner of Capital Growth, filed
a purported derivative and class action complaint in the Court of Chancery in
the State of Delaware against the Partnership, the General Partner, Lehman
Brothers Holdings, Inc. ("Lehman") and the general partner of Capital Growth.
Capital Growth is also a nominal defendant in the action. The complaint
alleges that (a) the Allocation Agreement constitutes (i) a waste of Capital
Growth's assets, serving no valid business purpose of Capital Growth, (ii) a
fraudulent conveyance by the Partnership and (iii) a violation of the
Partnership Agreement and of the Capital Growth partnership agreement; (b) in
connection with the sale of the Hotel, the General Partner, Capital Growth's
general partner and Lehman each breached various fiduciary duties alleged to be
owed to the plaintiffs, including by usurping opportunities that should have
been available to Capital Growth; and (c) the defendants' actions relating to
the foregoing constituted a conspiracy among such parties. The plaintiffs seek
injunctive relief to prevent the Partnership from distributing to Unitholders
and the General Partner any cash proceeds from the sale of the Hotel, and
instead seek to have a receiver appointed following the Sale to effect an
application of such cash proceeds to the Second Mortgage Note in a greater
amount than was agreed to in the Allocation Agreement. Repayment of the First
Mortgage Note would be permitted. No request was made to enjoin the Special
Meeting or consummation of the Sale. The plaintiffs also request that the
court award unspecified damages and litigation expenses.
In order not to delay or otherwise impair the sale of the Hotel, and pursuant
to a demand by Cal Kan, on February 21, 1997, the Partnership and Capital
Growth entered into a Non- Distribution and Security Agreement and other
related agreements (collectively, the "Non-Distribution Agreement"). Pursuant
to the Non-Distribution Agreement, the Partnership deposited certain net sales
proceeds from the transaction, in the amount of $6,911,149, which otherwise
would have been available to the Partnership under the Allocation Agreement, in
a restricted bank account (the "Blocked Account") with a nationally-recognized
commercial bank. The terms of the Non- Distribution Agreement generally
prohibit the release of funds from the Blocked Account until April 21, 1997,
and allow Capital Growth a security interest in the Blocked Account to secure
certain of the Partnership's obligations to Capital Growth under the
Non-Distribution Agreement, and certain obligations which may be determined by
the Cal Kan Litigation. The funds in the Blocked Account will be released to
the Partnership, free from Capital Growth's security interest, on April 22,
1997, unless the Blocked Account is extended by agreement between the
Partnership and Capital Growth, or by court order. A preliminary injunction
hearing is currently scheduled for April 21, 1997, to determine whether the
Partnership should be prohibited from making distributions to its unitholders
pending resolution of the Cal Kan Litigation. However, the parties to the
lawsuit have discussed an agreement pursuant to which they would forego the
preliminary injunction hearing provided the parties request and receive a trial
date that would allow for completion of a full trial on the merits before June
21, 1997, and as long as the Partnership agrees not to make distributions to
unitholders before that date. The Partnership is awaiting a ruling from the
court on this request. Although the outcome of litigation of this nature
cannot be predicted with certainty, the Partnership's assessment of the Cal Kan
Litigation is that the Partnership has strong defenses to the claims against it
and that the Partnership is entitled to the benefits of the Allocation
Agreement negotiated on behalf of the Partnership.
No assurance can be made that the Cal Kan Litigation or any other claim which
may arise will be resolved in a timely manner or without significant expense to
the Partnership. In light of the Cal Kan Litigation, the General Partner
cannot accurately predict whether it will make a liquidating distribution
within 120 days of the completion of the sale of the Hotel as had been stated
in the Proxy Statement. The General Partner does not currently expect to make
any liquidating distribution prior to a final resolution of the Cal Kan
Litigation, although it reserves the right to do so. In addition, any expense
to the Partnership of obtaining such a resolution (including without limitation
the costs of defending the matter and any other claim which may arise, and the
amount, if any, of any damages or settlement payments to be borne by the
Partnership) would reduce the amount of net cash proceeds otherwise available
for distribution.
8. Subsequent Event
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 balance sheet is provided as of December 31, 1996, giving effect to
the Transaction as though it had been consummated on that date.
Pro Forma Balance Sheet (Unaudited)
Adjusted
December 31, Pro Forma December 31,
1996 Adjustments 1996
Assets Property held for
disposition $96,076,204 $(96,076,204)(a) $ --
Cash and cash equivalents 5,291,387 1,804,572 (e) 7,095,959
Restricted cash -- 124,820,352 (a)
(119,714,536)(b) 5,105,816
Replacement reserve receivable 1,283,862 (1,283,862)(e) --
Rent receivable 520,710 (520,710)(e) --
Deferred charges, net of
accumulated amortization
of $4,307,099 in 1996 724,108 (686,422)(a)
(37,686)(d) --
Total Assets $103,896,271 $(91,694,496) $12,201,775
Liabilities and Partners' Capital (Deficit)
Liabilities:
Accounts payable
and accrued expenses $ 72,765 $ -- $ 72,765
Due to affiliates 11,798 -- 11,798
Mortgage loan payable 70,000,000 (70,000,000)(b) --
Accrued interest 13,537,078 (10,042,466)(b)
(3,494,612)(c) --
Deferred interest 9,672,070 (9,672,070)(b) --
Notes and loans - affiliate 57,585,170 (30,000,000)(b)
(27,585,170)(c) --
Loan payable - Hyatt 3,882,006 (3,882,006)(a) --
Total Liabilities 154,760,887 (154,676,324) 84,563
Partners' Capital (Deficit):
General Partner (1,191,866) 1,313,038 121,172
Limited Partners (49,672,750) 61,668,790 11,996,040
Total Partners' Capital (Deficit) (50,864,616) 62,981,828 12,117,212
Total Liabilities
and Partners' Capital (Deficit) $103,896,271 $(91,694,496) $12,201,775
The pro forma balance sheet as of December 31, 1996 reflects the sale of the
Hotel pursuant to the Purchase and Sale Agreement entered into by the
Partnership on November 4, 1996. The sale price of the Hotel is $126,900,000 in
cash and the assumption of approximately $3.9 million of debt owed to an
affiliate of the buyer, subject to certain conditions described in the Purchase
and Sale Agreement. The costs to sell the Hotel and recognition of Deferred
Charges as of December 31, 1996 are anticipated to be approximately $2,766,000.
The Partnership used a portion of the proceeds from the sale to repay the
mortgage loan payable 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 entered into an Allocation and Release Agreement
whereby Capital Growth, the holder of the Loan Payable, BNS Note Payable, and
the Supplemental Loan, agreed to accept approximately $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 the 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 Partner and Unitholders as follows:
Sales price $126,900,000
Closing costs 2,079,648
Net cash proceeds 124,820,352
Assumption of loan payable to Hyatt 3,882,006
Net sales proceeds 128,702,358
Property held for disposition 96,076,204
Deferred charges 686,422
Gain on sale $31,939,732
Allocated as follows:
Unitholders $31,620,335
General Partner 319,397
$31,939,732
(b) To reflect the payment of the mortgage indebtedness, pursuant to the
agreements discussed herein, as follows:
Mortgage loan payable $70,000,000
Accrued interest 10,042,466
Deferred interest 9,672,070
Notes and loans - affiliate 30,000,000
$119,714,536
(c) To reflect the forgiveness and related allocation to the General Partner
and Unitholders as follows:
Notes and loans - affiliate $27,585,170
Accrued interest 3,494,612
$31,079,782
Allocated as follows:
Unitholders $30,085,764
General Partner 994,018
$31,079,782
(d) To reflect the write-off of deferred charges associated with the mortgages,
notes and loans totaling $37,686 and the related allocation to the General
Partner and Unitholders as follows:
Unitholders $37,309
General Partner 377
$37,686
(e) To reflect the collection of 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.
Report of Independent Accountants
To the Partners of
Union Square Hotel Partners, L.P.:
We have audited the accompanying balance sheets of Union Square Hotel Partners,
L.P. (formerly Shearson Union Square Associates, L.P.), as of December 31, 1996
and 1995, and the related statements of operations, partners' deficit and cash
flows for each of the three years in the period ended December 31, 1996. These
financial statements are the responsibility of the Partnership's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Union Square Hotel Partners,
L.P. as of December 31, 1996 and 1995, and the results of its operations and
its cash flows for each of the three years in the period ended December 31,
1996 in conformity with generally accepted accounting principles.
As discussed in Notes 3 and 8 to the financial statements, the limited partners
of the Partnership approved a plan of liquidation on February 14, 1997, and the
Partnership commenced liquidation shortly thereafter.
COOPERS & LYBRAND L.L.P.
Hartford, Connecticut
March 7, 1997
Schedule III - Property Held for Disposition
December 31, 1996
Commercial Property: Hotel Complex Total
Location San Francisco, CA na
Construction date 1973 na
Acquisition date 1986 na
Life on which depreciation
in latest income statements
is computed (3) na
Encumbrances $135,328,709 $135,328,709
Initial cost to Partnership:
Land $ 32,231,229 $32,231,229
Building and
improvements $ 95,496,243 $95,496,243
Costs capitalized
subsequent to acquisition:
Building
and improvements $ 14,834,104 $ 14,834,104
Elimination of accumulated depreciation $(46,485,372) $(46,485,372)
Gross amount at which
carried at close of period: (2)
Land $ 32,231,229 $32,231,229
Building and
improvements 63,844,975 63,844,975
$ 96,076,204 $96,076,204
Accumulated depreciation (1) $ -- $ --
(1) For Federal income tax purposes, the amount of accumulated
depreciation is $77,480,757.
(2) For Federal income tax purposes, the basis of land, building
and personal property is $142,905,006.
(3) Building and improvements - 40 years; personal property - 7
years.
A reconciliation of the carrying amount of real estate and accumulated
depreciation for the years ended December 31, 1996, 1995, and 1994 follows:
1996 1995 1994
Real estate investments:
Beginning of year $141,938,283 $141,101,344 $139,715,348
Additions 623,293 836,939 1,385,996
Reclassification to held for disposition (46,485,372) -- --
End of year $96,076,204 $141,938,283 $141,101,344
Accumulated depreciation:
Beginning of year $ 43,176,995 $ 38,235,817 $ 33,222,871
Depreciation expense 3,308,377 4,941,178 5,012,946
Elimination of accumulated depreciation (46,485,372) -- --
End of year $ -- $ 43,176,995 $ 38,235,817
Report of Independent Accountants On Schedule
To Financial Statements
To the Partners of
Union Square Hotel Partners, L.P.:
Our report on the financial statements of Union Square Hotel
Partners, L.P. (formerly Shearson Union Square Associates,
L.P.), a Delaware limited partnership, has been incorporated
by reference in this Form 10-K from the Annual Report to
Unitholders of Union Square Hotel Partners, L.P. for the year
ended December 31, 1996. In connection with our audit of such
financial statements, we have also audited the related
financial statement schedule listed in the index of this Form
10-K.
In our opinion, the financial statement schedule referred to
above, when considered in relation to the basic financial
statements taken as a whole, presents fairly, in all material
respects, the information required to be included therein.
COOPERS & LYBRAND L.L.P.
Hartford, Connecticut
March 7, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 5,291,387
<SECURITIES> 0
<RECEIVABLES> 1,804,572
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 96,076,204
<DEPRECIATION> 0
<TOTAL-ASSETS> 103,896,271
<CURRENT-LIABILITIES> 0
<BONDS> 154,676,324
<COMMON> 0
0
0
<OTHER-SE> (50,864,616)
<TOTAL-LIABILITY-AND-EQUITY> 103,896,271
<SALES> 12,072,916
<TOTAL-REVENUES> 12,230,697
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 4,032,142
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,761,446
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,562,891)
<EPS-PRIMARY> (.77)
<EPS-DILUTED> (.77)
</TABLE>
NON-DISTRIBUTION AND SECURITY AGREEMENT
THIS NON-DISTRIBUTION AND SECURITY AGREEMENT (this
"Agreement") is made as of this 21st day of February, 1997, by and
between UNION SQUARE HOTEL PARTNERS, L.P., a Delaware limited
partnership ("USHP"), and CAPITAL GROWTH MORTGAGE INVESTORS, L.P.,
a Delaware limited partnership (the "Secured Party").
W I T N E S S E T H
WHEREAS, USHP and the Secured Party have entered into that
certain Allocation and Release Agreement dated as of December 1,
1996 (the "Allocation and Release"), pursuant to which the Secured
Party agreed to accept certain funds in full satisfaction of
various secured and unsecured notes made by USHP and held by the
Secured Party (all capitalized terms used but not otherwise
defined herein shall have the meaning ascribed to them in the
Allocation and Release);
WHEREAS, on January 24, 1997, Cal Kan, Inc., a limited
partner of the Secured Party, filed a complaint in the Court of
Chancery in the State of Delaware against USHP and various other
entities seeking injunctive relief to prevent USHP from
distributing to its unitholders or partners any cash proceeds from
the Sale, and further seeking to have a receiver appointed
following the Sale to effect an application of such cash proceeds
to the Secured Note in a greater amount than was agreed to in the
Allocation and Release;
WHEREAS, in lieu of the Secured Party immediately attempting
to obtain such injunctive relief and/or the appointment of a
receiver, the Secured Party has requested that USHP agree to
refrain from distributing the Net Sales Proceeds to the
unitholders or partners of USHP on or before April 21, 1997;
WHEREAS, USHP is willing to agree to refrain from any such
distribution of the Net Sales Proceeds on or before April 21,
1997; and
WHEREAS, USHP is further willing to grant a security
interest in the Net Sales Proceeds in favor of the Secured Party
as herein provided, to secure any settlement agreement that may be
reached by USHP and the Secured Party with respect to the Net
Sales Proceeds on or before April 21, 1997, and to secure any
final order of a court of competent jurisdiction that may be
issued with
respect to the Net Sales Proceeds on or before April 21, 1997, and
to secure performance of this Agreement.
NOW, THEREFORE, in consideration of the premises, the
agreements contained herein, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. Agreement of Non-Distribution. USHP hereby agrees to refrain from
distributing the Net Sales Proceeds, and to refrain from taking any further
action to declare any distribution of the Net Sales Proceeds, to its
unitholders or partners on or before April 21, 1997; provided, however, that on
and after April 22, 1997, USHP shall be permitted to freely distribute, and to
take any further action to declare any distribution of, any or all of the Net
Sales Proceeds to its unitholders or partners, or to otherwise deal with, pay,
or apply such Net Sales Proceeds in any manner which USHP deems appropriate,
unless this agreement to refrain from distributing the Net Sales Proceeds is
extended by both USHP and the Secured Party in writing, or unless USHP's use of
such Net Sales Proceeds is restricted by court order.
2. Pledge of Collateral. USHP hereby grants to the Secured Party a
security interest in the collateral described in Schedule I attached hereto
(the "Collateral"); provided, however, that this grant of a security interest
shall be effective only through April 21, 1997, and shall automatically
terminate and become null and void on April 22, 1997.
3. Security for Obligations. This Agreement and the security interest
granted hereunder are made to secure USHP's performance under any settlement
agreement that may be reached by USHP and the Secured Party with respect to the
Net Sales Proceeds on or before April 21, 1997, and to secure USHP's
performance under any final order of a court of competent jurisdiction that may
be issued with respect to the Net Sales Proceeds on or before April 21, 1997,
and to secure USHP's performance under this Agreement.
4. Remedies. If a breach or default hereunder or under any obliga tion
secured hereby shall have occurred and be continuing, the Secured Party shall
thereafter have all the rights and remedies of a secured party under the
California Commercial Code and under any other applicable law.
5. Further Encumbrance of Collateral. Without the prior written consent
of the Secured Party, USHP will not voluntarily grant a security interest in or
otherwise encumber any of the Collateral or any interest therein on or before
April 21, 1997, except for the security interest therein provided for in this
Agreement.
6. No Amendment. Neither this Agreement nor any term hereof may be
amended except by a written instrument expressly referring to this Agreement
and to the provisions so amended, and executed by the party to be charged.
7. Governing Law. This Agreement shall be governed by, and con strued in
accordance with, the laws of the state of California, without regard to
principles of conflicts of laws.
8. Miscellaneous. The headings of each section of this Agreement are for
convenience only and shall not define or limit the provisions thereof. The
parties waive trial by jury in any dispute arising hereunder. This Agreement
may be executed in counterparts, each of which shall be deemed an original, but
all of which shall constitute one and the same agreement. This Agreement and
all rights and obligations hereunder shall be binding upon USHP and USHP's
successors and assigns, and shall inure to the benefit of the Secured Party and
the Secured Party's successors and assigns. If any term of this Agreement shall
be held to be invalid, illegal, or unenforceable, the validity of all other
terms hereof shall be in no way affected thereby, and this Agreement shall be
construed and be enforceable as if such invalid, illegal, or unenforceable term
had not been included herein. Time is of the essence of each and every
provision of this Agreement. USHP acknowledges receipt of a copy of this
Agreement.
IN WITNESS WHEREOF, intending to be legally bound, USHP and the
Secured Party have caused this Agreement to be executed as of the
date first above written.
USHP:
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
SECURED PARTY:
CAPITAL GROWTH MORTGAGE INVESTORS,
L.P., a Delaware limited
partnership
By: CG Realty Funding Inc., its
general partner
BY: s/Daniel M. Palmier/
Name: Daniel M. Palmier
Title: Vice President
and
Chief Financial
Officer
SCHEDULE I
COLLATERAL
All of USHP's right, title, and interest in and to the
following:
(a) That certain deposit account #12333-62175 maintained
with Bank of America National Trust and Savings Association,
together with all funds deposited therein, all interest thereon,
and all other accessions thereto; and
(b) Any and all products, proceeds, and replacements of the
foregoing including, without limitation, deposit insurance proceeds
and claims.
NOTICE AND BANK AGREEMENT FOR DEPOSIT ACCOUNTS
February 21, 1997
Bank of America National Trust and Savings Association 1850 Gateway
Boulevard Concord, California 94520 Attention: Account
Administrator
Bank of America National Trust and Savings Association Keith
Germain, Vice President GPS Contract Management #10514 2044
Franklin Street, 1st Floor Oakland, California 94612
Re: Account No: 12333-62175 (the "Account")
Ladies & Gentlemen:
Union Square Hotel Partners, L.P., a Delaware limited
partnership ("USHP"), has entered into a Non-Distribution and
Security Agreement with Capital Growth Mortgage Investors, L.P., a
Delaware limited partnership (the "Secured Party") dated as of
February 21, 1997, a copy of which is attached hereto as Exhibit A.
You are hereby notified pursuant to Section 9-302(1)(g) of the
California Commercial Code and pursuant to any other applicable law
that USHP has granted to the Secured Party a security interest in
all of the right, title, and interest of USHP in, to, and under the
Account, and all funds deposited from time to time therein, and all
interest earned from time to time thereon, and all other accessions
thereto, and all products, proceeds, and replacements thereof,
including, without limitation, deposit insurance proceeds and
claims, through April 21, 1997, and that such security interest
shall automatically terminate and become null and void on April 22,
1997.
With respect to the Account, you are hereby instructed
and by your signature below hereby agree as follows:
1. That you are holding the Account subject to a security
interest for the benefit of the Secured Party and on or before
April 21, 1997, you will not permit a distribution or transfer of
funds from the Account or the grant of any other security interest
or pledge affecting the Account except upon receiving written
approval from both USHP and the Secured Party; provided, however,
that on April 22, 1997, you shall wire transfer all of the funds
then held in the Account, without any further authorization of the
Secured Party (and despite any contrary instruction from the
Secured Party), to:
Boston Safe Deposit & Trust Company One Boston Place
Boston, MA 02108
ABA #: 011001234
Account # 11-783-8
Account Name: Wire Purchase Account
Instructions: Union Square Hotel
Partners, L.P.Net Sales Proceeds
Contact: Regina Hertl at (212) 526-3158,
unless otherwise instructed by both USHP and the Secured Party in
writing, or by court order.
2. That copies of all correspondence, notices, account
statements, or other information which you are otherwise obligated
to send to USHP (by law, agreement, or otherwise) also will be sent
to the Secured Party at the following address:
Capital Growth Mortgage Investors, L.P. Three World
Financial Center, 29th Floor New York, New York 10285
Attention: Mr. Kenneth L. Zakin
with a copy to:
Latham and Watkins
885 Third Avenue
New York, New York 10022
Attention: Joshua Stein, Esq.
3. That funds deposited in the Account will not be subject
to deduction, setoff, banker's lien. or any other lien, claim,
encumbrance, or right you may have against USHP or the Account.
4. That you have marked your books and records to reflect the
existence of the Secured Party's rights hereunder.
This letter agreement and the rights and obligations of
the parties hereunder will be governed by and construed and
interpreted in accordance with the laws of the State of California,
without regard to principles of conflicts of laws.
This letter agreement contains the entire agreement
among the parties, and may not be amended in any respect, nor may
any right, power, or privilege of any party hereunder be waived or
released or discharged, except upon execution by all parties hereto
of a written instrument so providing. In the event that any
provision in this letter agreement is in conflict with, or
inconsistent with, any provision of the Security Agreement, this
letter agreement will exclusively govern and control.
Please indicate your agreement to the terms of this
letter agreement by signing in the space provided below. This
letter agreement may be executed in any number of counterparts and
all of such counterparts taken together will be deemed to
constitute one and the same instrument. Time is of the essence of
each and every provision hereof. .This letter agreement will become
effective immediately upon execution of a counterpart of this
letter agreement by all parties hereto, but the notice provided
herein shall be effective immediately upon your receipt hereof.
USHP:
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
SECURED PARTY:
CAPITAL GROWTH MORTGAGE INVESTORS, L.P.,
a Delaware limited partnership
By: CG Realty Funding Inc. its general partner
By: Daniel M. Palmier
Name: Daniel M. Palmier
Title: Vice President
and Chief
Financial
Officer
Acknowledged, consented, and
agreed to this 21st day of February, 1997
Bank of America National Trust and Savings
Association
By: s/Keith V. Germain/
Name: KEITH V. GERMAIN
Title: Vice President
s/Allyson M. Stinson/
ALLYSON M. STINSON
Assistant Vice President
Exhibit A
Non-Distribution and Security Agreement BLOCKED
ACCOUNT AGREEMENT
This Blocked Account Agreement ("Agreement") is entered into
as of February 21, 1997, by and among Union Square Hotel Partners,
L.P. ("Company"), Capital Growth Mortgage Investors, L.P.
("Lender"), and Bank of America NT&SA ("Bank").
Recitals
A. Company and Lender are parties to the Non-Distribution and
Security Agreement (the "Security Agreement) dated as of February
21, 1997.
B. Pursuant to the terms of the Security Agreement, Company
has granted to Lender a security interest in the Account (as defined
below) and all funds deposited in the Account to secure the payment
and performance of certain obligations of Company to Lender under
the Security Agreement (the "Obligations").
C. Company has agreed to maintain deposit account number
1233362175 in its name (the "Account) until April 22, 1997, in which
Company shall deposit certain Net Sales Proceeds (as such term is
defined in the Security Agreement)
D. Company, Lender and Bank are entering into this Agreement
to provide for the retention and disposition of Net Sales Proceeds
deposited by Company into the Account.
AGREEMENT
NOW, THEREFORE, in consideration of the premises and the
mutual covenants and agreements hereinafter set forth, Company,
Lender and Bank agree as follows:
1. Bank is hereby authorized:
(a) to charge the Account for all returned checks,
service charges, and other fees and charges associated with this
Agreement; and
(b) to follow its usual procedures in the event the
Account or any check, draft or other order for payment of money
should be or become the subject of any writ, levy, order or other
similar judicial
or regulatory order or process ("Order").
2. (a) If the balances in the Account are not sufficient to
pay Bank for any returned check, draft or other order for the
payment of money Company agrees to pay Bank on demand the amount
due Bank.
(b) If the balances in the Account are not sufficient to
compensate Bank for any fees or charges due Bank under this
Agreement, Company agrees to pay Bank on demand the amount due
Bank. If Company has not paid Bank within 30 days after the demand,
Lender agrees to pay Bank the amount due Bank.
(c) Company hereby authorizes Bank, without prior
notice, from time to time to debit any other account Company may
have with Bank for the amount or amounts due Bank under subsection
2(a) or 2(b).
(d) Bank agrees it shall not offset against the Account,
except as permitted under this Agreement, until it has been advised
in writing by Company and Lender that all of Company's obligations
which are secured by the Account and all funds deposited in the
Account, are paid in full. Lender shall notify Bank promptly in
writing upon payment and satisfaction in full of Company's
obligations under the Security Agreement and this Agreement shall
automatically terminate upon receipt of such notice.
3. This Agreement will terminate on April 22, 1997 and Bank
will wire transfer any funds in the Account to Company in
accordance with paragraph 1 of that certain Notice and Bank
Agreement for Deposit Accounts dated as of the date hereof, by and
among Company, Lender and Bank (the "Notice and Bank Agreement).
4. (a) Bank will not be liable to Company or Lender for any
expense, claim, loss, damage or cost ("Damages") arising out of or
relating to its performance under this Agreement or the Notice and
Bank Agreement other than those Damages which result directly from
its acts or omissions constituting negligence or intentional
misconduct, subject to the limits in the next succeeding sentence.
Bank's liability is limited to direct money Damages actually
incurred.
(b) In no event will Bank be liable for any special,
indirect, exemplary or consequential damages, including but not
limited to lost profits.
(c) Bank will be excused from failing to act or delay in
acting, and no such failure or delay shall constitute a breach of
this Agreement or otherwise give rise to any liability of Bank, if
(i) such failure or delay is caused by circumstances beyond Bank's
reasonable control, including but not limited to legal constraint,
emergency conditions, action or inaction of governmental, civil or
military authority, fire, strike, lockout or other labor dispute,
war, riot, theft, flood, earthquake or other natural disaster,
breakdown of public or private or common carrier communications or
transmission facilities, equipment failure, or act, negligence or
default of Company or Lender or (ii) such failure or delay resulted
from Bank's reasonable belief that the action would have violated
any guideline, rule or regulation of any governmental authority.
5. Company and Lender shall jointly and severally indemnify
Bank against, and hold it harmless from, any and all liabilities,
claims, costs, expenses and damages of any nature (including but
not limited to allocated costs of staff counsel, other reasonable
attorneys' fees and any fees and expenses incurred in enforcing
this Agreement) in any way arising out of or relating to disputes
or legal actions concerning this Agreement. This section does not
apply to any cost or damage attributable to the negligence or
intentional misconduct of Bank. Company's and Lender's obligations
under this section shall survive
termination of this Agreement.
6. (a) Company and Lender each represent and warrant to Bank
that (i) this Agreement constitutes its duly authorized, legal,
valid, binding and enforceable obligation; (ii) the performance of
its obligations under this Agreement and the consummation of the
transactions contemplated hereunder will not (A) constitute or
result in a breach of its certificate or articles of incorporation,
by-laws or partnership agreement, as applicable, or the provisions
of any material contract to which it is a party or by which it is
bound or (B) result in the violation of any law, regulation,
judgment, decree or governmental order applicable to it; and (iii)
all approvals and authorizations required to permit the execution,
delivery, performance and consummation of this Agreement and the
transactions contemplated hereunder have been obtained.
(b) Company and Lender each agrees that it shall be
deemed to make and renew each representation and warranty in
subsection 6(a) on and as of each day on which it uses the service.
7. Company represents and warrants that it has not assigned
or granted a security interest in the Account or any funds now or
hereafter deposited in the Account, except to Lender.
8. Company agrees that:
(a) Except for a single wire transfer into the Account
on February 21, 1997, it cannot, and will not, make any deposits
into or withdraw any monies from the Account until the earlier of
(i) April 22, 1997 or (ii) such time as Lender advises Bank in
writing that Lender no longer claims any interest in the Account
and the monies deposited and to be deposited in the Account; and
(b) It will not permit the Account to become subject to
any other pledge, assignment, lien, charge or encumbrance of any
kind, nature or description, on or before April 22, 1997 other than
Lender's security interest referred to herein.
9. Lender acknowledges and agrees that Bank has the right to
charge the Account from time to time for fees owed the Bank in
connection with this Agreement or the opening or maintenance of the
Account, as set forth in this Agreement, and the Account agreement,
as said agreements are amended from time to time, and that Lender
has no right to the sums so withdrawn by Bank.
10. In addition to the original statement which will be
provided to Company, Bank will provide Lender with a duplicate
statement and such other account information reasonably requested
by Lender. Company authorizes Bank to provide any account
information requested by Lender.
11. Company and Lender agree to pay to Bank, upon receipt of
Bank's invoice, all reasonable costs, expenses and attorneys' fees
(including reasonable allocated costs for in-house legal services)
incurred by Bank in connection with the enforcement of this
Agreement and any instrument or agreement required hereunder,
including but not limited to any such reasonable costs, expenses
and fees arising out of the resolution of any conflict, dispute,
motion regarding entitlement to rights or rights of action, or
other action to enforce Bank's rights hereunder in a case arising
under Title 11, United States Code.
12. Notwithstanding any of the other provisions in this
Agreement or the Notice and Bank Agreement, in the event of the
commencement of a case pursuant to Title 11, United States Code,
filed by or against Company, or in the event of the commencement of
any similar case under then applicable federal or state law
providing for the relief of debtors or the protection of creditors
by or against Company, Bank may act as Bank deems reasonably
necessary to comply with
all applicable provisions of governing statutes and neither Company
nor Lender shall assert any claim against Bank for so doing.
13. This Agreement may be amended only by a writing signed
by Company, Lender and Bank; except that Bank's charges are subject
to reasonable change by Bank upon 30 days' prior written notice to
Company and Lender.
14. This Agreement may be executed in counterparts; all such
counterparts shall constitute but one and the same agreement.
15. Any written notice or other written communication to be
given to each party under this Agreement shall be addressed to the
person at the address set forth on the signature page of this
Agreement or to such other person or address as a party may specify
in writing. Except as otherwise expressly provided herein, any such
notice shall be effective upon receipt.
16. Except with respect to the Notice and Bank Agreement,
this Agreement supersedes all prior understandings, writings,
proposals, representations and communications, oral or written, of
any party relating to the subject matter hereof, and in the case of
any conflict between the terms and conditions of this Agreement and
the terms and conditions of the Notice and Bank Agreement, the
terms and conditions of the Notice and Bank Agreement shall apply.
17. Neither Company nor Lender may assign any of its rights
under this Agreement without the prior written consent of Bank.
18. This Agreement shall be interpreted in accordance with
California law without reference to California principles of
conflicts of law.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement by their duly authorized officers as of the day and year
first above written.
UNION SQUARE HOTEL PARTNERS L.P., a
Delaware limited partnership
By: Union Square/GP Corp., its general Address for notices:
partner 3 World Financial Center,
29th Floor
New York, NY 10285
By: s/Jeffrey C. Carter/
Name: Jeffrey C. Carter With a copy to:
Title: President Skadden, Arps, Slate,
Meagher & Flom LLP
300 South Grand Ave., 34th Floor
Los Angeles, CA 90071
CAPITAL GROWTH MORTGAGE Attn: Rand S. April, Esq.
INVESTORS, L.P., a Delaware limited
partnership
By: CG Realty Funding Inc., its general Address for notices:
partner 3 World Financial Center,
By: s/Daniel M. Palmier/ New York, NY 10285
Name: Daniel M. Palmier With a copy to:
Title: VP & CFO Latham & Watkins
885 Third Avenue
New York, NY 10022
Bank of America National Trust and Savings Attn: Joshua Stein, Esq.
Association
By: s/Keith V. Germain/ Address for notices-
Name: KEITH V. GERMAIN Bank of America
Title: Vice President 1850 Gateway Boulevard
Concord, CA 94520
By: s/Allyson M. Stinson/ Attn: Account
Administrator
Name: Allyson M. Stinson Fax: (510) 885-7531
Title: Assistant Vice President
