UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark one)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1996.
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from ................ to ...............
Commission File No. 1-9311
PRIME MOTOR INNS LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
Delaware 22-2754689
(State or other jurisdiction
of incorporation or organization) (I.R.S. Employer Identification No.)
C/O WHI, 4243 Hunt Road
Cincinnati, Ohio 45242
(Registrant's Mailing Address)
Registrant's telephone number, including area code: (513) 891-2920
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Exchange on which registered
Units of Limited Partnership Interest New York Stock Exchange
Evidenced by Depository Receipts
Securities registered pursuant to Section 12(g) of the Act: None
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 such 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 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)
On March 19, 1997 there were 4,000,000 of registrant's units of limited
partnership interest outstanding. The aggregate market value of such units
held by non-affiliates on that date based on the reported closing price on The
New York Stock Exchange, Inc. on that date, was approximately $3,750,000. The
Exhibit Index is located on page 20.
PART I
Item 1. Business
Prime Motor Inns Limited Partnership (the "Partnership") and its 99% owned
subsidiary, AMI Operating Partners, L.P. ("Operating Partners"), were formed
in October 1986 under the Delaware Revised Uniform Limited Partnership Act.
The Partnership and Operating Partners are referred to collectively as the
"Partnerships". Prime-American Realty Corp. (the "General Partner"),
a subsidiary of Prime Hospitality Corporation ("Prime"), formerly Prime Motor
Inns, Inc., is the general partner of and holds as its principal asset a 1%
partnership interest in each of the Partnerships. The business of the
Partnerships is to operate and maintain 16 full-service hotels (the "Inns"),
which are presently franchised as part of the "Holiday Inn" system.
The Inns were purchased from subsidiaries of Prime in December, 1986, with the
proceeds of the public offering of 4,000,000 units of limited partnership
interest (the "Units") in the Partnership and of the issuance and sale of
$61,470,000 of mortgage notes (the "Mortgage Notes") of Operating Partners.
Until November 30, 1990, the Inns were leased to AMI Management Corp. ("AMI
Management"), a subsidiary of Prime, pursuant to a net lease between AMI
Management and Operating Partners (the "Lease"). On September 18, 1990,
Prime and certain of its subsidiaries, including AMI Management, had filed
for reorganization under Chapter 11 of the Bankruptcy Code and, effective
November 30, 1990, AMI Management rejected the Lease. At that time, Operating
Partners, through Winegardner & Hammons, Inc. ("W&H"), a prominent hotel
management company with operational experience with "Holiday Inn" franchises,
took control of the Inns and commenced operation of the Inns for the account
of the Partnerships.
In the opinion of the Board of the General Partner, occupancies and cash flows
at the Inns during 1991 and 1990 were adversely affected by, among other things,
international tensions in the Middle East and the economic recession that began
in 1990, and the resulting slowdown in travel, and AMI Management's operation of
the Inns, primarily in the period immediately prior to and during its
bankruptcy.
To conserve cash to provide funds to maintain and improve the Inns and pay
suppliers, Operating Partners suspended the monthly payments of the principal
and interest on the Mortgage Notes beginning with the payments due on February
28, 1991, which constituted an event of default under, and resulted in
acceleration and demand for payment of the entire outstanding balance of the
Mortgage Notes. After detailed and extended negotiations among Operating
Partners and its advisors and representatives of the holders of the Mortgage
Notes (the "Mortgage Lenders") and their advisors, the Mortgage Lenders agreed
to restructure the Mortgage Notes, as part of a "prepackaged" reorganization of
Operating Partners and three of the Mortgage Lenders (the "Priming Lenders")
agreed to provide post-petition financing (the "Priming Loan") of up to an
aggregate of $14 million to finance the refurbishment and upgrading of the
Inns and to fund operating deficiencies.
On February 28, 1992, Operating Partners filed for reorganization under
Chapter 11 of the Bankruptcy Code, and sought confirmation of the prepackaged
plan of reorganization consented to by the Mortgage Lenders (the "Plan"). On
May 28, 1992 the Plan was confirmed.
To continue to operate the Inns as part of the "Holiday Inn" system, beginning
in July, 1991, Operating partners paid fees to acquire franchise agreements to
replace those that had been held by AMI Management. Holiday Inns, Inc. and its
affiliates engaged in administering the "Holiday Inn" system (collectively,
"HII") issued a new ten-year franchise agreement for Baltimore Inner Harbor
Inn to December 2005, and extended to June 30, 1997 the term of the franchise
agreements that previously expired prior to June 30, 1997.
Operating Partners and W&H entered into a management agreement (the "W&H
Management Agreement") pursuant to which W&H managed the Inns through 1996,
renewable for two two-year renewal terms. Under the W&H Management Agreement,
W&H was paid an annual base management fee of 2.25% of the gross revenues of
the Inns, an incentive management fee based on defined income in excess of
defined amounts, and was reimbursed for miscellaneous out-of-pocket expenses
allocated to the Inns, including salaries, accounting, legal, computer services,
royalties, marketing, advertising, public relations and reservation services,
subject to certain limitations.
The Plan provided for the Priming Loan of $14,000,000 to Operating Partners,
due December 31, 1999, bearing interest at the rate of 11% per annum, and
secured by a security interest, lien and mortgage senior to all other liens
on the property of Operating Partners. Of the Priming Loan, $11,500,000 (the
"Tranche A Loan") was used to fund a capital improvement program, and is
subject to a prepayment penalty of 2%, and the $2,500,000 balance of the
Priming Loan (the "Tranche B Loan") is a revolving credit facility to be used
to fund operating cash requirements.
The Priming Loan funded the needed capital improvements and capital expenditures
in order to render the condition of the Inns suitable and adequate for Operating
Partners' business, correct deficiencies at the Inns, satisfy HII quality
standards, perform required maintenance and repairs, restore and retain the
competitive position of the Inns and to substantially upgrade the Baltimore
Inner Harbor Inn. Improvements and refurbishment's totaling $13,000,872
were completed in 1994, $11,500,000 of which was funded by the Tranche A Loan
and $1,500,872 of which was funded by the FF&E Reserve.
Although there were borrowings under the Tranche B Loan during 1994, 1995 and
1996, there were no outstanding borrowings under the Tranche B Loan at
December 31, 1994, 1995 and 1996. At December 31, 1996, the outstanding
balance of the Tranche A Loan was $11,500,000 and the maximum availability
under the Tranche B Loan was $2,500,000. All revenues in excess of
budgeted or otherwise approved operating and administrative expenses, debt
service, a reserve for capital replacements (the "FF&E Reserve", which amounted
to 1 1/2% of gross revenues in 1993 and 4% of gross revenues in 1994 and 5% of
gross revenues in 1995 and thereafter), income taxes (if the Partnerships are
taxable as corporations) and amounts necessary to enable Operating Partners
to maintain a working capital reserve of $2 million, must be applied by
Operating Partners to the repayment of the Tranche B Loan, then deposited
into an escrow account held on behalf of the Lenders for payment of taxes
and insurance, and then to pay the Tranche A Loan. In the event of a default
under the Priming Loan, the agent for the Priming Lenders may, in addition to
any other remedies; cure any defaults of Operating Partners; and/or declare the
entire outstanding balance of the Priming Loan to be due and payable. Default
provisions under the Priming Loan include, among others, (a) default for five
days in the payment of interest, (b) default for five days after notice of any
other amounts due under the Priming Loan documents, and (c) acquisition by any
person, without the consent of 75% in interest of the Priming Lenders, of 50%
or more of the Units, or the sale, without the consent of 75% in interest
of the Partnership's interest in Operating Partners or of 50% or more of the
stock of the General Partner.
The Plan also provided for the restatement of the loan agreement for the
Mortgage Notes (the "Restated Loan Agreement"), under which $3,467,000 of
accrued and unpaid interest at December 31, 1991 (the "Deferred Amount") was
added to the principal amount of the Mortgage Notes, but bore interest only
from and after January 1, 1995; the Mortgage Notes (not including the Deferred
Amount) bore interest at the rate of 7% per annum in 1992 and 1993 and 8% in
1994; the principal amount of the Mortgage Notes (including the Deferred
Amount) bore interest at a rate of 10% per annum after 1994; and the maturity
of the Mortgage Notes (including the Deferred Amount) was extended to December
31, 1999. In addition, the Restated Loan Agreement includes a shared
appreciation feature, upon which any sale of any of the Inns and/or upon the
maturity (by acceleration, at the stated maturity date or otherwise), a portion
of the appreciation, if any, in the Inns held by the Partnerships would be
payable as additional interest on the restructured Mortgage Notes.
During the term of the restructured Mortgage Notes, operating revenues in
excess of the $2 million of working capital that Operating Partners is
permitted to retain and the required payments (as described in the Priming
Loan) must be applied to repayment of the Mortgage Notes after the Priming
Loan has been paid. The Mortgage Notes can be repaid at any time without
penalty.
In addition, in consideration of the agreement of the Mortgage Lenders to the
restructuring of the Mortgage Notes, Operating Partners and the Partnership
deposited the deeds to the Inns and assignments of other assets of Operating
Partners in escrow. Under the terms of the escrow agreement those deeds
and assignments will be released from escrow to a designee of the Mortgage
Lenders if certain defaults occur and continue not to be cured for 90 days.
Such defaults would include, among others, (a) non-payment when due, of any
principal, interest or other charges under the Priming Loan or the Mortgage
Notes, (b) failure to pay rent on any ground leases, (c) failure to pay real
and personal property taxes on the Inns, (d) failure to pay or provide for
premiums for insurance required under the Priming Loan or the Mortgage Notes
or the mortgages securing them, and (e) failure to pay operating expenses
for the Inns (subject to certain rights to contest amounts claimed to be due).
In the escrow agreement, Operating Partners has agreed not to interpose any
defense or objection to, or bring any lawsuit opposing, the Mortgage Lenders'
exercise of their rights under the escrow agreement, or, if Operating Partners
files another bankruptcy case, contest the lifting of any stay to permit the
Mortgage Lenders to exercise such rights.
Operating Partners is currently in compliance with all covenants and
requirements of the Priming Loan and Restated Loan Agreement.
The "Holiday Inn" franchises of ten of the Inns expire on June 30, 1997 and
the franchises of two additional Inns will expire on December 31, 1997.
Before the renewal of an expiring franchise for any "Holiday Inn" property,
the property is inspected by HII and that inspection forms the basis for a
Property Improvement Plan ("PIP"), the completion of which is a condition to
the renewal of the franchise for the property. Prior to December 31, 1995,
HII had inspected and prepared PIPs for ten of the Inns whose franchises
expire in 1997. During the second quarter of 1996, HII inspected and prepared
PIPs for the remaining two Inns whose franchises expire in 1997 (though HII had
previously indicated that it might not renew those franchises and, accordingly,
had not prepared PIPs for those Inns). Based on those PIPs, and on analyses of
W&H, Operating Partners estimates the cost of the capital expenditures to be
in the range of $13,000,000, although Operating Partners believes that the
scope of work and related costs will be subject to negotiation.
In addition, Operating Partners will be required to pay franchise renewal
costs of approximately $884,000 ($500 per room) for these twelve Inns.
Accordingly, Operating Partners engaged W&H to evaluate, for each Inn, the
relative benefits and costs of renewing the "Holiday Inn" franchise for the
Inn, operating the Inn under other franchises that may be available, and
operating the Inn without a franchise affiliation. Based on W&H's evaluation,
Operating Partners, determined that the Inns should remain frachised as
"Holiday Inns". Therefore, Operating Partners has reached an agreement with
HII as to the terms and conditions of the franchise renewals and have submitted
those agreements to the Lenders for their review. Operating Partners cannot
enter into those agreements without the consent of the Lenders. In addition,
Operating Partners is continuing to evaluate the improvements and expenditures
included in each of the PIPs, in order to identify those items that Operating
Partners believes will enhance the Inn's ability to continue to compete in its
market and that will add value to the Inn; and those improvements or
expenditures that Operating Partners believes to be less necessary or which
will add little value. Operating Partners is continuing negotiations with
HII as to the scope of work included in each PIP and the length of time within
which such improvements will be completed. Generally, in connection with the
renewal of the franchise for an Inn, Operating Partners will have one year,
which may be negotiable, from the expiration date of the old franchise to
complete the capital improvements included in the PIP. It is anticipated that
the capital improvements for the PIPs will be financed partially from the FF&E
Reserve and from additional financing, if available. At the present
time, the current Lenders have stated that they are not willing to provide
any such financing, that will be required. Operating Partners is actively
investigating financing possibilities. However, there can be no assurance
that additional financing will be available.
The Partnerships and/or the General Partner periodically receive proposals
from management companies or hotel property operators to acquire a substantial
interest in the Inns, and/or to enter into management or acquisition
transactions with the Partnership, to provide financing for the PIPs.
The General Partner believes that the proposals heretofore made to the
Partnership and the General Partner have not reflected the value or potential
of the Inns. If financing is not available and Operating Partners
is unable to defer the timing and costs of the PIPs, the Inns may have to
change franchise affiliations or become independent hotels. Changes in such
franchise affiliations could adversely impact the Partnerships' results of
operations. Further, under the Priming Loan and Restated Loan Agreements,
approval by the Lenders will be required for any franchise changes, capital
expenditures or additional financing. The Partnerships have retained the
services of Siegel Rich, Inc., a consulting firm in which Seymour G. Siegel
is a shareholder, to advise the Partnership in developing a business strategy,
and to structure, negotiate and evaluate potential transactions.
Effective January 4, 1997, the initial term of the W&H Management Agreement
was extended for four years, through 2000. However, in order to facilitate
financing of the PIPs, a provision was added to the W&H Management Agreement
which grants to either the Partnership or W&H, the right to terminate the
agreement, without penalty, at any time without cause, upon at least 90 days
prior written notification to the other party. However, under the Priming
Loan and Restated Loan Agreements, approval by the Mortgage Lenders and Priming
Lenders (collectively the "Lenders") will be required for the Partnership to
elect to terminate the W&H Management Agreement.
The Partnerships' investment in the Inns continues to be subject to the risks
generally incident to the ownership of real estate, including those relating
to the uncertainty of cash flow to meet fixed obligations, adverse changes in
national economic conditions, adverse changes in local market conditions,
construction of new hotels and/or the franchising by Holiday Inn of competitor
hotels, changes in interest rates, the availability of financing for operating
or capital needs (including to finance renewal of the Holiday Inn franchise
agreements), changes in the real estate tax rates and other operating expenses,
adverse changes in governmental rules and fiscal policies, acts of God (which
may result in uninsured losses), condemnation and other factors that are beyond
the control of the General Partner, the Partnership, Operating Partners or W&H.
The Partnerships believe that their ability to pay operating expenses, debt
service (both the Mortgage Loan and Priming Loan), and to create required
reserves, depends on the ability of the Partnerships to increase future cash
flows from operations. The Partnership has not declared nor paid any
distributions to Unitholders of the Partnership since the third quarter of
1990 and no distributions are expected to be declared until cash flows are
sufficient to pay operating and capital requirements, including debt service.
In addition, the Partnership cannot make any distributions to Unitholders
until the Priming Loan is repaid, Mortgage Note payments are maintained and
proper reserves are funded as required.
The Partnerships continue to operate the Inns as going concerns. However, it
is the present intention of Operating Partners to sell both the Baltimore
Moravia Road and Baltimore Glen Burnie South Inns. Operating Partners believes
that both of these Inns will not contribute to the long term cash flow
requirements of the Partnerships, and therefore the sale proceeds can better
be utilized to reduce the Priming Loan debt. Operating Partners has received a
contract for the purchase of the Glen Burnie South Inn, subject to a due
diligence review by the buyer (which is to be completed on or before April 9,
1997) and, subject to that review, a closing is to occur by May 9, 1997.
Operating Partners has no present intention to list any of the other Inns for
sale. As required under the Priming Loan and Restated Loan Agreement,
approval by the Lenders will be required for the sale of either of these two
Inns. Operating Partners has received some unsolicited proposals, to purchase
certain of the Inns. Operating Partners is carefully evaluating these
proposals.
Certain administrative functions are performed for the Partnership by W&H.
Therefore, the mailing address of the Partnership is c/o WHI, 4243 Hunt Road,
Cincinnati, Ohio 45242 (Telephone: (513) 891-2920). The operation of the
Inns is supervised from W&H's regional office at 301 West Lombard Street,
Baltimore, MD 21201.
The Transfer Agent for the Partnership is First Chicago Trust Company of New
York. Their address is P.O. Box 2500, Jersey City, New Jersey 07303-2500.
Competition
The hotel industry is highly competitive and each of the Inns experiences
significant competition from other hotels, some of which are affiliated with
national or regional chains (including the "Holiday Inn" system). The number
of available hotel rooms in certain markets of the Inns have continued to
increase in recent years, and in many areas has reached levels in excess of
peak demand. The Inns' success is in large part dependent upon their ability
to compete on the basis of factors such as physical condition of the Inns,
access, location, service, franchise affiliation, employees, marketing quality,
reservation services, the quality and scope of food and beverage facilities,
and other amenities.
The demand for lodging accommodations varies seasonally and from one part of
the week to another, and is dependent upon general and local economic
conditions. In addition, the demand for accommodations at a particular Inn
may be adversely affected by government cutbacks, changes in travel patterns
caused by the relocation of highways or airports, the construction of additional
highways, strikes, weather conditions, and the availability and price of
gasoline and energy or other factors.
Employees
There are approximately 960 persons employed in the operation of the Inns
(not including W&H employees engaged in management and supervision).
Operating Partners believes its relationships with its employees are
satisfactory, and that the Inns have a number of core employees and key
supervisory personnel who provide experienced labor and management to the
operations of the Inns.
ITEM 2. PROPERTIES
The Inns, each of which is franchised as a "Holiday Inn", are located in
Maryland, Pennsylvania and Connecticut. The franchises with HII expire on
various dates as summarized in the following table.
Each of the Inns is located near an interstate highway or major traffic artery,
or in a city's business district, providing both visibility and accessibility
to travelers. All of the Inns contain meeting rooms with sound equipment and
banquet facilities. Each of the Inns has on-site parking and a swimming pool.
Also, each of the Inns contains a full service restaurant and lounge which
offer food and beverages throughout the day.
The following table presents certain information concerning the Inns:
<TABLE>
<CAPTION>
Year Number Franchise Status of Ownership
Location Opened of Rooms Expiration Date by Operating Partners
<S> <C> <C> <C> <C>
Maryland
Baltimore Inner Harbor 1964 375 Dec. 31, 2005 Land and building lease
Baltimore Washington
International Airport 1973(1) 259 June 30, 1997 Land and building lease
Frederick 1963(2) 157 June 30, 1997 Fee
Baltimore-Cromwell Bridge Rd. 1972 139 Dec. 31, 1997 Fee
Baltimore-Moravia Road 1974 139 Dec. 31, 1997 Fee
Baltimore-Belmont Blvd. 1973 135 Dec. 31, 2001 Fee
Baltimore-Glen Burnie No. 1973 128 Dec. 31, 1999 Land Lease
Baltimore-Pikesville 1963 108 June 30, 1997 Fee
Baltimore-Glen Burnie So. 1965 100 June 30, 1997 Fee
Pennsylvania
Lancaster-Route 30 1971 189 June 30, 1997 Land Lease and Fee
Lancaster-Route 501 1964 160 June 30, 1997 Land Lease
York-Market Street 1964 120 June 30, 1997 Land Lease
York-Arsenal Road 1970 100 Dec. 31, 1998 Fee
Hazleton 1969 107 June 30, 1997 Fee
Connecticut
New Haven 1965 160 June 30, 1997 Fee
East Hartford 1974 130 June 30, 1997 Land and building lease
Total 2,506
____________
(1) 96 room addition completed in 1985
(2) 63 room addition completed in 1985
</TABLE>
The terms of the leases (including options exercised) expire at various dates
ranging from 2000 through 2024. Some of the leases contain purchase options
to acquire title, with options to extend the leases for terms varying from
ten to forty years. Five of the leases are subject to rental adjustments
based upon inflation indexes. The leases generally require Operating Partners
to pay the cost of repairs, insurance, and real estate taxes.
Each of the properties is subject to mortgage liens securing the Priming Loan
and the Mortgage Notes. Each Mortgage Note is cross-collateralized and secured
by all of the Inns. In addition, the land and building under lease in the
Baltimore Washington International Airport Inn is subject to an additional
mortgage held by the Ground Lessor.
Item 3. Legal Proceedings
In the ordinary course of business, the Partnership and Operating Partners
are named as defendants in lawsuits relating to the operation of the Inns,
principally involving claims for injury alleged to have been sustained in or
near the Inns or for damages alleged to have been incurred in business dealings
with Operating Partners or others in connection with the Inns. Such claims are
generally covered by insurance. Claims not covered by insurance have not,
individually or in the aggregate been material.
Starting in December, 1996, the General Partner received correspondence from
a lawyer purporting to represent five holders of Units. In this correspondence,
the lawyer broadly charges the General Partner with breaches of fiduciary duty
and gross negligence by reason of an alleged failure to oversee W&H, as manager
of the Inns, and to make adequate provision for the cost of improvements that
will purportedly be required to be made to the Inns. The lawyer requested
that the management agreement with W&H be terminated or renewed only on a short
term basis. The letters threaten filing of a derivative action on behalf of the
Partnership in the event these matters are not resolved to the satisfaction of
the five Unitholders and also request a meeting with the General Partner to
discuss these and other matters relating to the Partnership. The General
Partner has denied the allegations of wrongdoing made in this correspondence
and has indicated a willingness to meet with those Unitholders to discuss the
issues they have raised, subject to those Unitholders entering into a suitable
confidentiality agreements. The General Partner has not yet met with those
Unitholders. No action has been filed by those Unitholders.
Item 4. Submission of Matters to a Vote of Unitholders
No matter was submitted during 1996 to a vote of the Unitholders of the
Partnership.
PART II
Item 5. Market for Registrant's Units and Related Unitholder Matters
(a) The Units have been traded on the New York Stock Exchange (the "Exchange")
since December 17, 1986. The following table sets forth the high and low sale
price for the Partnership's Units for the calendar quarters indicated, as
reported by the Exchange:
<TABLE>
<CAPTION>
1996 1995 1994
Fiscal Period High Low High Low High Low
<S> <C> <C> <C> <C> <C> <C>
First Quarter 13/16 7/16 3/4 1/2 1 3/4 1/2
Second Quarter 1 1/8 9/16 3/4 1/2 1 1/2 5/8
Third Quarter 1 -- 5/8 5/8 3/8 1 3/8 3/4
Fourth Quarter 15/16 5/8 1/2 1/4 3/4 3/8
</TABLE>
In March, 1997, the Partnership received a letter from the Exchange advising
the Partnership that the aggregate market value of the Units, the three-year
average net income of the Partnership and the net tangible assets of the
Partnership available to the Units fall below the Exchange's continued listing
criteria. The letter from the Exchange advised the Partnership that it was the
Exchange's "preliminary conclusion that there is not a sufficient basis for
maintaining the listing of the [Units]." The Partnership intends to make a
submission to the Exchange recommending the continued listing of the Units.
However, there can be no assurance that the Partnership will be able to
maintain the listing of the Units on the Exchange or to arrange for the Units
to be listed on any other national securities exchange or admitted to trading
on the NASDAQ Stock Market.
(b) On February 28, 1997, there were 585 holders of record of the
Partnership's Units.
(c) No dividends have been declared or distributed since 1990. The
Partnership's cash flow, which is dependent on revenues from operations of
the Inns, has been insufficient to maintain quarterly distributions. In
addition, the Partnership cannot make any distributions to Unitholders until
the Priming Loan is repaid, Mortgage Note payments are maintained and proper
reserves are funded as required.
Item 6. Selected Financial Data
<TABLE>
<CAPTION>
1996 (a) 1995 (a) 1994 (a) 1993 (a) 1992 (a)
(in thousands except per Unit amounts)
<S> <C> <C> <C> <C> <C>
Operating Data:
Total revenues (b) $ 49,584 $ 47,469 $ 44,173 $ 46,261 $ 44,001
Net loss (2,188) (2,280) (4,673) (1,215) (2,911)
Net loss allocable
to limited partners (2,166) (2,257) (4,626) (1,203) (2,882)
Per Unit loss allocable
to limited partners $ (0.54) $ (0.56) $ (1.16) $ (0.30) $ (0.72)
Balance Sheet Data:
Total assets $ 53,972 $ 57,001 $ 60,673 $ 64,009 $ 66,645
Long-term debt, net
of current maturities 65,691 65,645 66,627 65,912 67,108
Partners' deficit $ (17,921) $(15,733) $(13,453) $ (8,780) $ (7,565)
</TABLE>
(a) As a result of the fact that W&H's system of accounting for all properties
under its management, operates under a 52/53 week year (1992 - 1995 were 52
week years and 1996 is a 53 week year), and a calendar year deemed closed by
bookkeeping purposes on that Friday which is most proximate to December 31 of
any given year, the financial year of Operating Partners for 1996 ended January
3, 1997; for 1995 ended December 29, 1995; for 1994, December 30, 1994; for
1993, December 31, 1993; and for 1992, January 1, 1993.
(b) Includes $361,000, $374,000, $341,000, $304,000, and $360,000 for the years
ended December 31, 1996, 1995, 1994, 1993, and 1992, respectively, of other
income (principally interest income). In addition, it includes $1,025,000,
$4,389,000 and $3,375,000 for the years ended December 31, 1995, 1993 and 1992,
respectively, of non-recurring revenue from the settlement of claims by the
Partnerships against Prime and AMI Management in the Prime bankruptcy.
The Inns' room statistics are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
Average Average Average
Daily Room Occupancy Daily Room Occupancy Daily Room Occupancy
Rate Percentage Rate Percentage Rate Percentage
<S> <C> <C> <C> <C> <C> <C>
1st Quarter $63.76 45.3% $59.84 47.8% $56.33 48.0%
2nd Quarter $69.50 68.7% $64.74 69.4% $61.79 69.4%
3rd Quarter $71.44 72.4% $67.06 72.2% $61.10 72.7%
4th Quarter $67.54 57.2% $62.51 56.8% $58.72 57.5%
Full Year $68.53 60.8% $63.95 61.6% $59.82 61.9%
</TABLE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The Partnership wishes to caution readers that uncertainties relating to the
Partnerships' ability to negotiate the timing and cost of the PIPs, to finance
the PIPs and the franchise renewal costs and/or to obtain the consent of the
Lenders to necessary actions, could affect the Partnership's actual results
and could cause the Partnership's results in future years to differ materially
from those expressed in any forward-looking statements made by, or on behalf of
the Partnership.
Financial Condition
The Partnership derives its income from its 99% interest in Operating Partners,
whose income is generated from the operations of the Inns. Operating Partners
receives all lodging and other revenues derived from, and is responsible for
the payment of all expenses directly attributable to, the operation of the Inns.
Set forth below is information as to lodging and food and beverage revenues and
expenses generated from the operations of the Inns (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Operating revenues:
Lodging $ 39,488 $ 36,668 $ 34,463
Food & beverage 9,735 9,402 9,369
Totals 49,223 46,070 43,832
Direct operating expenses:
Lodging 9,462 8,998 8,674
Food & beverage 8,112 7,809 7,509
Marketing 3,500 3,334 3,244
Utilities 3,053 2,956 2,875
Repairs & maintenance 3,680 3,490 3,379
Rent 1,316 1,317 1,301
Insurance 705 630 670
Property taxes 1,382 1,380 1,300
Other 8,369 7,718 7,593
Totals 39,579 37,632 36,545
Operating revenues in
excess of direct
operating expenses $ 9,644 $ 8,438 $ 7,287
</TABLE>
In 1992, as part of its Plan, Operating Partners restructured its Mortgage
Notes under the Restated Loan Agreement and arranged a Priming Loan to fund
necessary capital improvements and finance operating deficiencies. The
improved condition of the Inns coupled with proper management and assisted
by the stable economy, have enabled the Partnerships to continue to sigificantly
increase average daily room rates (ADR). Operating revenues have, therefore,
increased to improve the cash flows to cover operating expenses, pay debt
service (including the Tranche A Loan), make necessary and required repairs
and maintenance and repay the Tranche B Loan. The ability of the Partnerships
to pay operating expenses, service debt and create required reserves depends
upon the ability of the Partnerships to increase future cash flows from
operations. Unless cash flows from operations are sufficient, the Partnerships
may not be able to continue as going concerns, although it is the intention of
the Partnerships to continue to operate the Inns as going concerns.
It is, however, the present intention of Operating Partners to sell both the
Baltimore Moravia Road and Baltimore Glen Burnie South Inns. Operating Partners
believes that both of these Inns will not contribute to the long term cash flow
requirements of the Partnerships, and therefore the sale proceeds can better be
utilized to reduce the Priming Loan debt. Operating Partners has entered
into a contract for the sale of the Glen Burnie South Inn, subject to a due
diligence review by the buyer (which is to be completed on or before April 9,
1997), and, subject to that review, a closing is to occur by May 9, 1997.
Operating Partners has no present intention to list any of the other Inns for
sale. As required under the Priming Loan and Restated Loan Agreement, approval
by the Lenders will be required for the sale of either of these two Inns.
Operating Partners has received some unsolicited proposals, to purchase the
Partnerships assets or to purchase certain of the Inns. Operating Partners
is carefully evaluating these proposals.
The Partnerships' investment in the Inns continues to be subject to the risks
generally incident to the ownership of real estate, including those relating to
the uncertainty of cash flow to meet fixed obligations, franchise affiliation,
adverse changes in national economic conditions, adverse changes in local market
conditions, changes in interest rates, the availability of financing for
operating or capital needs (including to finance the renewal of the Holiday
Inn franchise agreements), changes in real estate tax rates and other operating
expenses, adverse changes governmental rules and fiscal policies, act of
God (which may result in uninsured losses), condemnation and other factors
that are beyond the control of the General Partner, the Partnership, Operating
Partners or W&H.
Results of Operations
Total revenues increased to $49,584,000 in 1996, from $47,469,000 (including
non-recurring income of $1,025,000) in 1995 and $44,173,000 in 1994. The
Partnerships' net loss was $2,188,000 for the year ended December 31, 1996 as
compared to a loss of $2,280,000 (which includes non-recurring income of
$1,025,000 from the settlement of claims by the Partnerships against Prime and
AMI Management in the Prime bankruptcy (the "Prime Settlement")) for the year
ended December 31, 1995 and a loss of $4,673,000 in 1994. The following table
compares the room revenues, occupancy percentage levels and ADR for the years
indicated:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Lodging revenues (in thousands) $ 39,488 $ 36,668 $ 34,463
Occupancy percentage 60.8% 61.6% 61.9%
ADR $ 68.53 $ 63.95 $ 59.82
</TABLE>
The Inns have been able to increase their respective ADRs by attracting and
maintaining the higher ADR market segments (hotel guests categorized as
individual business, leisure and government guests, etc. and groups such as
corporate, association, tours, crews, etc.). Attracting and maintaining the
higher ADR segments has been accomplished by increased marketing and sales
promotions and the attractiveness of the Inns as a result of the capital
improvement program completed in 1994 and the continuation fo capital
improvements during 1995 and 1996. In attracting the market segments with
higher ADR, the Inns have had to remove most of their lower ADR market segments
(such as airline crews and tour groups). This repositioning of market segment
business contributed to the slight decline in occupancies over 1995 and 1996.
Also, the harsh winter weather in the first quarter of 1996, as compared to
the first quarter of 1995, contributed to the decline in occupancy. There
continues to be intense competition in the geographic areas where the Inns
are located, including conversions of competitor hotels to HII franchises.
Therefore, the Partnerships and W&H believe occupancy levels at the Inns will
not substantially increase over the next year, but is expected to show some
growth. The occupancy growth projected is due to the stable and growing
economic conditions, and the stabilization of supply and demand in the region
where the Inns are located. However, due to the fact that approximately
one-third of the Inns are "highway oriented" location properties (which in
general have lagged behind in demand, as compared to midscale and urban,
suburban and airport location properties), slow occupancy growth is expected.
Also, these "highway oriented" Inns have an external dated appearance due to
their age, which contributes to their median occupancy levels.
Food and beverage revenues in 1996 increased to $9,735,000 from $9,402,000 and
$9,369,000 in 1995 and 1994, respectively. The increase in food and beverage
revenues is attributable primarily to the greater use of meeting room, banquet
and lounge facilities ( and the increased revenues from that use) by the higher
rated market segments that the Inns have attracted.
Direct operating expenses in 1996 were $39,579,000 , as compared to $37,632,000
in 1995 and $36,545,000 in 1994. The increase in lodging expenses is reflective
of inflationary increases in labor costs, and increases in expenses that are
incurred in servicing the higher rated market segments, such as room amenities,
travel agent commissions, and guest supplies. Increases in food and beverage
expenses are attributable to the inflationary increases in labor costs and food
and beverage costs. In an effort to attract and maintain the higher
rated market segments, the Inns have increased spending in marketing, such as
advertising costs and hotel promotions. The repair and maintenance costs have
increased in 1996 over 1995, which is reflective of the age of the Inns.
Insurance costs increased due to general liability and property insurance
rate increases. The Inns' utility cost increases are attributable to the
combination of increases in utility rates and the harsh weather suffered in
the first quarter of 1996 as compared to the same period of 1995. The
increases in other expenses, included in direct operating expenses, reflect
higher administrative and general expenses directly incurred in the operations
of the Inns, such as administrative labor, employment and training costs,
protection expense, and in costs that vary with revenues, such as franchise
fees paid to HII, management fees paid to W&H, and credit card commissions.
Other general and administrative costs increased in 1996 over 1995 due primarily
to the additional time and expense incurred in the franchise brand analysis of
the Inns, required as a result of the pending expiration in 1997 of the Holiday
Inn franchises for twelve of the Inns. Depreciation and amortization expense
decreased in 1996, due to the original debt acquisition costs having been fully
amortized in the first quarter of 1995. The interest expense increase in 1996
is a result of the slower pay back in 1996 of the operating funds borrowed
under the Tranche B Loan, than in the previous year.
Liquidity and Capital Resources
The changes in cash and cash equivalents are summarized as follows:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Net cash provided by operating activities $ 2,317 $ 2,092 $ 1,451
Net cash used by investing activities (2,275) (2,668) (2,482)
Net cash provided by financing activities - - 675
Net increase (decrease) in cash
and cash equivalents $ 42 $ (576) $ (356)
</TABLE>
In 1994, cash provided by operating revenues exceeded cash used for operating
expenses of the Inns and of the Partnerships, resulting in net cash being
provided by operating activities.
In 1994, net cash used by investing activities was $2,482,000, and included
additions to property and equipment of $2,773,000, partially offset by a
$291,000 decrease in the restricted cash accounts. The restricted cash
accounts included the net reduction in the FF&E Reserve of $305,000 (the
capital expenditures of $2,056,000 which were funded from the FF&E Reserve
exceeded the $1,751,000 funded to the FF&E Reserve at 4% of revenues, plus
interest earned on the account), net of an increase of $14,000 in the interest
reserve and tax escrow accounts.
In 1994, borrowings from the Priming Loan provided cash for financing
activities. The Partnerships borrowed the remaining $675,000 under the
Tranche A Loan and $1,763,000 under the Tranche B Loan. The entire Tranche
B Loan borrowed to supplement cash flow deficiencies in the first quarter of
1994 was repaid from excess working capital in the second quarter of 1994.
In 1995, cash provided by operating revenues exceeded cash used for operating
expenses of the Inns and of the Partnerships, resulting in net cash being
provided by operating activities.
Net cash used in investing activities was $2,668,000 in 1995, of which
$2,423,000 was utilized for capital improvements and refurbishments and
$245,000 of increases in restricted cash. The restricted cash accounts
included the net increase in the FF&E Reserve of $221,000 (funding plus
interest earned of $2,337,000 less capital expenditures of $2,117,000) and
increases of $24,000 in the interest reserve and tax escrow accounts.
The Partnerships borrowed $1,200,000 under the Tranche B Loan to supplement
operating cash flow deficiencies during the first quarter of 1995. The entire
Tranche B Loan was repaid from excess working capital during the second quarter
of 1995.
In 1996, cash from operating activities exceeded cash used for operating
expenses of the Inns and of the Partnerships, which resulted in net cash
being provided by operating activities. Net cash provided by operating
activities increased in 1996, as compared to 1995, as a result of increased
revenues from operations and control of operating expenses.
Cash used in investing activities was $2,275,000 in 1996, which included
$1,880,000 of additions to property and equipment, and $395,000 of increases
in restricted cash. The restricted cash accounts included the net increase
in the FF&E Reserve of $364,000 (funding plus interest earned of $2,517,000,
less capital expenditures of $2,153,000) and increases of $31,000 in the
interest reserve and tax escrow accounts.
The Partnerships borrowed $1,600,000 under the Tranche B Loan to supplement
operating cash flow deficiencies during the first quarter of 1996. The entire
Tranche B Loan was repaid from excess working capital prior to the end of the
third quarter of 1996.
Until the Priming Loan is paid in full, no principal is required to be paid
on the Mortgage Notes from operating cash. In 1992 and 1993, interest on the
Mortgage Notes was payable at 7% per annum; in 1994, at 8% per annum; and
after 1994, at 10% per annum (including on the Deferred Amount). The
outstanding principal amount of the Mortgage Notes has been reduced by
$8,827,000 from the proceeds of the Prime Settlement ($3,419,000 during 1992,
$4,383,000 during 1993, and $1,025,000 during 1995).
The Partnerships' ongoing cash requirements are for working capital, debt
service and the funding of required reserves. The Partnerships' source of
liquidity is the operations of the Inns, which during the winter months have
been insufficient to fund working capital, debt service and required reserves.
The Partnerships may however, borrow up to $2,500,000 of the Tranche B portion
of the Priming Loan for operating cash deficiencies, but must repay any amount
borrowed, if for any month cash on hand exceeds working capital requirements,
as defined in the Priming Loan. There were no Tranche B borrowings outstanding
as of December 31, 1996. Approximately $834,000 of working capital cash was on
hand as of December 31, 1996.
Presently the Partnerships have a capital replacement reserve of approximately
$1,195,000, which is available only for capital improvements and refurbishments.
Beginning in 1993, the FF&E Reserve was required under the Priming Loan, to be
funded on a monthly basis at 1.5% of revenues. The required funding of the
FF&E Reserve increased to 4% of revenues in 1994, and 5% thereafter. The
interest reserve account contains approximately $463,000. The interest reserve
account was established through the initial Priming Loan, and, at the option
of the Lenders, may be used to cure any default under the Priming Loan.
No additional funding to the interest reserve is required under the Priming
Loan.
No distributions can be made to Unitholders until the Priming Loan is paid in
full, proper required reserves are maintained, and proper payments are made on
the Mortgage Notes, which would include principal reduction. There is no
guarantee that there will ever be excess cash for such distributions to
Unitholders.
The Partnerships anticipate continued growth in the economy, in the travel and
hospitality industries, in the real estate market and in the comparative
attractiveness of the Inns resulting from the capital improvements (although
neither the Partnership nor any of its advisors can give any assurances as to
the strength or duration of any such economic growth). The Partnerships
anticipate that such economic growth, coupled with the improvements constantly
being made to the physical condition of the Inns and the continued professional
management and marketing of the Inns, will result in the improvement of
occupancies, room rates and related revenues, and thus create better profit
margins. The Partnerships anticipate that their future earnings, together
with the advances under the Priming Loan, will enable the Partnerships to pay
all operating expenses, pay debt service, and satisfy the payment requirements
under the current HII franchise agreements. However, while the Partnerships'
budgets and capital plans reflect their present best estimates of future
events, those events are beyond the control of the Partnerships, the General
Partner and W&H and no assurances can be given that the Partnerships will
have the liquidity to meet future operating and capital commitments. Further,
as discussed earlier, the "Holiday Inn" franchises of ten of the Inns expire
on June 30, 1997 and the franchises of two additional Inns will expire on
December 31, 1997. Based on the PIPs prepared by HII for those
Inns and on analyses of W&H, Operating Partners estimates that the cost of
the capital expenditures that will be required as a condition to the renewal
of the franchise agreements for those twelve Inns will be in the range of
$13,000,000. In addition, Operating Partners will be required to pay franchise
renewal costs of approximately $884,000 ($500 per room) for those Inns.
Operating Partners has reached an agreement with HII as to the terms and
conditions of the franchise renewals and is awaiting review and approval of the
Lenders. In addition, Operating Partners is continuing to evaluate the
improvements and expenditures included in each of the PIPs, in order to
identify those items that Operating Partners believes will enhance the Inn's
ability to continue to compete in its market and that will add value to the
Inn; and those improvements or expenditures that Operating Partners believes
to be less necessary or which will add little value. Operating Partners is
continuing negotiations with HII, as to the scope of work included in each
PIP and the length of time within which such improvements will be completed.
Generally, in connection with the renewal of the franchise for an Inn,
Operating Partners will have one year, which may be negotiable, from the
franchise expiration date to complete the capital improvements included in
the PIP. It is anticipated that the capital improvements for the PIPs will
be financed partially from the FF&E Reserve and from additional financing,
if available. At the present time, the current Lenders have stated that they
are not willing to provide any such financing, that will be required.
Operating Partners is actively investigating financing possibilities.
However, there can be no assurance that additional financing will be
available. If financing is not available and Operating Partners is unable to
defer the timing and costs of the PIPs, the Inns may have to change franchise
affiliations or become independent hotels. Changes in such franchise
affiliations could adversely impact the Partnerships' results of operations.
Further, under the Priming Loan and Restated Loan Agreements, approval by
the Lenders will be required for any franchise changes, capital expenditures
or additional financing.
Operating Partners' operating expenses have been and are expected to continue
to be subject to inflationary pressures. Depending on levels of economic
activity and competitive pressures, the room rates and food and beverage
charges at the Inns may also increase with inflation, but not necessarily in
proportion to the pressures affecting expenses.
The Partnership has recently received a letter from the Exchange advising the
Partnership that the aggregate market value of the Units, the three-year
average net income of the Partnership and the net tangible assets of the
Partnership available to the Units fall below the Exchange's continued listing
criteria. The letter from the Exchange advised the Partnership that it was
the Exchange's "preliminary conclusion that there is not a sufficient basis
for maintaining the listing of the [Units]." The Partnership intends to make
a submission to the Exchange recommending the continued listing of the Units.
However, there can be no assurance that the Partnership will be able to
maintain the listing of the Units on the Exchange or to arrange for the Units
to be listed on any other national securities exchange or admitted to trading
on the NASDAQ Stock Market.
As a result of the bankruptcy of Prime, and circumstances beyond the control
of the Partnerships, the Partnerships experienced substantial financial
difficulties, but will continue to endeavor to improve the results of
operations, and thereby increase the value of the Partnership and its Units.
Under the Internal Revenue Code, a publicly traded partnership, such as the
Partnership, is taxable as a corporation unless it satisfies certain conditions.
However, subject to various limitations, publicly traded partnerships in
existence on December 17, 1987 are generally exempt from taxation as a
corporation until after 1997. If the Partnerships' operations continue as
described herein, the Partnership should not be taxed as a corporation until
after 1997. However, a publicly traded partnership which adds a substantial
new line of business is not eligible for such exemption and it is possible
that the Internal Revenue Service could contend that the Partnership should
be taxed as a corporation after November 29, 1990, the date of the termination
of the Lease. If the Partnership were taxable as a corporation, its operating
losses should eliminate any tax liability for some time.
Item 8. Financial Statements and Supplementary Data
See Index to Financial Statements and Financial Schedules included in Item
14(a).
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
Certain information is set forth below concerning the directors and officers
of the General Partner, each of whom has been elected or appointed to serve
until his successor is duly elected and qualified. The Unitholders of the
Partnership do not have voting rights with respect to the election of directors
of the General Partner.
Present Position with the General Partner
Name Age and Business Experience for Past Five Years
S. Leonard Okin 63 Vice President and Director of the General
Partner since inception; Managing Director of
the General Partner since January 1, 1994;
Vice President and Director of First
American Realty Associates, Inc., (mortgage
brokers) from prior to 1989 to December 31,
1993 (1).
Robert A. Familant 45 Director of the General Partner since August
19, 1994; Treasurer/CEO of Progressive
Credit Union (credit union) since prior to
1989 (2).
Seymour G. Siegel 54 Director of the General Partner since November
21, 1994; President of Siegel Rich, Inc.
(consulting firm) since January 1, 1994;
Senior Partner of M.R. Weiser & Co.
(accounting firm) from prior to 1989 (3).
(1) In 1994, with the approval of the Lenders, Mr. Okin entered into a
Consulting Services Agreement (the "Consulting Services Agreement") with the
Partnerships and the General Partner, giving him authority to make day to day
operating decisions for the Inns, and for the purposes hereof will be referred
to as Managing Director of the corporate General Partner. First American
Realty Associates, Inc. had performed mortgage brokerage services for Prime.
(2) Mr. Familant was elected and approved as an outside Director of the General
Partner effective August 19, 1994.
(3) Mr. Siegel was elected and approved as an outside Director of the General
Partner effective November 21, 1994.
Under the Consulting Services Agreement, Mr. Okin, as an independent contractor,
performs on behalf of the Partnership, Operating Partners and the General
Partner, the services normally performed by, and exercises the authority
normally assumed or undertaken by, the chief executive officer of a corporation.
The Consulting Services Agreement was effective December 1, 1994 through
December 31, 1995, and has been extended on a yearly basis for a current term
ending December 31, 1997. Unless the parties or the Lenders exercise
their rights to terminate the Consulting Services Agreement, it will be
extended automatically for successive twelve-month periods. The Consulting
Services Agreement is terminable, among other things, by 30 days prior written
notice from the Partnership, Operating Partners, or the General Partner to Mr.
Okin of their election not to renew the agreement at the expiration of the
initial or any renewal term; for cause; by 60 days prior written notice
from Mr. Okin to the General Partner of Mr. Okin's election at any time to
terminate the agreement; at any time by Mr. Okin if the Partnership, Operating
Partners and the General Partner for any reason are not able to maintain in
place specified liability insurance coverage for Mr. Okin; and upon foreclosure
by the Lenders on substantially all of the assets of the Partnerships, by notice
from the Lenders to Mr. Okin given within ten days of such foreclosure.
Item 11. Executive Compensation
As the only person performing services to the Partnerships comparable to the
services of an officer, Mr. Okin is required to devote substantial time and
effort to manage the Partnerships. The following table sets forth Mr. Okin's
compensation paid in respect of the fiscal years ended December 31, 1996, 1995
and 1994.
Summary Compensation Table:
<TABLE>
<CAPTION>
Name and Other Annual Long Term All Other
Principle Position Year Salary ($) Bonus ($) Compensation Compensation Compensation
<S> <C> <C> <C> <C> <C> <C>
S. Leonard Okin 1996 $ 126,000 $ - $ - $ - $ -
1995 $ 120,000 $ - $ - $ - $ -
1994 $ 120,000 $ - $ - $ - $ -
</TABLE>
Mr. Okin receives compensation as Managing Director of the corporate General
Partner. In addition, Mr. Okin received reimbursement for out-of-pocket
expenses in 1996, 1995 and 1994 totaling approximately $27,300, $27,500
and $27,400, respectively (for office rent, secretarial services, utilities,
airfare, postage, office supplies, etc.) and $18,500, $6,250 and $3,250,
respectively, for attendance at board meetings.
Directors are currently paid a fee of $1,000 for each Board meeting
attended in New York and $1,500 for each meeting out of town,
plus out of pocket expenses incurred for attending meetings.
The Partnerships have retained the services of Siegel Rich, Inc., a consulting
firm in which Seymour G. Siegel is a shareholder. In 1996, the Partnerships
paid Siegel Rich, Inc., approximately $16,000.
Item 12. Securities Ownership of Certain Beneficial Owners and Management
The following table sets forth, as of December 31, 1996, the number of Units
owned by the officers and directors of the General Partner and by all persons
owning of record or, to the knowledge of the Partnership, beneficially more
than 5% of the outstanding Units. The General Partner does not own any Units.
<TABLE>
<CAPTION>
Ownership of Units
Number Percentage
of Units Total No. of of Units
Name & Address of Owner Held Units Held Outstanding
<S> <C> <C> <C>
S. Leonard Okin
c/o Prime-American Realty Corp.
P.O. Box 230
Hawthorne, NJ 07507-0230 1,000 1,000 0.025%
Jerome & Marcella Yunger, as Trustees
5039 Mesa View Drive
Las Vegas, NV 89120 174,800
Roxanne Rose Yunger
5039 Mesa View Drive
Las Vegas, NV 89120 129,400 304,200(1) 7.605%(1)(1)
</TABLE>
Includes 174,800 Units held of record by Mr. & Mrs. Yunger as Trustees of the
Jerome J. and Marcella M. Yunger Family Trust and 129,400 Units held of record
by Roxanne Rose Yunger. The Partnership has no knowledge as to the beneficial
ownership of such Units.
Item 13. Certain Relationships and Related Transactions
During 1996, 1995 and 1994, Mr. Okin as Managing Director and Officer of the
General Partner, received $171,800, $153,750 and $150,650, respectively, as
cash compensation for his services and reimbursement of expenses. During 1996,
Siegel Rich, Inc., a consulting firm in which Seymour G. Siegel is a
shareholder, was paid approximately $16,000 for services to the Partnerships.
See Item 10 and 11 above.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) 1. Financial Statements
2. Financial Statement Schedules
The Financial Statements and Schedules listed in the
accompanying index on page 25 to financial statements are
filed as part of this Form 10-K.
3. Exhibits
(2) (b) Agreed order of the Florida Bankruptcy
Court approving rejection of the Lease, the
Guarantee and a related agreement included as
Exhibit (2) (b) to the Partnership's
1990 Annual Report on Form 10-K is incorporated
herein by reference.
(3) (a) Amended and Restated Agreement of
Limited Partnership of the Partnership
included as Exhibit 3.1 to the Partnership's
Registration Statement on Form S-1 (No. 33-9595)
(The "Registration Statement) is incorporated herein
by reference.
(3) (b) Certificate of Limited Partnership of the Partnership
included as Exhibit 3.2 to the Registration Statement
is incorporated herein by reference.
(3) (c) Amended and Restated Agreement of Limited Partnership
of Operating Partners, included as Exhibit 3.3 to the
Registration Statement is incorporated herein by
reference.
(3) (d) Certificate of Limited Partnership of Operating
Partners included as Exhibit 3.6 to the Registration
Statement is incorporated herein by reference.
(4) (a) Form of Deposit Agreement included as Exhibit 10.8 to
the Registration Statement is incorporated herein by
reference.
(10) (a) Form of Lease included as Exhibit 10.1 to the
Registration Statement is incorporated herein by
reference.
(10) (b) Form of Management Agreement included as Exhibit
10.2 to the Registration Statement is incorporated
herein by reference.
(10) (c) Form of Purchase and Sale Agreement included as
Exhibit 10.3 to the Registration Statement is
incorporated herein by reference.
(10) (d) Form of Note Purchase and Loan Agreement included as
Exhibit 10.4 to the Registration Statement is
incorporated herein by reference.
(10) (e) Form of Service Contract included as Exhibit 10.5 to
the Registration Statement is incorporated herein by
reference.
(10) (f) Form of Undertaking included as Exhibit 10.6 to the
Registration Statement is incorporated herein by
reference.
(10) (g) Form of Guaranty included as Exhibit 10.7 to the
Registration Statement is incorporated herein by
reference.
(10) (h) Management Agreement among AMI Operating Partners, L.P.
("Operating Partners"), Sixteen Hotels, Inc. ("Sixteen
Hotels"), and Winegardner & Hammons, Inc. ("W&H"),
as Manager, dated January 4, 1990, included
as Exhibit (10) (h) to the Partnership's 1990
Annual Report on Form 10-K is incorporated herein
by reference.
(10) (i) Sixth Amendment to the Replacement Management Agreement
among Operating Partners Sixteen Hotels, Inc. and
W&H, as Manager, to be effective January 4, 1997.
(10) (j) Loan Agreement among Massachusetts Mutual
Life Insurance Company, Century Life of America and
Jackson National Life Insurance Company (collectively,
the "Priming Lenders"), as lenders, Operating Partners,
as borrower and Norwest Bank Minnesota, N.A., Agent
(the "Agent") dated as of February 28,
1992 included as Exhibit (10) (i) to the Partnership's
1992 Annual Report on Form 10-K is incorporated
herein by reference.
(10) (k) Amended and Restated Loan Agreement among
Massachusetts Mutual Life Insurance Company,
Century Life of America and Jackson National Life
Insurance Company, (collectively, the "Priming
Lenders"), as lenders, AMI Operating Partners, as
borrower and Norwest Bank Minnesota, N.A., Agent (the
"Agent"), dated as of June 12, 1992, as
amended by letters of consent agreements dated
February 1993, and March 17, 1993, included as Exhibit
(10) (j) to the Partnerships 1992 Annual Report on
Form 10-K, and a letter of consent dated January 31,
1994, included as Exhibit (10) (j) to the Partnerships
1994 Annual Report on Form 10-K, are incorporated
herein by reference.
(10) (l) Amended and Restated Loan Agreement among
Operating Partners, the Holders named in Exhibit A
thereto (collectively, the "Existing Lenders") and
IBJ Schroeder Bank and Trust Company, Servicer,
dated June 12, 1992, as amended by letters
of consent agreements dated February 1993, included
as Exhibit (10) (k) to the Partnership's 1992
Annual Report on Form 10-K, and a letter of
consent agreement dated January 31, 1994, included
as Exhibit (10) (k) to the Partnership's 1994 Annual
Report on Form 10-K, are incorporated
herein by reference.
(10) (m) Escrow Agreement among Operating Partners,
the Existing Lenders and Chicago Title Insurance
Company, as escrow agent and as title insurer
dated June 12, 1992, included as Exhibit (10) (l)
to the Partnership's 1992 Annual Report on
Form 10-K.
(10) (n) Consulting Services Agreement among the
Partnerships, the General Partner and Mr.
S. Leonard Okin dated December 1, 1994, included
as Exhibit (10) (m) to the Partnership's 1994
Annual Report on Form 10-K.
(10) (o) Fourth Consent Agreement among Operating
Partners, the Priming Loan Lenders named in
Exhibit A thereto, and the Lenders named in
Exhibit B thereto, dated March 17, 1995,
included as Exhibit (10) (n) to the Partnership's
1994 Annual Report on Form 10-K.
(10) (p) Consulting Agreement among Operating
Partners and Siegel Rich, Inc., dated March 11, 1997,
formalizing the previously agreed upon terms
and conditions.
(21) Subsidiaries of Prime Motor Inns Limited
Partnership are as follows:
Jurisdiction of
Name Incorporation
AMI Operating Partners, L.P. Delaware
(27) Financial Data Schedules
(b) Reports on Form 8-K
None
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, there-unto duly authorized.
PRIME MOTOR INNS LIMITED PARTNERSHIP
(Registrant)
By: Prime-American Realty Corp. General Partner
Date: March 21, 1997 By: /s/ S. Leonard Okin
S. Leonard Okin
Vice President & Director
Date: March 21, 1997 By: /s/ Robert A. Familant
Robert A. Familant
Director
Date: March 21, 1997 By: /s/ Seymour G. Siegel
Seymour G. Siegel
Director
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
BOARD OF DIRECTORS OF THE GENERAL PARTNER
Signature Title Date
By: /s/ S. Leonard Okin Director and Vice President March 21, 1997
S. Leonard Okin of the General Partner;
Consultant under the
Consulting Services Agreement
By: /s/ Robert A. Familant Director of the March 21, 1997
Robert A. Familant General Partner
By: /s/ Seymour G. Siegel Director of the March 21, 1997
Seymour G. Siegel General Partner
CONTENTS
Pages
Report of Independent Accountants 25
Financial Statements:
Consolidated Balance Sheets - December 31, 1996 and 1995 26
Consolidated Statements of Operations for the years ended
December 31, 1996, 1995 and 1994 28
Consolidated Statements of Partners' Deficit for the years
ended December 31, 1996, 1995 and 1994 29
Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1995 and 1994 30
Notes to Consolidated Financial Statements 31-39
Report of Independent Accountants
To the Partners of the
Prime Motor Inns Limited Partnership
and AMI Operating Partners, L.P.
We have audited the accompanying consolidated balance sheets of
Prime Motor Inns Limited Partnership and Subsidiary Limited
Partnership as of December 31, 1996 and 1995, and the related
consolidated 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 Partnerships' 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 consolidated
financial position of Prime Motor Inns Limited Partnership and
Subsidiary Limited Partnership as of December 31, 1996 and 1995,
and the consolidated results of their operations and their cash
flows for each of the three years in the period ended December
31, 1996, in conformity with generally accepted accounting
principles.
The accompanying consolidated financial statements have been
prepared assuming that the Partnerships will continue as a going
concern. As discussed in Note 1, the Partnerships have incurred
significant operating losses and have a capital deficit at
December 31, 1996. These matters raise substantial doubt about
the Partnerships' ability to continue as a going concern. The
consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
Coopers & Lybrand L.L.P.
Cincinnati, Ohio
February 21, 1997
Prime Motor Inns Limited Partnership
and Subsidiary Limited Partnership
Consolidated Balance Sheets
December 31, 1996 and 1995 (dollars in thousands)
<TABLE>
<CAPTION>
ASSETS 1996 1995
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 834 $ 792
Accounts receivable, net of
allowance for doubtful accounts in
1996 and 1995 of $19 and $20,
respectively 774 661
Prepaid expenses 952 941
Other current assets 328 375
Total current assets 2,888 2,769
Property and equipment:
Land 7,653 7,653
Buildings and leasehold improvements 55,382 55,389
Furniture and equipment 39,978 38,244
103,013 101,286
Less allowance for accumulated
depreciation and amortization (54,188) (49,140)
48,825 52,146
Cash and cash equivalents restricted for:
Acquisition of property and equipment 1,195 831
Interest and taxes 522 491
Other assets, net 542 764
Total assets $ 53,972 $ 57,001
</TABLE>
Prime Motor Inns Limited Partnership
and Subsidiary Limited Partnership
Consolidated Balance Sheets, Continued
December 31, 1996 and 1995 (dollars in thousands)
<TABLE>
<CAPTION>
LIABILITIES AND PARTNERS' DEFICIT 1996 1995
<S> <C> <C>
Current liabilities:
Trade accounts payable $ 484 $ 568
Accrued payroll 660 688
Accrued payroll taxes 165 286
Accrued vacation 437 473
Accrued utilities 322 326
Sales tax payable 274 242
Other current liabilities 772 671
Total current liabilities 3,114 3,254
Long-term debt 65,691 65,645
Deferred interest 2,872 3,685
Other liabilities 216 150
Total liabilities 71,893 72,734
Commitments
Partners' deficit:
General partner (751) (729)
Limited partners (17,170) (15,004)
Total partners' deficit (17,921) (15,733)
Total liabilities
and partners deficit $ 53,972 $ 57,001
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
Prime Motor Inns Limited Partnership
and Subsidiary Limited Partnership
Consolidated Statements of Operations
for the years ended December 31, 1996, 1995 and 1994
(dollars in thousands, except per unit amounts)
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Revenues:
Direct operating revenues:
Lodging $ 39,488 $ 36,668 $ 34,463
Food and beverage 9,735 9,402 9,369
Other income 361 374 341
Lease settlement proceeds - 1,025 -
Total revenues 49,584 47,469 44,173
Expenses:
Direct operating expenses
Lodging 9,462 8,998 8,674
Food and beverage 8,112 7,809 7,509
Marketing 3,500 3,334 3,244
Utilities 3,053 2,956 2,875
Repairs and maintenance 3,680 3,490 3,379
Rent 1,316 1,317 1,301
Insurance 705 630 670
Property taxes 1,382 1,380 1,300
Other 8,369 7,718 7,593
Other general and
administrative 701 587 606
Depreciation and amortization 5,423 5,473 5,626
Interest expense 6,069 6,057 6,069
Total expenses 51,772 49,749 48,846
Net loss (2,188) (2,280) (4,673)
Net loss allocable to
general partner (22) (23) (47)
Net loss allocable to
limited partners $ (2,166) $ (2,257) $ (4,626)
Number of limited partner
units outstanding 4,000 4,000 4,000
Net loss allocable to limited
partners per unit $ (.54) $ (.56) $ (1.16)
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
Prime Motor Inns Limited Partnership
and Subsidiary Limited Partnership
Consolidated Statements of Partners' Deficit
for the years ended December 31, 1996, 1995 and 1994
(dollars in thousands)
<TABLE>
<CAPTION>
General Limited
Partner Partner Total
<S> <C> <C> <C>
Balance at December 31, 1993 $ (659) $ (8,121) $ (8,780)
Net loss (47) (4,626) (4,673)
Balance at December 31, 1994 (706) (12,747) (13,453)
Net loss (23) (2,257) (2,280)
Balance at December 31, 1995 (729) (15,004) (15,733)
Net loss (22) (2,166) (2,188)
Balance at December 31, 1996 $ (751) $ (17,170) $ (17,921)
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
Prime Motor Inns Limited Partnership
and Subsidiary Limited Partnership
Consolidated Statements of Cash Flows
for the years ended December 31, 1996, 1995 and 1994
(dollars in thousands)
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (2,188) $ (2,280) $ (4,673)
Adjustments to reconcile net loss
to net cash provided by
(used for) operating activities:
Depreciation and amortization
of property 5,201 5,158 5,126
Lease settlement proceeds - (1,025) -
Amortization of other assets 222 315 500
Amortization of debt discount 46 43 40
Changes in operating assets
and liabilities:
Accounts receivable (113) 220 (12)
Prepaid expenses (11) 45 (37)
Other current assets 47 16 (117)
Other assets - 10 2
Trade accounts payable (84) 166 (206)
Accrued payroll (28) (26) 124
Accrued payroll taxes (121) 28 39
Accrued vacation (36) 37 59
Accrued utilities (4) 77 (65)
Sales tax payable 32 21 9
Other current liabilities 101 28 82
Deferred interest (813) (741) 580
Other liabilities 66 - -
Net cash provided by operating activities 2,317 2,092 1,451
Cash flows from investing activities:
Additions to property and equipment (1,880) (2,423) (2,773)
Decrease (increase) in restricted cash (395) (245) 291
Net cash used for investing activities (2,275) (2,668) (2,482)
Cash flows from financing activities:
Long-term borrowings - - 675
Borrowings under revolving
credit facility 1,600 1,200 1,763
Repayment of revolving credit facility (1,600) (1,200) (1,763)
Net cash provided by financing activities - - 675
Net increase (decrease) in cash and
cash equivalents 42 (576) (356)
Cash and cash equivalents, beginning
of year 792 1,368 1,724
Cash and cash equivalents, end of year $ 834 $ 792 $ 1,368
Supplementary cash flow data:
Interest paid $ 6,836 $ 6,755 $ 5,449
Noncash activities:
Lease settlement proceeds received
from former affiliate in the form
stock used to reduce long-term debt $ - $ 1,025 $ -
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
Prime Motor Inns Limited Partnership
and Subsidiary Limited Partnership
Notes to Consolidated Financial Statements
1. Organization, Operations and Bankruptcy:
Prime Motor Inns Limited Partnership (the "Partnership") and its
99%-owned subsidiary, AMI Operating Partners, L.P. ("Operating
Partners"), were formed in October 1986 under the Delaware
Revised Uniform Limited Partnership Act. The Partnership and
Operating Partners are referred to collectively as the
"Partnerships". Prime-American Realty Corp. (the "General
Partner"), a subsidiary of Prime Hospitality Corporation
("Prime"), formerly Prime Motor Inns, Inc., is the general
partner of and holds as its principal asset a 1% partnership
interest in the Partnership and in Operating Partners.
In December 1986, the Partnership consummated an initial public
offering (the "Offering") of 4,000,000 units of limited
partnership interest (the "Units") in the Partnership, and used
the funds received to acquire the 99% limited partnership
interest in Operating Partners. Units are evidenced by
depositary receipts which are listed on the New York Stock
Exchange. Operating Partners commenced operations in December
1986 when it used the Offering proceeds and issued mortgage
notes (the "Mortgage Notes") in the principal amount of
$61,470,000 to purchase 16 full service hotels (the "Inns") from
subsidiaries of Prime. The Partnerships operate and maintain 9
Inns in Maryland, 5 in Pennsylvania and 2 in Connecticut, all of
which are presently franchised as part of the "Holiday Inn"
system.
Profits and losses from operations and cash distributions of the
Partnerships combined are generally allocated 1.99% to the
General Partner and 98.01% to the limited partners. Any profits
and losses from operations in excess of certain specified annual
and cumulative returns on investments in limited partner shares,
as defined (generally 12.5%), are allocated approximately 30% to
the General Partner and 70% to the limited partners.
Until November 30, 1990, the Inns were operated by AMI
Management Corp. ("AMI Management"), another subsidiary of
Prime, under the terms of a lease between AMI Management and
Operating Partners (the "Lease"), guaranteed by Prime (the
"Guaranty"). The Lease was a net lease that granted AMI
Management the right to use the Inns until December 31, 1991.
On September 18, 1990, Prime announced that it and certain of
its subsidiaries, including AMI Management but not the General
Partner, had filed for reorganization under Chapter 11 of the
United States Bankruptcy Code in the United States Bankruptcy
Court for the Southern District of Florida. AMI Management
defaulted on the payment of base rent due November 1, 1990 under
the Lease. On November 7, 1990, the Partnership gave notice of
default to, and demanded payment from AMI Management and Prime.
AMI Management and Prime also filed a motion to reject the Lease
and Guaranty and, by order of the bankruptcy court dated
December 7, 1990, the bankruptcy court approved such rejection
and the Lease and Guaranty were terminated effective as of
November 30, 1990 (see Note 3).
Operating Partners was in default under its mortgage loan
agreement as of and prior to December 31, 1991 as a result of,
among other things, the bankruptcy filing by Prime and AMI
Management. On March 28, 1991, the Partnerships received a
notice of acceleration and demand for payment of the entire
outstanding balance of the Mortgage Notes along with certain
conditions under which the lenders would pursue discussions with
respect to restructuring the Mortgage Notes.
On February 28, 1992, Operating Partners filed with the United
States Bankruptcy Court a voluntary petition for reorganization
under Chapter 11 of the United States Bankruptcy Code, seeking
confirmation by the bankruptcy court of a prepackaged plan of
reorganization (the "Plan"). The New York Bankruptcy Court
confirmed the Plan, on May 28, 1992, which became effective as
of June 12, 1992 (the "Effective Date"). Upon confirmation of
the Plan, the New York Bankruptcy Court approved the Restated
Loan Agreement (the "Restated Loan Agreement") which, among
other things, extended the maturity date of the Mortgage Notes
to December 31, 1999 (refer to Note 5 for a further discussion
of this matter).
Although the Plan was approved, the Partnerships may not be able
to continue as going concerns unless cash flow from operations
are sufficient. The Partnerships have incurred significant
operating losses and have a capital deficit at December 31,
1996. The accompanying consolidated financial statements do not
include any adjustments relating to the recoverability of
recorded asset amounts or the amounts of liabilities that might
be necessary should the Partnerships be unable to continue as
going concerns.
2. Summary of Significant Accounting Policies:
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 dates of the financial statements and
reported amounts of revenues and expenses during the reporting
periods. Actual results could differ from those estimates.<PAGE>
The following is a summary of certain significant accounting
policies used in the preparation of the consolidated financial
statements.
a. Principles of Consolidation: The consolidated financial
statements include the accounts of the Partnership and its
99%-owned subsidiary limited partnership, Operating Partners.
Operating partners operates on the basis of a calendar year
ending on the Friday which is most proximate to December 31 of
any given year. All material intercompany accounts and
transactions have been eliminated.
b. Cash Equivalents: Cash equivalents are highly liquid
investments with a maturity of three months or less when
acquired.
c. Property and Equipment: Property and equipment are stated at
the lower of cost or fair market value. The net carrying value
of property and equipment as of December 31, 1991 was reduced to
estimated fair market value, through a charge to expenses in the
amount of $46,354,000. Expenditures for improvements and major
renewals are capitalized. Expenditures for maintenance and
repairs, which do not extend the useful life of the asset, are
expensed as incurred. For financial statement purposes,
provision is made for depreciation and amortization using the
straight-line method over the lesser of the estimated useful
lives of the assets or the terms of the related leases. For
federal income tax purposes, accelerated methods are used in
calculating depreciation.
d. Impairment of Long Lived Assets: In March 1995, the
Financial Accounting Standards Board issued SFAS No. 121,
"Accounting for the Impairment of Long Lived Assets" which is
effective for years beginning after December 15, 1996, with
earlier adoption encouraged. The Partnerships elected early
adoption of SFAS No. 121 in 1995. In accordance with this new
pronouncement, the Partnerships review for impairment and
recoverability of, primarily, property and equipment whenever
events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. If an evaluation is
required, the estimated future undiscounted cash flows
associated with the asset would be compared to the assets
carrying amount to determine if a write-down is required.
e. Other Assets: Franchise fees, deferred lease costs, and
deferred debt acquisition costs are amortized on a straight-line
basis over the estimated lives of the assets or the specific
term of the related agreement, lease or mortgage loan.
f. Net Loss per Unit: Net loss per Unit is calculated based on
net loss allocable to limited partners divided by the 4,000,000
Units outstanding.
g. Reclassification: Certain 1995 and 1994 amounts have been
reclassified to conform to the 1996 presentation.<PAGE>
3. Operations of the Inns:
a. Lease and Guaranty: Prior to the rejection and termination
of the Lease and Guaranty effective as of November 30, 1990, the
Lease granted AMI Management the right to use the Inns for the
operation of hotels and related purposes.
AMI Management defaulted on the payment of $1,311,000 of base
rent due on November 1, 1990. Pursuant to the joint motion
approved by order of the bankruptcy court on January 8, 1991,
the Partnerships, AMI Management and Prime entered into an
agreement providing for the assumption by Operating Partners of
the operations of the Inns (the "Agreement"). The Partnerships
also effectively assumed control over certain accounts
receivable, supplies, equipment and other assets and
responsibility for certain accounts payable and other
liabilities arising from the operations of the Inns by AMI
Management during the term of the lease. Disputes between the
parties existed at December 31, 1991 as to, among other things,
the value of certain assets and liabilities under the Agreement.
Operating Partners entered into an agreement in 1992 (the
"Omnibus Agreement") under which, among other things, Operating
Partners assigned to the holders of the Mortgage Notes its
claims against Prime and AMI Management and agreed that amounts
recovered on such claims would be allocated among financial
claims (the proceeds of which would be applied to the repayment
of the Mortgage Notes) and operating claims (the proceeds of
which would be available to finance capital improvements to the
Inns).
In July, 1992 the servicing agent for the holders of the
Mortgage Notes, Prime and AMI Management reached a settlement
(the "Settlement") of claims which was approved by the Florida
Bankruptcy Court. Under the Settlement, various claims of the
holders of the Mortgage Notes against Prime and AMI Management
were allowed; Operating Partners will not make any payments to
or for the benefit of any other party; and Prime, AMI
Management and Operating Partners have exchanged mutual releases.
In February 1995, the Partnership received proceeds totaling
approximately $1,025,000 from the sale of 127,924 shares of
Prime common stock received in the Settlement. The proceeds
were recognized as lease settlement proceeds in the consolidated
statements of operations and were used to reduce the principal
balance on the Mortgage Notes.
b. Franchise Agreements: Holiday Inns, Inc. and it's affiliates
engaged in administering the "Holiday Inn" system (collectively,
"HII") extended the franchise agreement for Baltimore Inner
Harbor Inn to 2005. The franchise agreements for twelve of the
Inns expire in 1997 and the remaining three Inns' agreements
expire one each in 1998, 1999 and 2001.
HII has notified the Partnerships that certain capital
expenditure projects at the Inns will be required to maintain
the Inns' franchise status. For twelve of the Inns whose
franchises expire in 1997 the capital expenditures have been
estimated by Operating Partners to approximate $13,000,000,
however, such capital expenditures are subject to negotiation
with HII. Operating Partners will have one year, which may be
negotiable, from the franchise expiration date to complete the
capital improvements. In addition, Operating Partners will be
required to pay franchise renewal costs of approximately
$884,000 for the twelve Inns whose franchises expire during
1997. The loss of the Holiday Inn franchise status of any of
the Inns may have a near term adverse impact in the
Partnerships' results of operations.
c. W&H Management Agreement: Winegardner & Hammons, Inc.
("W&H") continues to manage the operations of the Inns pursuant
to its management agreement with Operating Partners which
provides for an annual management fee of 2.25% of the gross
revenues of the Inns and certain incentive management fees. W&H
is also reimbursed for miscellaneous out-of-pocket expenses
allocated to the Inns, including expenses incurred in providing
certain administrative services for the Partnerships, royalties
and marketing, advertising, public relations, and reservation
services, subject to certain limitations. The management
agreement expires December 31, 2000 and is cancelable by either
W&H or the Operating Partners, without cause or penalty, upon
ninety days written notification. At December 31, 1996 and
1995, the Partnerships had approximately $61,000, in receivables
from an entity controlled by W&H which manages certain of the
Inns' lounges.
4. Other Assets:
The components of other assets are as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Deferred lease costs $ 21 $ 21
Debt acquisition costs 2,839 2,839
Franchise fees 820 820
Other 4 4
3,684 3,684
Less accumulated amortization 3,142 2,920
$ 542 $ 764
</TABLE>
4. Other Assets, Continued:
Amortization of debt acquisition costs charged to expense was
$161,000, $174,000 and $359,000 in 1996, 1995 and 1994
respectively. Amortization of franchise fees charged to expense
was $61,000 in 1996 and $141,000 in 1995 and 1994.
5. Debt:
Long-term debt consists of:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Mortgage notes, net of unamortized
discount of $158,000 in 1996
and $204,000 in 1995 $ 54,191,000 $ 54,145,000
Priming loan, interest at 11% 11,500,000 11,500,000
$ 65,691,000 $ 65,645,000
</TABLE>
In confirming the bankruptcy Plan of Reorganization on May 28,
1992, the New York Bankruptcy Court approved the Restated Loan
Agreement which called for the following provisions: $3,467,127
of accrued and unpaid interest at December 31, 1991 (the
"Deferred Amount") to be added to the principal amount of the
Mortgage Notes, but to bear interest only from and after January
1, 1995; the Mortgage Notes (not including the Deferred Amount)
to bear interest payable at a rate of 8% per annum in 1994; the
principal amount of the Mortgage Notes (including the Deferred
Amount) to bear interest at the rate of 10% per annum from
January 1, 1995 until maturity; and maturity of the Mortgage
Notes (including the Deferred Amount) to be extended to December
31, 1999. In addition, the Restated Loan Agreement provides for
the deeds to the Inns and assignments of other assets of
Operating Partners to be held in escrow until maturity of the
Mortgage Notes. Under the terms of the Restated Loan Agreement,
the Mortgage Notes are repayable at any time without penalty.<PAGE>
The Restated Loan Agreement also provides for a shared
appreciation feature that calls for Operating Partners to pay
additional interest to the mortgage lenders, based on sale or
appraisal values of the Inns compared to the principal amount of
the Mortgage Notes, upon payment, prepayment, maturity or
acceleration of the Mortgage Notes, or upon sale of one or more
of the Inns. The Partnerships periodically estimate the fair
value of the Inns to determine if a reserve is needed for future
payments to lenders under the shared appreciation feature. While
the estimates of fair value are based on an analysis of the
facilities and determined under industry standards, the amounts
the Partnerships will ultimately realize upon the sale of the
properties or appraised values could differ materially in the
near term from the estimated fair values used in the calculation
of the reserve. There was no additional interest accrued or
paid to the lenders under this feature in 1996, 1995 or 1994.
The Restated Loan Agreement was accounted for as a modification
of terms in accordance with Statement of Financial Accounting
Standards No. 15 "Accounting by Debtors and Creditors for
Troubled Debt Restructurings". Accordingly, the carrying value
of the Mortgage Notes and Deferred Amount was not adjusted to
reflect the terms of the Restated Loan Agreement. The effect of
the changes in the terms of the Mortgage Notes will be
recognized prospectively over the life of the Mortgage Notes,
through an adjustment of the effective interest rate on the
Mortgage Notes and Deferred Amount to approximately 8.5% per
annum (the "Effective Rate"). The amount by which interest
payable at the Effective Rate exceeded the amount of interest
paid at the stated rate, has been accrued and is included in
deferred interest payable at December 31, 1996 and 1995. The
amount by which interest paid at the stated rate exceeds the
amount of interest payable at the Effective Rate will reduce the
deferred interest balance in future periods.
As part of the Plan, certain members of the lending group also
agreed to provide Operating Partners post-petition financing
(the "Priming Loan"). Borrowings under the Priming Loan, may be
used to finance capital improvements or to fund operating cash
requirements. The portion used for capital improvements
(defined as the Tranche A Loan), which may be up to the full
amount of the $14,000,000 available, is due on December 31, 1999
and provides for a prepayment premium of 2%. The portion used
for operating cash requirements (defined as the Tranche B Loan),
which cannot exceed $2,500,000, is also limited to the amount
remaining after borrowings for capital improvements. Borrowings
under the Tranche B loan are pursuant to a revolving facility,
such that amounts repaid can be reborrowed up to the limits of
availability. These revolving credit borrowings are subject to
the mandatory repayment provisions described below. There were
no outstanding borrowings under the revolving facility at
December 31, 1996 or December 31, 1995.<PAGE>
As of December 31, 1996 and 1995, the outstanding balance under
the Priming loan was $11,500,000. The entire amount in 1996 and
1995 represents borrowings under the Tranche A loan. The
Priming Loan agreement places certain restrictions on the use of
Operating Partners' cash flow and sales proceeds. Operating
cash flow can be used only in accordance with the Priming Loan
agreement, which calls for, among other things, monthly deposits
into an escrow account held by or on behalf of the lenders for
the payment of a furniture, fixtures and equipment reserve of 5%
of gross revenues. The cash on hand from the operation of the
Inns less the current month projected cash deficiency, if any,
less a working capital reserve not to exceed $2,000,000, shall
be utilized to first repay any outstanding borrowings under the
Tranche B Loan and then paid into an escrow account held on
behalf of the lenders for the payment of taxes and insurance.
6. Commitments:
a. Operating Leases: Four of the Inns are held pursuant to land
leases and three of the Inns are held pursuant to land and
building leases, which are accounted for as operating leases.
The leases have terms expiring at various dates from 2000
through 2024 and options to renew the leases for terms varying
from ten to forty years. Five of the leases are subject to an
escalating rent provision based upon inflationary indexes, which
adjusts the lease payment every five to ten years depending on
the respective lease. One of the leases is a land lease with a
subsidiary of Prime that expires in 2000 (with an option to
extend 40 years) and requires annual rentals of $24,000. Future
minimum lease payments will be as follows:
<TABLE>
<CAPTION>
Year Amount
<C> <C>
1997 1,254,000
1998 1,348,000
1999 1,372,000
2000 1,381,000
2001 1,357,203
2002 and thereafter 19,552,364
</TABLE>
Rent expense under these leases totaled $1,258,000, $1,260,000
and $1,253,000 in 1996, 1995, and 1994, respectively.
7. Income Taxes:
No federal or state income taxes are reflected in the
accompanying financial statements of the Partnerships. Based
upon an opinion of counsel of the Partnership obtained in 1986,
which is not binding upon the Internal Revenue Service, the
Partnerships were not taxable entities at their inception. The
partners must report their allocable shares of the profits and
losses of the Partnerships in their respective income tax
returns.
The Revenue Act of 1987 (the "1987 Act") added several
provisions to the Internal Revenue Code which affect publicly
traded partnerships such as the Partnership. Under these rules,
a publicly traded partnership is taxed as a corporation unless
90% or more of its income constitutes "qualifying income" such
as real property rents, dividends and interest. The 1987 Act
also provided certain transitional rules, however, which
generally exempt publicly traded partnerships in existence on
December 17, 1987 from application of the new rules until after
1997, subject to various limitations.
If the Partnership's operations continue as described herein,
the Partnership should not be taxed as a corporation until after
1997. However, publicly traded partnerships which add a
substantial new line of business are not eligible for relief
under these transitional rules and it is possible that the
Internal Revenue Service could contend that the Partnership
should be taxed as a corporation after November 30, 1990, the
date of termination of the Lease. Also, it should be noted that
with respect to the partners, the 1987 Act also contained rules
under which the income of the Partnership will be treated,
effectively, as "portfolio income" for tax purposes and will not
be eligible to offset losses from other passive activities.
Similarly, any losses of the Partnership will not be eligible to
offset any income from other sources.
The Partnerships have determined that they do not have to
provide for deferred tax liabilities based on temporary
differences between financial and tax reporting purposes. The
tax basis of the net assets of the Partnerships exceeded the
financial reporting basis at December 31, 1996 and is expected
to do so at December 31, 1997.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1000
<CASH> 834
<SECURITIES> 0
<RECEIVABLES> 793
<ALLOWANCES> (19)
<INVENTORY> 0
<CURRENT-ASSETS> 328
<PP&E> 103013
<DEPRECIATION> (54188)
<TOTAL-ASSETS> 53972
<CURRENT-LIABILITIES> 3114
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 53972
<SALES> 49223
<TOTAL-REVENUES> 49584
<CGS> 17574
<TOTAL-COSTS> 45703
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6069
<INCOME-PRETAX> (2188)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2188)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2188)
<EPS-PRIMARY> (.54)
<EPS-DILUTED> (.54)
</TABLE>
SIXTH AMENDMENT
TO REPLACEMENT MANAGEMENT AGREEMENT
This Sixth Amendment to Replacement Management Agreement (the "Sixth
Amendment") is entered into on the 31st (day of January, 1997 to be effective
as of the 4th day of Januarv, 1997 by and among AMI Operatine Partners, L.P.,
a limited partnershiporganized and existing under the laws of the State of
Delaware (hereinafter referred to as the "Partnership"); Sixteen Hotels, Inc.,
a corporation organized and existing under the laws of the State of Maryland
(hereinafter referred to as the "Corporation"); and
Winegardner & Hammons, Inc., a corporation organized and existing under the
laws of the State of Ohio with offices at 4243 Hunt Road, Cincinnati, Ohio
45242 (hereinader referred to as "Manager").
PRELIMINARY STATEMENTS
1. The parties have entered into a certain Replacement Management
Agreement (the "Management Agreement") to be effective as of January 4, 1992.
2. The parties have also entered into a First Amendment to Replacement
Management Agreement (the "First Amendment") to be effective as of December 31,
1992.
3. The parties have also entered into a Second Amendment to Replacement
Management Agreement (the ~Second Amendment") to be effective as of October 9,
1996.
4. The parties have also entered into a Third Amendment to Replacement
Management Agreement (the "Third Amendment") to be effective as of November 4,
1996.
5. The parties have also entered into a Fourth Amendment to Replacement
Management Agreement (the "Fourth Amendment") dated to be effective December 4,
1996.
6. The parties have also entered into a Fifth Amendment Replacement
Management Agreement (the "Fifth Amendment") dated to be effective December 20,
1996.
7. For purposes of this Sixth Amendment, the Management Agreement, the
First Amendment, the Second Amendment, the Third Amendment, the Fourth Amendment
and the Fifth Amendment are collectively referred to as the "Agreement".
NOW, THEREFORE. in consideration of the above Preliminary Statements, which
shall be and by this reference are incorporated as part of this Sixth Amendment,
the continued performance by the parties of their respective obligations
under the Management Agreement, and other good and valuable consideration,
the receipt and sufficiency of which is hereby acknowledged, the parties
do hereby agree as follows:
1. The fifth line of Arricle 2.02 of the Agreement shall be modified by
replacing the word "fifth" with the word "ninth".
2. Article 3.01(b)(i)(aa) and (bb) shall be added to the Agreement to read as
follows:
"(aa) The Minimum Base fee Multiplier shall be increased from $65,000
tO $75,000 if at any time during either the Initial Term or any Renewal Term, a
Qualifying Event shall have occurred with respect to either one or both of the
two Baltimore Hotels described on Exhibit A-1 as the Holiday Inn
Baltimore-Inner Harbor (Downtown) and the Holiday lnn Baltimore-Int'l.
Airport (hereinafter collectively referred to as the "Two Hotels").
(bb) For purposes hereof, a "Qualifying Event" shall mean the occurrence
of any one of the following events during the Initial Term or any Renewal
Term as respects any one or more of the Two Hotels: Any one or more of the
Two Hotels ceases to be operated under a franchise or license issued by
Holiday Inns Franchising, Inc.; any one or more of the Two Hotels is sold
to a Third Party Purchaser; any one or more of the Hotels is destroyed by fire
or other casualty and not rebuilt, or is condemned."
3. Article 3.01(c)(i)(cc) shall be added to the Agreement to read as follows:
"(cc) By way of further illustration, if the Qualifying Event described in
Article 3.01(b)(i)(bb) above occurred with respect to one of the Two Hotels, the
Minimum Base Fee Multiplier would be increased from $65,000 to $75,000 for
purposesof computing the Minimum Base Management Fee."
4. Article 3.01(c)(ii)(cc) shall be added to the Agreement to read as follows:
"(cc) By way of fiurther illustration, if the Qualifying Event descabed in
Article 3.O1(b)(ii)(bb) above occurred with respect to one of the Two Hotels,
the Minimum Base Fee Multiplier would be increased from $65,000 to $75.000
for purposes of computing the Minimum Base Management Fee."
5. The fifth line of Article 3.01(d) shall be modified by adding after the
words "a Holiday Inn" the words "or any other Franchise".
6. The second line of Article 3.01(h)(ii) shall be modified by replacing the
number "$15,000" with the number "$17,500".
7. Article 18.04(iv) shall be replaced in its entirety and rewritten to read as
follows:
"(iv) Commencing with the first day of Fiscal Year 1997 and continuing
thereafter for the remainder of the Initial Term' the Partnership may only
terminate the Agreement upon the occurrence of any one of the events
collectively defined below as the "Events of Authorized Termination". Thus,
commencing with the first day of Fiscal Year 1997, the Partnership specifically
waives any rights to terminate the Agreement by the payment to Manager of a
Termination Fee or other equivalent fee or payment. The "Events of Authorized
Termination" are hereby defined to include any one or more of the
following events:
(aa) The occurrence of an Event of Default which results in
Manager being a Defaulting Party under the Agreement and the subsequent election
by the Pastnership to exercise its rights of termination pursuant to
Article 14.02 above;
(bb) The sale of all of the Hotels identified on Exhibit A to a
Third Party Purchaser; or
(cc) The acquisition of all of the Hotels identified on Exhibit A
by the Successor Entity."
8. Article 18.04(v), (vi), (vii) and (viii) shall be added to the Agreement to
read as follows:
"(v) If the parties elect to extend the term of the Agreement for any one
or more of the Renewal Terms, then during any one of such Renewal Terms, the
Agreement mav only be rerminated bv the Partnership if any one of the Events of
Authorized Termination occurs during the applicable Renewal Term.
(vi) Upon the occurrence of any of the Events of Authorized
Termination, the Agreement shall automatically terminate without penalty as of
the date of the occurrence of such event. Such termination shall not, however,
release either Manager or the Partnership from anv obligations
under the Agreement arising or accruing prior to the effective date of the
termination of the Agreement.
(vii) If the Successor Entity acquires all or some of the Hotels. then the
Agreement shall remain in full force and effect, and Manager shall continue
to perform its services thereunder for the benefit of the Successor Entiny;
provided. however, that the Agreement shall be deemed to have been
amended in accordance with the provisions set forth in the Comfort Letter
(which amendments include. but are not limited to, the fact that either the
Successor Entity or Manager shall have the right to terminate the Agreement
at any time, with or without cause, provided that in the event of a termination
without cause, the party so terminating shall give the other party not less
than ninety (90) days prior written notice of such termination).
Notwithstanding the foregoing to the contrary, however, the provisions
in the Comfort Letter shall be specifically amended and otherhise modified
by the provisions of this Sixth Amendment to provide that, if the
Successor Entity is the party terminating the Agreement without cause,
such tennination shall not impose anv obligation upon the Successor Entity
to pay to Manager any Termination Fee. At the request of any one
of the Holders or Lenders, Manager shall enter into appropriate modifications
to the Comfort Letter to reflect modifications set forth in the prececding
sentence.
(viii) If the Successor Entity acquires some (but not all) of the Hotels,
then, as between Manager and Partnership the Agreement shall remain in effect
only with respect to those Hotels which have not been acquired by any
Successor Entity. Upon such an occurence, the provisions relative
to the payment of a Minimum Base Management Fee as set forth in Article
3.01(b) and (c) of the Agreement shall be applicable."
9. Article 18.06 shall be added to the Agreement to read as follows:
"18.06 Lien Rights. Nothing contained in the Agreement shall be
construed or otherwise interrupted as granting to Manager a security interest in
and/or to any one or more of the Hotels or shall otherwise constitute a
lien or encumbrance on or against the land on which any one
or more of the Hotels is located."
10. Article 18.07 shall be added to the Agreement to read as follows:
"18.07 Assignment of Interest in Mortgage Loans and Ternination Rights
of any Successor Entity.
(a) The parties acknowledge and confirm that:
(i) ALI Inc. is the successor in interest to, and has been
substituted for certain of the fimns named as Lenders or Holders and included
in the Lending Group, as those terms are defined in the Agreement and
the Comfort Letter;
(ii) Definitions and reference in the Agreement or the Comfort
Letter to Lenders, Holders, Lending Group, Successor Entity or any other
comparable term shall include ALI Inc. and the successors and assicns
of ALI Inc. or other member of the Lending Group;
(iii) The current listing of the Lenders and Holders is as set forth
on Exhibits 2 and 3 attached hereto;
(iv) Crown NorthCorp has replaced Norwest Bank Minnesota,
N.A. as the "Agent" (which term shall have the meaning as set forth in the
Comfort Letter); and
(v) To the extent there is any conflict in the terms, provisions or
conditions set forth in this Sixth Amendment with the terms, provisions and
conditions set forth in the Comfort Letter, the parties acknowledge and
agree that the terms, provisions and conditions of the Sixth Amendment
shall govern and control."
(b) In the event all or some of the Hotels are acquired by any Successor
Entity, the provisions set forth in the Comfort Letter, as specifically
modified by the provisions set forth in Article 18.04(vii) which have
been added to the Agreement by the provisions of this Sixth Amendment, shall
govern and control with respect to the termination rights granted
to the Successor Entity or Manager."
11. Article 18.08 shall be added to the Agreement to read as follows:
~18.08 Additional Termination Rights of Partnership and Manager.
Notwithstanding any of the other provisions set forth in Article 18 of the
Agreement. Including but not limited to the provisions set forth in Article
18.04 (iv), either Partnership or Manager shall have the right to
terminate the Agreement at any time, with or without cause, provided that in
the event of a termination without cause. the parties so terminating
shall give the other party not less than ninety (90) days prior written notice
of such termination and provided further that the Partnership may not
terminate the Agreement without the prior written consent of ALI Inc.
or its successors. which consent may be given or withheld in the
sole discretion of ALI Inc. or its successors. If the Partnership is
the party terminating the Agreement without cause, such termination shall
not impose any obligation upon Partnership to pay to Manager any
Termination Fee."
12. Article 90.01(v) shall be replaced in its entirety and re-written to
read as follows:
"(v) Lending Group -- currently the lenders who are listed on Exhibit 3
annexed hereto and who are referred in the Comfort Letter as the Holders who
collectively hold the Existing Mortgage to the Partnership."
13. Article 20.01(hh.1) shall be amended by the addition of the following
sentence at the end the Article to read as follows:
"The current Lenders under the Priming Loan Agreement are as set forth
on Exhibit 2 attached hereto, and the current Agent under the Priming Loan
Agreement is Crown NorthCorp."
14. Article 21.01(rr), (ss) and (tt) are hereby added to the Agreement to
read as follows:
"(rr) Comfort Letter - that letter from Manager dated May 6, 1992
addressed to Norwest Banlc, Minnesota, N.A. and IBJ Schroder Bank & Trust
Company, a copy of which is attached hereto as Exhibit 1 and incorporated
herein by this reference as if fully restated below.
(ss) Events of Authorized Ternunation - a collective term to describe
each of the events set forth in Article 1 8.04(iv) of the Agreement.
(tt) Successor Entity - the term shall have the meaning as set forth in
the Comfort Letter."
15. On Exhibit B in Calculation 2 the "schedule" (located at the bottom of
page 1 of Exhibit B) used to compute the Incentive Management Fee on an
annualized basis shall be replaced in its entirety and rewritten to read
as follows:
"PRID: Hurdle Incentive Mgt. Fee Applicable Percentage on
on an Annualized on an Annualized Amounts in Excess of PRID
Basis Basis Hurdle
$7,500,000 $0 10.0%
$10,000,000 $250.000 17.5%
$12,500,000 $687,500 22.5%"
16. The first full paragraph on page 2 of Exhibit B beginning with the words
"For purposes of illustration" shall be replaced in its entirety and rewritten
to read as follows:
"For purposes of illustration, if after the expiration of the first quarter in
any Calculation Period, the PRID was $3,750,000; the PRID computed on an
annualized basis would be $15,000,000, and the Incentive Management Fee
computed on an annualized basis would be $1,250,000 "
17. Paragraph (d) on page 7 of Exhibit B entitled "Applicable Percentage"
shall be replaced in its entirety and rewritten to read as follows:
"(d) Applicable Percentage~ those percentages set forth in Calculation 2
above (i.e. 10%, 17.5% and 22.5%) which are used to compute the amount of
Incentive Management Fee if the PRID computed on an annualized basis is in
excess of the PRID Hurdle."
18. The penultimate and last line of Article 2.03 of the Agreement shall be
deleted in their entirety and replaced with the words "extend the term of
the Agreement at any time".
19. Except as modified above, all other provisions in the Agreement, including
but not limited to all of the Amendments thereof and shall remain in full force
and effect.
IN WITNESS WHEREOF. the parties have duly executed and delivered this
Second AmendmeM. effective as of the day and year first above written, to
evidence their understanding on such date.
PARTNERSHIP:
AMI OPERATING PARTNERS, L.P.
Witness: By: PRIME-AMERICAN REALTY CORP.,
its general partner
/s/ S. Leonard Okin
Its: Vice President
CORPORATION:
SIXTEEN HOTELS, INC;
/s/ J. Erik Kamfjord
Its: President
MANAGER:
Winegardner & Hammons, Inc.
/s/ J. Erik Kamfjord
Its: President
Exhibit 1
WINEGARDNER & HAMMONS, INC.
4243 HUNT ROAD
CINCINNATI, OHIO 45242
May 6, 1992
Norwest Bank Minnesota, N.A.
6th Street and Marquette Avenue
Minneapolis, Minnesota 55479
Att: Corporate Trust Department
IBJ Schroder Bank and Trust Company
One State Street
New York, New York 0004
Att: Mr. Max Volmar
Re: Holiday Inn Hotels listed on Exhibit A
Gentlemen:
Winegardner & Hammons, Inc. (~W&H"), has entered into a
Replacement Management Agreement and a Construction Services
Agreement (respectively the "Management Agreement" and the
"conseruction Services Agreement", and collectively, the
"Agreements", with AMI Operating Partners L.P. ("AMI"), pursuant
to which W&H has agreed to provide management and construction
supervision services for 16 Holiday Inns owned by AMI and more
particularly described in Exhibit A annexed hereto (collectively,
the "Hotels").
In connection with the Agreements, you have advised us as
follows:
A. The Lenders listed in Exhibit 9 annexed hereto (the
"Lenders", have agreed to make a loan (the "First Loan"), to AMI
secured in part by a mortgage lien on the Hotels, as more
particularly set forth in a Loan Agreement dated as of February
28, 1992 (as the same may from time to time be amended, the
"Priming Loan Agreement"). The First Loan is held in the name of
Norwest Bank Minnesota, N.A. as agent (together with its
successors as agent, the "Agent").
B. The Holders listed in Exhihit C annexed hereto (the
"Holders") have made a loan ( the "Second Loan") to AMI secured in
part by a mortgage lien on the Hotels, as more particularly set
forth in a Note Purchase and Loan Agreement dated as of December
15, 1996 (as the same may from time to time be amended, the "Loan
Agreement"). The Second Loan ls held in the name of I.B.J.
Schroeder Bank and Trust Company, as servicer (together with its
successors as servicer or agent, the "Servicer").
C. AMI has filed a petition seeking relief under the provisions
of Chaprer 11 of title 11 of the United States Code, Case No.
92B-41245 (PBA) (the "Bankruptcy Proceeding") with the United
States Bankruptcy Court, Southern District of New York (the
"Bankruptcy Court").
D. Subject to the confirmation by the Bankruptcy Court of the
Plan of Reorganization filed by AMI in connection with the
Bankruptcy Proceeding, the Lenders will enter into certain
modififarions of the First Loan with AMI, and the Holders will
enter into certain modifications of the second Loan with AMI.
E. The obligations of the Lenders in connection with the First
Loan and the modification thereof referred to in clause D above,
and the obligations of the Holders in connection with the
modification of the Second Loan referred to in clause D above,
are contingent upon W&H executing and delivering this letter, and
the execution and delivery of this letter by W&H is a material
inducement to the Lenders and Holders to enter into such
obligations.
F. AMI has consented to W&H's allowing the inspection, by the
Agent, the Servicer, the Lenders and the Holders, of the books
and records held by W&H, and to the receipt by each of said
parties of information from W&H regarding the Hotels.
Accordingly, we agree with you as follows:
1. As used herein:
(a) The term "Loans" shall mean, collectively, the First
Loan and the Second Loan.
(b) The term "Required Landers" shall have the meaning set
forth in the Priming Loan Agreement.
(c) The term "Required Holders" shall have the meaning set
forth in the Loan Agreement.
(d) The term "Successor Entity" shall mean any of (1) the
Agent and its successors, (2) the Servicer and its successors,
(3) the Lenders or any Lender, (4) any nominee or designee of the
Agent, the Lenders or any Lender; (5) the Holders or any Holder,
(6) any nominee or designee of the Servicer, the Holders, or any
Holder, or (7) any other party aqcuiring title (which shall
include, where applicable, aqcuisition of a leasehold interest)
to the Hotels or any Hotel pursuant to a foreclosure of either of
the Loans or pursuant to a deed in lieu of foreclosure, or from
any entity otherwise referred to in clauses (1) through (7) of
this Paragraph 1(d).
2. W&H hereby certifies that:
(a) The Agreements have been executed and delivered
contemporaneously herewith, are unmodified and in full Force and
effect, to the best of W&H's knowledge there are no defaults
thereunder, and all fees and other payments payable to W&H
thereunder are current;
(b) There are in existence, and were in existence at the
time of the first Advance under the Priming Loan Aqreement, no
Plans and Specifications (as defined n the Prining Loan
Agreement) other than those relating to the Inner Harbor
Alterations (as defined in the Priming Loan Agreement) more
particularly described in Exhibit M-7 to the Priming Loan
Agreement (the "Inner Harbor Plans and Specifications");
(c) Any existing Contracts (as defined in the Priming Loan
Agreement have been approved by W&H and, if required by the
Priming Loan Agreement, by the Consulting Professional (as
defined in the Priming Loan Agreement);
(d) Completion of the Inner Harbor Alterations and the Work
in accordance with the Plans and Specifications and the
Construction Schedule will satisfy all existing deficiencies
raised by Holiday Inns, Inc. and its franchising affiliates
(collectively, "HII") with respect to the Hotels, including,
without limitation, any Product Improvement Programs;
(e) With the exception of the Inner Harbor Alterations and
certain of the Work to be performed at the Lancaster East Hotel,
none of the Work to be performed requires architect's plans to be
prepared; and
(f) With the exception of the Inner Harhor Alterations and
certain of the work to be performed at the Lancaster East Hotel,
none of the Work to be performed requires any approval of HII.
3. W&H hereby consents to the collateral assignment of the
Aqreements by AMI to each of the Agent and the Servicer, as
security for repayment of the respective Loans (as the same may
be modified), but such assignment shall in no event be construed
or deemed to be an assumption by the Agent, the Servicer, the
Lenders, or the Holders of any obligations of AMI under the
Agreements.
4. W&H hereby acknowledges and agrees that, notwithstanding
anything to the contrary contained in Section 5.09(b) of the
Management Agreement, the Cash Reserve for Capital Replacements
(referred to in the Priming Loan Agreement as the "FF&E Account~)
shall be held by the Lenders or the Holders, or as they may
direct, pursuant to the Priming Loan Agreement or the Loan
Agreement, as the same may be modified from time to time.
5. W&H will provide both the Agent and the Servicer at the above
addresses (or such other addresses as may be specified in a notice
to W&H) with copies of all notices of default on the part of AMI
under the Agreements, and shall afford each of the Agent and the
Servicer an opportunity to cure such defaults, which rights shall
be coincident and coterminous with the right of AMI to effect
such cure, except that each of the Agent and the Lender shall
have an additional fifteen (15) day period, after the expiration
of the period in which AHI is required to effect such cure, to
effect the same ( and performance by the Agent or the Servicer
shall be accepted by W&H as though the same had heen performed by
AMI), and there shall be no default deemed to exist under the
Agreements unless such cure shall not have been completed within
such period.
6. Anything in the Agreements or by law notwithstanding, W&H
will not assert any right it might have to terminate the
Agreements or performance of its services thereunder as the
result of a default by AMI without giving written notice thereof
to the Agent and the Servicer, specifying the claimed default,
and notwithstanding the occurrence of any such default, W&H shall
take no action to rescind or terminate the Agreements and shall,
at the request of either the Agent or the Servicer, continue
performance of its obligations thereunder, in accordance with the
terms thereof, provided that the default shall be cured (as
provided in Paragraph 5 hereof or otherwise), and W&H shall, be
paid for its services in accordance with the fee schedules set
forth in the Agreements.
7. In the event all or some of the Hotels are acquired by any
Successor Entity, the Aqreements shall remain in full force and
effect, and W&H shall continue to perform its services thereunder
for the benefit of the Successor Entity, provided, however, that
the Agreements shall be deemed to have been amended in the
following respects (and, at the request of the Successor Entity
or W&H, the parties shall enter into modification of the
Agreements to evidence such amendments):
(a) There shall be no payment by the Successor Entity of
any Administrarion Fee, termination Fee or any other fee or
charge under the Agreements in connection with the transfer of
the Hotels to the Successor Entity (it being understood that the
provisions of the Management Agreement relating to Administtation
and Termination Fees shall, however, remain applicable in
accordance with their terms to future transactions);
(b) The Successor Etity or W&H shall have the right to
terminate the Agreements at any time, with or without cause, and
without payment of any Administration Fee, Termination Fee, or
any other fee or charge, provided that in the event of a
termination without cause the party so terminating shall give the
other party not less than ninety (90) days prior written notice
of such termination, and if the Successor Entity is the party
terminating without cause, the provisions of the Management
Agreement relating to the Termination Fee shall remain applicable
in accordance with their terms);
(c) Upon termination of the Management Agreement by the
Successor Entity, without cause, for less than all of the Hotels,
W&H shall be entitled to an Administration Fee as respects the
Hotels for which the Management Agreement is terminated, on the
terms and conditions set forth in the Management Agreement:
(d) Any provisions in either of the Agreements relating to
arbitration shall be deemed to have been deleted;
(e) W&H shall not be permitted to undertake any actions not
provided for in the then-approved Annual Plan (other than in
connection with the day-to-day operations of the Hotels) without
the prior written consent of the Successor Entity (it being
understood that at the time of transfer or thereafter, the
Successor Entity may, at its option, consent in advance to
certain deviations from an approved Annual Plan);
(f) All employees of the Hotels (includinq, without
limitation, the Hotels located in the state of Connecticut and
the Commonwealth ot Pennsylvania) shall become employees of
Sixteen Hotels, Inc., or another affiliate of W&H, it being
understood that any sales tax payable in connection therewith
shall be deemed to be an operating expense of the Hotels, but
will be excluded from the computation of any Incentive Managenent
Fee under the Management Agreement; and
(g) Any employee benefit plans affecting the Hotels will be
subject to the review and approval of the Successor Entity.
Neither the Agent, the Servicer, the Lenders or any Lender, or
the Holders or any Holder. or any nominee or designee of any of
them, shall incur any personal liability to W&H under the
Aqreements as the result of any such acquisition or transfer
except to the extent that (and for so long as) any such entity
becomes the owner of any of the Hotels.
8. If the Agreements shall terminate for any reason, or be
rejected or disaffirmed pursuant to any bankruptcy law or any
other law affectng creditors' rights. W&H shall, if notice has
not theretofore been provided to the Agent or the Servicer,
immediately notify the Agent and the Servicer of such
termination, rejection or disaffirmance, and the Agent or the
Servicer (or entities designated by either of them) shall have
the right, exercisable by notice to W&H within sixty (60) days
after the Agent or the Servicer (or other Successor Entity)
obtains possession of the Hotels, to enter into new agreements
for the management and providing of construction supervision
services with respect to the Hotels (or those of the Hotels
acquired by the Agent, Servicer, or other Successor Entity) on
the same terms and conditions as are contained in the Agreements
(as amended by clauses (a) through (g) of Paragraph 7) for tbe
remainder of the term of the Agreements. The receipt of such new
agreements shell be subject to the curinq, by the Agent,
Servicer, or other Successor Entity, of any outstanding curable
defaults under the Agreements. If both Loans are in effect and
both the Agent and the Servicer send the notices referred to in
this Paragraph 8, the notice sent by the Agent shall take
precedence. The provisions of this Paragraph 8 shall survive the
termination of the Agreements.
9. W&H shall not amend, modify or, (subject to the provisions of
this letter) terminate the Agreements without the prior written
consent of Required Lenders and Required Holders.
10. From time to time, at the request of any of the Agent, the
Servicer, Required Landers, or required Holders, W&H will execute
and deliver to the party so requestinq an estoppel certificate
indicatinq (a) that the Agreenents are unmodified (or, if
modified, settinq forth the modifications) and in full force and
effect, and that to the knowledge of W&H there is no default (or
specifying any default of which W&H has knowledge or notice), the
date of expiration of the term of the Aqreements, and the dates
through which W&H has received payment under tbe Agreements, it
being understood that any such certification may be relied upon by
the Agent, the Servicer, the Lenders, the Holders, and any
Successor Entity.
11. The Agent, the Servicer, the Lenders, the Holders, and any
Successor Entity shall have the same rights as are afforded to
AMI under the Agreements to inspect books and records held by W&H
with respect to the Hotels, and to the receipt of information
regarding the Hotels from W&H.
12. All amounts otherwise payable to AMI under the Agreements
shall instead be paid into the Excess Cash Account (as such term
is defined in the Priming Loan Agreement) or otherwise applied as
required by the Priminq Loan Agreement or the Loan Agreement (as
the same may be modified from time to time).
13. Copies of all notices under this letter shall be sent by
certified mail, return receipt requested, or by personal delivery
(including by nationally recognized courier service). A copy of
any notice sent to the Agent or the Servicer shall be sent to
Rosenman & Colin, 575 Madison Avenue, New York, New York lOO22,
Att: Stephen R. Senie, Esq. Notices shall be deemed to have been
received upon the earlier of actual receipt thereof or the third
calendar day after mailing. Any party may change its address by
notice to the other party in accordance with this Paragraph 13.
14. W&H acknowledges that nothing contained in the Agreements
shall be deemed an amendment to either the Priming Loan Agreement
or the Loan Agreement, or to constitute a waiver by the Agent,
the Servicer, the Lenders or the Holders of any provision
thereof.
15. The parties acknowledge that the Agent, the Servicer, the
Lenders, the Holders, and W&H are each relying on the matters
contained herein.
Please indicate agreement with the terms of this letter by
signing and returning one copy to W&H.
Very truly yours,
WINEGARDNER & HAMMONS, INC.
By: /s/ J. Erik Kamfjord
Title: President
AGREED AND ACCEPTED:
NORWEST BANK MINNESOTA, N.A.
By: /s/ Maya Mortenson
Title: Corporate Trust Officer
IBJ SCHRODER BANK AND TRUST COMPANY
By: Barbara McCluskey
Title: Assistant Vice President
EXHIBIT A
LIST OF PROPERTIES
1 Baltimore South Holiday Inn
GLen Burnie, MD
2 Belmont Holiday Inn
Baltimore, MD
3 BWI Airport Holiday Inn
Baltimore, MD
4 Cromwell Bridge Holiday Inn
Towson, MD
5 Frederick Holiday Inn
Frederick, MD
6 Glen Burnie Holiday Inn
Glen Burnie, MD
7 Inner Harbor Holiday Inn
Baltimore, MD
8 Moravia Holiday Inn
Baltimore, MD
9 Plkesville Holiday Inn
Pikesville, MD
10 Billy Budd Holiday Inn
York, PA
11 East Market Street Holiday Inn
York, PA
12 Hazleton Holiday Inn
Hazleton, PA
13 Lancaster North Holiday Inn
Lancaster, PA
14 Lancaster East Holiday Inn
Lancaster, PA
15 East Hartford Holiday Inn
Hartford, CT
16 New Haven Holiday Inn
New Haven, CT
EXHIBIT B
LENDERS
Century Life of America
Jackson National Life Insurance Company
Messachusetts Mutual Life Insurance Company
EXHIBIT C
HOLDERS
Century Life of America
Daiwa Bank Trust Company
Foothill Capital Corporation
The Hokkaido Takushoku Bank, Ltd.
Jackson National Life Insurance Company
Massachusetts Mutual Life Insurance Company
Pan American Life Insurance
United Postal Savings
EXHIBIT 2
LENDERS
ALI Inc.
EXHIBIT 3
HOLDERS
ALI Inc.
Foothill Capital Corporation
TCW Asset Management
ING (US) Capital Corporation
(10) (p)
Siegel Rich INC.
Analyze, Facilitate, Resolve.
March 11, 1997
Mr. Leonard Okin
Prime America Realty
11 Harristown Road
Glen Rock, NJ 07452
Re: Prime Motor Inns Limited Partnership
and AMI Operating Partners, L.P.
Dear Mr. Okin:
This letter confirms the engagement of Siegel Rich Inc., by the above-referenced
organizations (the "Company") to serve in the capacity of business advisor.
It should be understood that our role is strictly advisory and that all
decisions and action steps are made by management and not by us.
Scope of Engagement
To help you develope a focused business strategy.
To act as a sounding board, sharing our ideas and insights on all business
matters when you feel our input will be of benefit to you in the decision
making process.
To help coordinating together with you, other professionals and personnel
in order to see that your needs are appropriately met in a timely and cost
effective manner.
To help structure and negotiate potential transactions.
To help you weigh the pros and cons of an alternative before you take an
action step.
Professional Fees
Fees for our service are based on the time devoted at $300 per hour plus
out-of-pocket disbursements.
Indemnification
In consideration of the services of Siegel Rich Inc., the Company agrees to
indemnify and holds harmless Siegel Rich Inc. and its officers and employees
from and against any losses, claims, damages or liabilities (or actions in
respect thereof) to which any Indemnified Party may become subject as a
result of or in conjunction with Siegel Rich Inc. rendering services
hereunder. The Company agrees to reimburse any expenses, including reasonable
fees of its separate counsel, as they are incurred in connection with
investigating, preparing or defending any action or claim related to or in
connection with this Agreement.
Please be assured that we are ready to serve you in any appropriate manner.
We believe that we are uniquely qualified, by virtue of our backgrounds, and
bring the kind of caring that can effectively add to your business.
Very truly yours,
SEGEL RICH INC.
By: /s/ Paul Rich
By: /s/ S. Leonard Okin
on behalf of
Prime Motor Inns Limited Partnership
and AMI Operating Partners L.P.
