SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for use of
[x] Definitive Proxy Statement Commission only (as permitted
[ ] Definitive Additional Materials by Rule 14a-6(e)(2))
[ ] Soliciting Material Pursuant to
Rule 14a-11(c) or Rule 14a-12
PRIME MOTOR INNS LIMITED PARTNERSHIP
- -------------------------------------------------------------------------------
(Name of Registrant as Specified in its Charter)
- -------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
<TABLE>
CALCULATION OF FILING FEE
<CAPTION>
Per Unit Price or
Title of Each Class of Aggregate Number of Other Underlying Proposed Maximum
Securities to which Securities to which Value of Aggregate Value of Amount of Filing
Transaction Applies Transaction Applies Transaction(1) Transaction(1) Fee(1)(2)
- -------------------------- ------------------- ----------------- ------------------ -----------------
<S> <C> <C> <C> <C>
Units of Limited 4,000,000 Units $12,000,000 $12,000,000 $2,400
Partnership Interest
</TABLE>
(1) Represents the aggregate consideration (payable in cash) for the assets of
the Registrant.
(2) The fee was computed in accordance with Rule 0-11(c)(2) based upon the cash
to be received by the Registrant.
----------------------------------
[X] Fee paid previously with preliminary materials: $2,400.
[X] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount previously paid: $2,400
2) Form, Schedule or Registration Statement No.: Preliminary Proxy
Statement
3) Filing Party: Registrant
4) Date Filed: January 29, 1998
PRIME-AMERICAN REALTY CORP.
P.O. Box 230
Hawthorne, New Jersey 07507
May 5, 1998
To the Limited Partners and Holders of Units of Limited Partnership Interest:
You are cordially invited to attend the Special Meeting of Limited Partners
of Prime Motor Inns Limited Partnership (the "Partnership"), which will be held
on May 28, 1998 at 10:00 A.M., local time, at the offices of Stearns Weaver
Miller Weissler Alhadeff & Sitterson, P.A., 150 West Flagler Street, Suite 2200,
Miami, Florida 33130.
At the Special Meeting, you will be asked to consider and vote upon the
proposed sale (the "Sale") of the Partnership's 99% limited partnership interest
in AMI Operating Partners, L.P., a Delaware limited partnership, subject to
AMI's outstanding obligations, to Servico Acquisition Corp. ("SAC"), a Florida
corporation that is a wholly-owned subsidiary of Servico, Inc., a Florida
corporation, for $12,000,000 in cash, and the dissolution and liquidation of the
Partnership following the Sale (the "Liquidation"), which, after payment of
taxes and expenses (including the Field Payment referred to below), is expected
to result in a liquidating distribution to Unitholders of between $2.61 and
$2.71 per Unit. The Sale and the Liquidation comprise a single integrated
proposal (the "Proposal"), and consents to the Proposal will constitute consent
to each of the Sale and the Liquidation. If the Proposal is approved, the
Partnership will pay Martin W. Field ("Field") or his designee of a fee of
$500,000 (the "Field Payment"). The Partnership understands that Field paid, or
will pay or reimburse, various fees, costs, expenses and expenditures in
connection with the proxy solicitation by Davenport Management Corp. ("DMC").
The Proposal is subject to, among other things, the consent of the holders
of a majority of the units of limited partnership interest ("Units"). At March
16, 1998, the record date for the Special Meeting, Servico Inc. owned
approximately 50.1% of the Units and, at the date of this letter, owns
approximately 61.1% of the Units. Servico, Inc. has advised the Partnership that
it intends to vote in favor of the Proposal. As a result, the Proposal will
receive the required vote of the Unitholders. The making of the Field Payment is
within the general authority of the General Partner and the owners of Units are
not being asked to consider and vote on the Field Payment.
Furman Selz LLC ("Furman Selz") has rendered an opinion to the Board of
Directors of the General Partner (the "Board of Directors") that the
consideration to be paid to the Partnership is fair, from a financial point of
view, to the owners of Units other than Servico, Inc. After careful
consideration, the Board of Directors of the General Partner has unanimously
approved the Proposal and the Field Payment. The Board believes that the terms
of the Proposal and the Field Payment are fair to the Partnership and in the
best interests of the owners of Units other than Servico, Inc., and the Board
unanimously recommends that you VOTE IN FAVOR of the Proposal.
The Proposal and the Field Payment are more completely described in the
accompanying Proxy Statement. The Board of Directors urges you to review
carefully the Proxy Statement and accompanying Appendices. Copies of the
Acquisition Agreement (without the Schedules thereto), among Servico, Inc., the
Partnership the General Partner and SAC, the Plan of Dissolution of the
Partnership and the Furman Selz fairness opinion are attached as Appendices A, B
and C, respectively, to the accompanying Proxy Statement.
Please complete, date and sign the enclosed proxy card and return it in the
accompanying postage paid envelope, even if you plan to attend the Special
Meeting. If you attend the Special Meeting, you may, if you wish, withdraw your
proxy and vote in person. Failure to return your proxy card or vote would have
the same effect as a vote against the Proposal.
Sincerely,
PRIME-AMERICAN REALTY CORP.
By: _______________________________
S. Leonard Okin, Vice President
PRIME MOTOR INNS LIMITED PARTNERSHIP
c/o Winegardner & Hammons, Inc.
4243 Hunt Road
Cincinnati, Ohio 45242
-----------------------------
NOTICE OF SPECIAL MEETING TO BE HELD ON
MAY 28, 1998
-----------------------------
To the Limited Partners of, and Holders of Units of Limited Partnership Interest
in, Prime Motor Inns Limited Partnership:
Notice Is Hereby Given that a Special Meeting of the Limited Partners (the
"Special Meeting") in Prime Motor Inns Limited Partnership (the "Partnership"),
a Delaware limited partnership, will be held on May 28, 1998, 10:00 A.M., local
time, at the offices of Stearns Weaver Miller Weissler Alhadeff & Sitterson,
P.A., 150 West Flagler Street, Suite 2200, Miami, Florida 33130, to approve the
proposed sale (the "Sale") of the Partnership's 99% limited partnership interest
in AMI Operating Partners, L.P. ("AMI"), a Delaware limited partnership, subject
to AMI's outstanding obligations, to Servico Acquisition Corp., a Florida
corporation that is a wholly-owned subsidiary of Servico, Inc., a Florida
corporation, for $12,000,000, and the dissolution and liquidation of the
Partnership following the Sale (the "Liquidation"). The Sale and the Liquidation
comprise a single integrated proposal (the "Proposal"), and consents to the
Proposal will constitute consent to each of the Sale and the Liquidation.
Approval of the Proposal each requires the consent of the holders of a majority
of all units of limited partnership interest ("Units").
The Proposal is more fully described in the accompanying Proxy Statement
and Appendices thereto, which form a part of this Notice.
The General Partner has fixed the close of business on March 16, 1998 as
the record date (the "Record Date") for the determination of the persons who are
the beneficial owners of Units ("Unitholders") entitled to notice of, and to
vote on the matters to be acted on at, the Special Meeting or any adjournment or
postponement thereof. Only persons who are Unitholders on the Record Date will
be entitled to notice of and to vote on the matters to be acted on at the
Special Meeting or any adjournments or postponements thereof. A list of such
Unitholders will be available for inspection at the offices of the Partnership
at least ten days prior to the Special Meeting.
If you plan to be present, please notify the undersigned so that
identification can be prepared for you. Whether or not you plan to attend the
Special Meeting, please execute, date and return promptly the enclosed proxy.
Failure to return your proxy card or vote would have the same effect as a vote
against the Proposal. A return envelope is enclosed for your convenience and
requires no postage for mailing in the United States. If you are present at the
Special Meeting you may, if you wish, withdraw your proxy and vote in person.
Thank you for your interest and consideration.
Sincerely,
PRIME-AMERICAN REALTY CORP.,
General Partner
By: ________________________________
Robert Familant, Secretary
May 5, 1998
PRIME MOTOR INNS LIMITED PARTNERSHIP
c/o Winegardner & Hammons, Inc.
4243 Hunt Road
Cincinnati, Ohio 45242
SPECIAL MEETING OF LIMITED PARTNERS
MAY 28, 1998
PROXY STATEMENT
---------------------------
This Proxy Statement is being furnished to holders of units of limited
partnership interest ("Units") in Prime Motor Inns Limited Partnership (the
"Partnership"), a Delaware limited partnership, in connection with the
solicitation of proxies by Prime-American Realty Corp., a Delaware corporation,
as the general partner of the Partnership (in such capacity, the "General
Partner"), for use at the Special Meeting of Limited Partners (the "Special
Meeting") to be held on May 28, 1998, at 10:00 A.M., local time, at the offices
of Stearns Weaver Miller Weissler Alhadeff & Sitterson, P.A., 150 West Flagler
Street, Suite 2200, Miami, Florida 33130, and any adjournments or postponements
thereof.
At the Special Meeting, the Limited Partners will be asked to consider and
vote on the proposed sale (the "Sale") of the Partnership's 99% limited
partnership interest in AMI Operating Partners, L.P., a Delaware limited
partnership ("AMI," AMI and the Partnership collectively being the
"Partnerships"), subject to AMI's outstanding obligations, to Servico
Acquisition Corp. ("SAC"), a Florida corporation that is a wholly-owned
subsidiary of Servico, Inc., a Florida corporation, for $12,000,000 in cash, and
the dissolution and liquidation of the Partnership following the Sale (the
"Liquidation"), which, after payment of taxes and expenses (including the Field
Payment referred to below), is expected to result in a liquidating distribution
to Unitholders of between $2.61 and $2.71 per Unit. If the Proposal is approved,
from the Purchase Price for the Interest the Partnership will pay Martin W.
Field ("Field") or his designee of a fee of $500,000 (the "Field Payment"). The
Partnership understands that Field paid, or will pay or reimburse, various fees,
costs, expenses and expenditures in connection with the proxy solicitation by
Davenport Management Corp. ("DMC"). If the Sale is consummated, SAC will acquire
the limited partnership interest in AMI subject to all then existing
indebtedness of AMI (approximately $65.6 million at the date hereof). The Sale
and the Liquidation comprise a single integrated proposal (the "Proposal"), and
consents to the Proposal will constitute consent to each of the Sale and the
Liquidation. Persons who are the beneficial owners of Units ("Unitholders") at
the close of business on March 16, 1998 will be entitled to vote on the
Proposal. The making of the Field Payment is within the general authority of the
General Partner and the Unitholders are not being asked to consider and vote on
the Field Payment.
The Units are evidenced by depositary receipts (the "Depositary Receipts")
which are traded on the Over the Counter Bulletin Board ("OTCBB") under the
symbol "PMPI". On May 5, 1998, the last reported bid price on the OTCBB for the
Depositary Receipts was $2.50 per Depositary Receipt.
AMI owns and operates 14 full service motor hotels (the "Inns"), seven of
which are located in Maryland, five of which are located in Pennsylvania and two
of which are located in Connecticut. Each of the Inns is currently franchised as
a "Holiday Inn." However, see "The Proposal -- The Sale -- Background; Reasons
for the Sale" for a discussion of the status of those franchises.
-------------------------------------
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION
PASSED UPON THE FAIRNESS OR MERITS OF SUCH TRANSACTION OR UPON
THE ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED IN
THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
-------------------------------------
SEE "SPECIAL CONSIDERATIONS" ON PAGE 9 FOR A DISCUSSION OF CERTAIN FACTORS
THAT UNITHOLDERS SHOULD CONSIDER IN DECIDING WHETHER TO CONSENT TO THE PROPOSAL.
-------------------------------------
THIS PROXY STATEMENT AND THE ACCOMPANYING FORM OF PROXY ARE FIRST BEING
MAILED OR DELIVERED TO THE LIMITED PARTNERS AND UNITHOLDERS ON OR ABOUT MAY 7,
1998.
-------------------------------------
THE DATE OF THIS PROXY STATEMENT IS MAY 5, 1998.
TABLE OF CONTENTS
Page
----
SUMMARY......................................................................1
STRUCTURE OF TRANSACTION.....................................................5
General...................................................................7
Matters to Be Considered..................................................7
Recommendations of the Board of Directors.................................7
Record Date; Units Entitled to Vote.......................................7
Right to Vote.............................................................7
Vote Required.............................................................7
Effect of Abstentions.....................................................8
Effect of Vote............................................................8
Proxies; Proxy Solicitation...............................................8
No Appraisal Rights.......................................................8
SPECIAL CONSIDERATIONS.......................................................9
THE PROPOSAL................................................................11
THE SALE....................................................................11
Summary Consequences of the Sale.........................................11
Background; Reasons for the Sale.........................................11
Recommendation of the Board of Directors.................................14
Position of Servico......................................................16
Opinion of the Financial Advisor to the Board of Directors...............17
Regulatory Matters.......................................................19
THE FIELD PAYMENT...........................................................19
THE LIQUIDATION.............................................................20
THE ACQUISITION AGREEMENT...................................................21
Purchase Price...........................................................21
Indemnification..........................................................21
Closing Date of the Sale.................................................21
Representations and Warranties...........................................21
Covenants................................................................21
Conditions to Consummation of the Sale...................................22
Termination..............................................................22
Survival of Representations and Warranties...............................23
Expenses and Fees........................................................23
Other Agreements.........................................................23
THE PLAN....................................................................24
EXPECTED CONSEQUENCES OF SALE AND LIQUIDATION...............................25
THE PARTNERSHIPS............................................................27
Competition..............................................................30
Employees................................................................30
PROPERTIES..................................................................31
THE PARTIES TO THE SALE.....................................................33
The Partnership and the General Partner..................................33
Servico..................................................................33
Directors and Executive Officers of the Partnership
and the General Partner................................................33
Directors and Executive Officers of Servico..............................34
Compensation of Directors and Executive Officers
of the General Partner.................................................35
Legal Proceedings........................................................35
MARKET PRICE OF, AND DISTRIBUTIONS ON, THE DEPOSITARY RECEIPTS..............36
PRINCIPAL HOLDERS, AND CERTAIN TRANSFERS,...................................38
Principal Holdings at the Record Date....................................38
Recent Transfers of Depositary Receipts..................................40
SELECTED FINANCIAL DATA.....................................................41
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION.................42
Financial Condition......................................................42
Results of Operations....................................................42
Liquidity and Capital Resources..........................................44
CERTAIN U.S. FEDERAL INCOME TAX MATTERS.....................................46
Gross Income Tax Imposed on the Partnership..............................46
Sale of Limited Partnership Interest.....................................46
Liquidation of the Partnership...........................................47
Passive Activity Rule Consequences.......................................47
Responsibility for Final Partnership Return and Future Tax Issues........47
State and Local Income Tax Matters.......................................48
INDEPENDENT ACCOUNTANTS.....................................................49
INDEX TO FINANCIAL STATEMENTS..............................................F-1
ACQUISITION AGREEMENT (WITHOUT EXHIBITS)...................................A-1
PLAN OF DISSOLUTION AND LIQUIDATION........................................B-1
FAIRNESS OPINION OF FURMAN SELZ LLC........................................C-1
SUMMARY
The following is a summary of certain information contained elsewhere in
this Proxy Statement. This summary does not purport to be complete and is
qualified in its entirety by, and is subject to, the more detailed information
incorporated by reference and contained elsewhere in this Proxy Statement and
the Appendices hereto. Unitholders are urged to read the Proxy Statement and its
Appendices in their entirety before voting on the matters discussed herein.
All information contained in this Proxy Statement concerning the
Partnership, AMI and the operations and properties of AMI has been furnished by
the General Partner. All information contained in this Proxy Statement
concerning Servico, Inc. has been furnished by, or derived from public filings
made by, Servico, Inc. No person is authorized to make any representation with
respect to the matters described in this Proxy Statement other than those
contained herein and, if given or made, such information or representation must
not be relied upon as having been authorized by the Partnership or the General
Partner or any other person.
THE SPECIAL MEETING
Date, Time and Place....................The Special Meeting of Limited Partners
of Prime Motor Inns Limited Partnership
(the "Partnership"), a Delaware limited
partnership, will be held on May 28,
1998 at 10:00 A.M., local time, at the
offices of Stearns Weaver Miller
Weissler Alhadeff & Sitterson, P.A., 150
West Flagler Street, Suite 2200, Miami,
Florida 33130.
Record Date.............................Only beneficial owners ("Unitholders")
of units of limited partnership interest
("Units") in the Partnership as of the
close of business on March 16, 1998 (the
"Record Date") are entitled to notice
of, and to vote on matters to be acted
on at, the Special Meeting. As of the
Record Date, 4,000,000 Units were
outstanding, each of which will be
entitled to one vote on each matter to
be acted on at the Special Meeting. See
"The Special Meeting--Record Date."
Matters to be Considered................At the Special Meeting, the Limited
Partners will be asked to consider and
vote upon the proposed sale (the "Sale")
of the Partnership's 99% limited
partnership interest (the "Interest") in
AMI Operating Partners, L.P. ("AMI"), a
Delaware limited partnership, subject to
AMI's outstanding obligations (including
approximately $63.4 million of
indebtedness at the date hereof), to
Servico Acquisition Corp. ("SAC"), a
Florida corporation that is a
wholly-owned subsidiary of Servico,
Inc., a Florida corporation (except
where the context otherwise requires,
SAC and Servico, Inc. are referred to
herein collectively as "Servico"), for
$12,000,000 in cash, and the dissolution
and liquidation of the Partnership
following the Sale (the "Liquidation"),
which, after payment of taxes and
expenses (including the Field Payment
referred to below), is expected to
result in a liquidating distribution to
Unitholders of between $2.61 and $2.71
per Unit. If the Proposal is approved,
from the Purchase Price for the Interest
the Partnership will pay Martin W. Field
("Field") or his designee of a fee of
$500,000 (the "Field Payment"). The
Partnership understands that Field paid,
or will pay or reimburse, various costs,
fees, expenses and expenditures in
connection with the proxy solicitation
by Davenport Management Corp. ("DMC").
Vote Required...........................Pursuant to the Amended and Restated
Agreement of Limited Partnership of
Prime Motor Inns Limited Partnership,
dated as of December 23, 1986 (the
"Partnership Agreement"), the approval
of the Proposal requires the consent of
the Limited Partners who collectively
hold the right to vote more than 50% of
all Units. See "Right to Vote" and "Vote
Required" under the "The Special
Meeting." The making of the Field
Payment is within the general authority
of the General Partner and the
Unitholders are not being asked to
consider and vote on the Field Payment.
The Partnership has been advised that,
as of the Record Date, Servico owned and
had the right to vote 50.1% of the Units
and that Servico intends to vote its
Units to approve the Proposal. As a
result, the Proposal will receive the
required favorable vote of the
Unitholders without regard to the votes
cast by any other Unitholders. (At the
date of this Proxy Statement, Servico,
Inc. owns approximately 61.1% of the
Units.)
No Appraisal Rights.....................If the owners of more than 50% of the
outstanding Units consent to the
Proposal, all Unitholders will be bound
by such consent (including Unitholders
who do not consent). Non-consenting
Unitholders are not entitled to any
rights of appraisal or similar rights
that may be available to dissenting
shareholders in a corporation. As
indicated above, the Partnership has
been advised that the Proposal will be
consented to by Servico, the holder of
more than 50% of the Units.
THE PROPOSAL
Background..............................AMI owns and operates 14 full service
motor hotels ("Inns") operated as part
of the "Holiday Inn" system. The
"Holiday Inn" franchises for eight of
the Inns were to have expired on June
30, 1997 and the franchises for two
other Inns were to have expired on
December 31, 1997. Those franchises have
been extended from time to time by
Holiday Hospitality Corporation and its
affiliates ("HHC"), the franchisor of
the "Holiday Inn" name and operator of
the "Holiday Inn" system. Initially such
extensions were granted to enable
Prime-American Realty Corp., the general
partner of the Partnership (in such
capacity, the "General Partner") and AMI
initially to seek financing for the
franchise renewal fees and Product
Improvement Programs ("PIPs") required
in connection with the renewal of the
franchises. Notwithstanding efforts,
beginning in 1995, to arrange such
financing, the General Partner and AMI
have been unable to arrange such
financing. Beginning in early fall, HHC
granted extensions to enable the
Partnerships to arrange a transaction to
preserve the Unitholders' investment and
the most recent extensions of the
"Holiday Inn" franchises (most recently
to June 10, 1998) were granted to allow
time for the Unitholders to consider the
Sale. The General Partner believes,
based on negotiations with HHC, that
such Inns will be removed from the
"Holiday Inn" system if the Sale is not
completed by June 10, 1998. The loss of
such franchises will be a default under
AMI's Priming and Mortgage Loans and,
because of the material adverse effect
on AMI and the Inns, the General Partner
and AMI believe that the lenders would
not waive such default. The General
Partner believes that the sale of either
AMI or the Inns is the only action that
will preserve any value for the Limited
Partners and that the Sale of the
Interest to Servico is the best
alternative that, under the
circumstances, is available to the
Unitholders. See "Background; Reasons
for the Sale," "Recommendation of the
Board of Directors" and "Opinion of the
Financial Advisor to the Board of
Directors" under "The Proposal-The
Sale."
General.................................The proposed Sale will be effected
pursuant to the terms and conditions of
the Acquisition Agreement dated as of
November 7, 1997, as amended as of March
12, 1998 (as so amended, the
"Acquisition Agreement"), among Servico,
Inc. the Partnership, the General
Partner and SAC. Pursuant to the
Acquisition Agreement, at the Closing
(as defined below), the Partnership will
sell to Servico, and Servico will
purchase from the Partnership, the
Interest, subject to AMI's outstanding
obligations, for $12,000,000 in cash
(the "Purchase Price"), and Servico will
make certain undertakings and
indemnifications. If the Sale is
consummated, Servico's interest in AMI
will be subject to, and the Partnership
will have no liability with respect to,
AMI's Priming and Mortgage Loans (which
aggregate approximately $63.4 million at
the date of this Proxy Statement). The
transactions are summarized under
"Structure of Transactions." Under the
Plan of Dissolution and Liquidation of
the Partnership (the "Plan"),
immediately after the Closing the
Partnership will dissolve; wind up its
affairs; pay all entity level taxes, the
Field Payment and expenses of
dissolution and liquidation; and make a
liquidating distribution to the
Unitholders (the "Liquidation") in
accordance with the Plan, the
Partnership Agreement and the Delaware
Revised Uniform Limited Partnership Act
(the "Delaware Act"), which distribution
is expected to be between $2.61 and
$2.71 per Unit. Copies of the
Acquisition Agreement and the Plan are
attached to this Proxy Statement as
Appendices A and B, respectively, and
should be read in their entirety.
Recommendations of the General Partner's
Board of Directors......................After careful consideration, the Board
of Directors has determined the
Acquisition Agreement to be fair to the
Partnership and in the best interests of
the Unitholders other than Servico,
Inc., has unanimously approved the
Proposal, the Acquisition Agreement, the
Plan and the Field Payment, and
recommends that the Unitholders consent
to the Proposal. For a discussion of the
factors considered by the Board of
Directors, see "The Proposal--The
Sale--Recommendation of the Board of
Directors."
Opinion of Financial Advisor............The Board of Directors of the General
Partner (the "Board of Directors")
retained Furman Selz LLC ("Furman Selz")
to act as financial advisor to the Board
of Directors and to deliver a written
opinion as to the fairness of the
Purchase Price. Furman Selz has
delivered its written opinion, dated the
date of this Proxy Statement, to the
Board of Directors to the effect that,
as of November 7, 1997 and the date of
this Proxy Statement, and subject to
certain assumptions, qualifications and
limitations stated in such opinion, the
Purchase Price is fair, from a financial
point of view, to the Unitholders other
than Servico, Inc. A copy of the written
opinion of Furman Selz, which sets forth
the assumptions made, matters considered
and limits of its review, is attached to
this Proxy Statement as Appendix C and
should be read in its entirety. See "The
Proposal--The Sale--Opinion of the
Financial Advisor to the Board of
Directors."
Conditions of the Sale..................The Sale is subject to the satisfaction
or waiver (where permissible) on or
prior to the Closing Date (as defined
below) of certain conditions set forth
in the Acquisition Agreement. See "The
Acquisition Agreement--Conditions to
Consummation of the Sale."
Closing Date of the Sale................Unless the Acquisition Agreement is
terminated as described below, the
closing (the "Closing") of the
transactions contemplated by the
Acquisition Agreement will take place as
promptly as practicable after
satisfaction or waiver of the conditions
set forth in the Acquisition Agreement.
See "Closing Date of the Sale" and
"Conditions to Consummation of the Sale"
under "The Acquisition Agreement." The
General Partner anticipates that, if the
Sale is approved, the Sale will be
consummated on or about May 28, 1998
(the "Closing Date").
Termination.............................The Acquisition Agreement may be
terminated at any time prior to the
Closing Date, whether before or after
approval of the Proposal, by mutual
written consent of Servico and the
Partnership or by either of Servico or
the Partnership under certain
circumstances, including if (i) the
Closing has not occurred by June 1, 1998
or (ii) the Special Meeting has been
held and the Limited Partners shall have
failed to approve the Proposal. If the
Acquisition Agreement is terminated as a
result of the Partnership's or the
General Partner's willful breach of
their respective representations,
warranties, or covenants, the
Partnership must reimburse Servico for
up to $300,000 of its costs and expenses
in connection with the Acquisition
Agreement. If the Acquisition Agreement
is terminated as a result of Servico's
willful breach of its representations,
warranties, or covenants, Servico must
reimburse the Partnership for up to
$700,000 of its costs and expenses in
connection with the Acquisition
Agreement. If the Partnership terminates
the Acquisition Agreement other than on
account of Servico's willful breach and,
at the time of such termination, there
is a competing transaction, the
Partnership must pay Servico $1,000,000.
See "Termination" and "Expenses and
Fees" under "The Acquisition Agreement."
Indemnification.........................In the Acquisition Agreement, Servico
has agreed, subject to certain
limitations, to indemnify the present
officers and directors of the General
Partner and certain other individuals
for damages arising from certain matters
occurring at or prior to the Closing
Date. See "The Acquisition
Agreement--Indemnification."
Certain Income Tax Consequence..........Unitholders should consider the
potential Federal, state and local tax
consequences to them of the Sale and the
Liquidation. Unitholders are urged to
consult their own tax advisors
concerning such tax consequences on
their personal situations. See "Certain
Income Tax Consequences."
The Partnership would have been taxable
as a corporation effective January 1,
1998 if it had not elected, pursuant to
Section 7704(g) of the Internal Revenue
Code of 1986, as amended (the "Code"),
to be treated as a partnership. As a
condition to such election, the
Partnership agreed to pay a tax equal to
3.5% of its gross income from all active
trades and businesses conducted by it
(and the Partnership is deemed to
conduct all active trades or businesses
conducted by AMI). Based on revenues to
date and prior years' experience, the
General Partner believes that the tax on
Partnership gross income through the
expected date of closing should not
exceed approximately $661,500. If the
Partnership's share of the gain on the
sale of the Baltimore Pikesville Inn and
the Partnership's gain on the Sale were
deemed to constitute gross income from
an active trade or business, the tax
payable by the Partnership on such gain
should not exceed an additional
approximately $307,200. See "Expected
Consequences of Sale and Liquidation"
and "Certain U.S Federal Income Tax
Matters."
State and local income or franchise tax
laws may differ from Federal income tax
laws with respect to the treatment of
partnerships generally or the tax
treatment of the activities of the
Partnership in particular. See "Certain
U.S. Federal Income Tax Matters-State
and Local Income Tax Matters."
Interim Operations of AMI
and the Partnership.....................In the Acquisition Agreement, the
General Partner agreed that, prior to
the Closing Date or the earlier
termination of the Acquisition
Agreement, except as permitted by the
Acquisition Agreement, it will use its
best efforts to cause each of AMI and
the Partnership to operate the business
of AMI only in the usual and ordinary
course and not to engage in certain
actions specified in the Acquisition
Agreement. See "The Acquisition
Agreement--Covenants--Interim Operations
of AMI and the Partnership."
Regulatory Matters......................No material regulatory approvals are
required in order to effect the
Proposal. See "The Proposal--The
Sale--Regulatory Matters."
Interest of Parties.....................The General Partner and its parent have
entered into an agreement with Servico
pursuant to which Servico will acquire
the General Partner's 1% general
partnership interest in AMI in exchange
for a five year warrant to acquire
100,000 shares of Servico common stock
at a price of $18 per share. The
reported closing sale price of Servico
common stock on the New York Stock
Exchange was $16 per share on November
6, 1997, and was $18.9375 per share on
the day prior to the date of this
Proxy Statement. No officer or director
of the General Partner has any interest,
other than as a Unitholder, in the Sale.
THE FIELD PAYMENT
Background..............................DMC conducted a proxy solicitation to
remove Prime-American Realty Corp. (in
its individual capacity, "PARC") as
General Partner of the Partnership and
elect itself as the replacement General
Partner. DMC proposed a "Plan of Action"
to dispose of certain of the Inns, to
refinance AMI's existing indebtedness,
to renegotiate the "Holiday Inn"
franchises, and to acquire additional
properties. PARC believed that the DMC
"Plan of Action" was not practicable,
did not offer a realistic financial
alternative, and entailed the risk of
default under AMI's existing
indebtedness, with a resulting potential
loss of the Inns and of the Unitholders'
equity. However, DMC's proxy
solicitation and opposition to the
Proposal resulted in the market price of
the Units rising above the level
implicit in the initial proposed
acquisition transaction with Servico. As
a result, Servico acquired a majority of
the Units and agreed to an increase in
the Purchase Price. In recognition that
DMC's efforts resulted in a significant
benefit for all of the Unitholders not
affiliated with Servico because of both
higher open market prices and the
increase in the Purchase Price and that
Field paid, or will pay or reimburse,
various fees, costs, expenses and
expenditures in connection with the DMC
proxy solicitation, the Partnership has
agreed to make the Field Payment.
The Field Payment will be made only if
the Proposal is approved and only from
the Purchase Price. The effect of the
Field Payment is to reduce the amount
distributable with respect to each Unit
by 12-1/2(cent). The amount of the Field
Payment was fixed by arm's-length
negotiation and is not based upon, and
will not be increased or decreased by
changes in, out-of-pocket disbursements
to unrelated third parties.
In early April, 1998, Servico, Inc.
purchased 441,500 Units held by Field
and certain persons related to or
associated with Field for $3.50 per
Unit. See "The Proposal--The
Sale--Background; Reasons for the Sale"
and "Principal Holders, and Certain
Transfers, of Depositary Receipts."
SPECIAL CONSIDERATIONS; OTHER MATTERS
Special Considerations..................See "Special Considerations" for factors
which should be considered in deciding
whether to approve the Proposal.
Alternative Strategy....................If the Proposal were not approved by the
Unitholders, the Acquisition Agreement
would terminate, the "Holiday Inn"
franchises for 10 of the Inns would
terminate on May 9, 1998, and the
Partnerships would lose the $517,000 of
application fees paid to HHC and all
amounts expended in furtherance of the
Proposal. While the Partnership would
not have any liability to Servico for
reimbursement of expenses or for any
break up fee, the loss of the "Holiday
Inn" franchises would constitute a
default under the Priming and Mortgage
Loans. If the lenders did not declare
those Loans due and payable and
foreclose on the Inns (though the
General Partner believes that the
lenders would accelerate such Loans),
AMI would then seek to operate those
Inns either with a different franchise
affiliation or without any franchise
affiliation. The General Partner
believes that it could establish
franchise affiliations with other
chains, but believes that those
affiliations would be less advantageous
to the Partnerships than the "Holiday
Inn" affiliation.
STRUCTURE OF TRANSACTION
Summarized below are (i) the organizational structure of the Partnership at
the date of this Proxy Statement, (ii) the organizational structure of the
Partnership immediately prior to the Closing and (iii) the organization
structure of the Partnerships immediately following the Closing.
(i) At the date of this Proxy Statement:
-------------
| |
| Unitholders |
| |
-------------
| 99% l.p. int.
------------- -----------
| |1% g.p. int. | General |
| Partnership |--------------| Partner |
| | | |
------------- -----------
| 99% l.p. int. |
------------- |
| |-------------------
| AMI | 1% g.p. int.
| |
-------------
| 100% ownership
---- ---- ---- ----
| | | | | | | |
---- ---- ---- ----
Inns
(Subject to Priming and Mortgage Loans)
(ii) Immediately prior to Closing:
-------------
| |
| Unitholders |
| |
-------------
| 99% l.p. int.
------------- -----------
| |1% g.p. int. | General |
| Partnership |--------------| Partner |
| | | |
------------- -----------
| 99% l.p. int. |
------------- | 100% stock ownership
| | 1% g.p. int. -------------
| AMI |-------------| AMIOP |
| | | Acquisition |
------------- ------------
|
| 100% ownership
---- ---- ---- ----
| | | | | | | |
---- ---- ---- ----
Inns
(Subject to Priming and Mortgage Loans)
(iii) Immediately following Closing:
------------- ------------
| Unitholders | | General |
| | | Partner |
------------- ------------
| 99% 1.p. int. |
| | 1% g.p. int.
| --------------- |
| | | |
----- | Partnership |------
| |
---------------
|
| 100%
|
-------------------
|Cash Available for |
| distribution to |
| Unitholders |
-------------------
----------------
| |
-----------| Servico, Inc. |-----------
| | | |
| ----------------- |
| 100% | 100%
| |
| |
--------- -------------
| SAC | | AMIOP |
--------- | Acquisition |
| -------------
| |
| 99% 1.p. int. | 1% g.p.int.
| ---------------- |
| | | |
------------ | AMI |-----------
| |
----------------
|
| 100% ownership
---- ---- ---- ---- ----
| | | | | | | | | |
---- ---- ---- ---- ----
Inns
(Subject to Priming and Mortgage Loans)
THE SPECIAL MEETING
GENERAL
This Proxy Statement is being furnished to the Unitholders in connection
with the solicitation of proxies by the General Partner for use at the Special
Meeting to be held on May 28, 1998 at 10:00 a.m., local time, at the offices of
Stearns Weaver Miller Weissler Alhadeff & Sitterson, P.A., 150 West Flagler
Street, Suite 2200, Miami, Florida 33130, and at any adjournment or postponement
thereof. This Proxy Statement, the attached Notice of the Special Meeting and
the accompanying form of proxy are first being mailed to Unitholders on or about
May 7, 1998.
MATTERS TO BE CONSIDERED
At the Special Meeting, the Limited Partners will consider and vote on the
Sale of the Interest to Servico and the Liquidation of the Partnership following
the Sale. The Sale and the Liquidation comprise a single integrated proposal,
and proxies in favor of the Proposal will constitute consent to each of the Sale
and the Liquidation.
RECOMMENDATIONS OF THE BOARD OF DIRECTORS
The Board of Directors has unanimously approved the Proposal and the Field
Payment, having concluded that the Sale, the Acquisition Agreement and the Field
Payment are fair to the Partnership and in the best interests of the Unitholders
other than Servico, Inc. THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT
UNITHOLDERS VOTE FOR APPROVAL OF THE PROPOSAL.
RECORD DATE; UNITS ENTITLED TO VOTE
The Board of Directors has fixed the close of business on March 16, 1998 as
the Record Date for determining the Unitholders who are entitled to notice of,
and to vote on the matters to be acted on at, the Special Meeting. As of the
Record Date, 4,000,000 Units were outstanding and owned of record by 526
persons. The persons who are Unitholders on the Record Date are entitled to one
vote per Unit.
RIGHT TO VOTE
Although the Units are represented by Depositary Receipts, which trade on
the Over the Counter Bulletin Board, only record holders of Depositary Receipts
who have executed Transfer Applications become Substituted Limited Partners. The
beneficial owners of Units are not necessarily (and in most cases are not)
Limited Partners. However, pursuant to the authority of the General Partner to
adopt such rules for the conduct of any meeting of Partners as the General
Partner shall deem appropriate and in order to afford the beneficial owners of
Units the maximum voice permissible under the Delaware Act, the beneficial
owners of Units at the close of business on the Record Date (the "Unitholders")
will be recognized as the persons entitled to vote on the matters to be acted on
at the Special Meeting. This Proxy Statement will be forwarded, at the expense
of the Partnership, to the Unitholders by record holders of Units ("Record
Holders"), such as banks, trust companies, brokerage firms, dealers, clearing
corporations, fiduciaries or other custodians or nominee holders, and the
General Partner expects that the Record Holders will either vote in accordance
with the instructions of, or will forward to the Partnership the proxy cards
completed by, the Unitholders.
VOTE REQUIRED
Pursuant to Section 803(b)(ii) of the Partnership Agreement, the General
Partner may not sell or transfer the Interest without a majority vote of the
Limited Partners. Pursuant to Section 1301(d) the Partnership Agreement, in
absence of certain other events, the dissolution of the Partnership requires the
majority vote of the Limited Partners. Accordingly, the approval of the Proposal
requires the consent of the beneficial owners of more than 50% of all
outstanding Units. Under the Partnership Agreement, the making of the Field
Payment is within the general authority of the General Partner and does not
require the approval of the Limited Partners. The Unitholders are not being
asked to consider or vote on the Field Payment.
As of the Record Date, Servico owns and has the right to vote 2,004,319
Units and Servico has advised the Partnership that Servico intends to vote its
Units to approve the Proposal and the Field Payment. (At the date of this Proxy
Statement, Servico, Inc. owns 2,445, 819 Units.) Approval of the Proposal
requires only the consent of the holders of more than 50% of all outstanding
Units and does not require the consent of the holders of a majority of the Units
not controlled by Servico, Inc. As a result, the Proposal will receive the
consent of the required number of Units without regard to the votes cast by any
other Unitholders.
EFFECT OF ABSTENTIONS
For purposes of determining approval of the Proposal at the Special
Meeting, abstentions (including abstentions that result from the failure of a
bank, broker or other nominee to cast a vote) will have the same legal effect as
a vote "against" the Proposal.
EFFECT OF VOTE
Although there does not appear to be any controlling Delaware law directly
on point, Unitholders should assume that, under Delaware law, absent any
material misstatement or omission in this Proxy Statement and any coercive
effect of the terms of the proxy solicitation, a Unitholder who voted in favor
of the Proposal would not be entitled thereafter to challenge the legality or
propriety of the Sale or the Liquidation. In addition, it is likely that any
challenge to the Proposal would have to be asserted as a derivative action on
behalf of the Partnership, rather than as a personal action.
PROXIES; PROXY SOLICITATION
Units represented by properly executed proxies received at or prior to the
Special Meeting that have not been revoked will be voted at the Special Meeting
in accordance with the instructions indicated on the proxies. Units represented
by properly executed proxies for which no instruction is given will be voted FOR
approval of the Proposal, but will NOT be voted for any proposed postponement or
adjournment of the Special Meeting to a later date for the purpose of additional
solicitation. Unitholders are requested to complete, sign, date and promptly
return the enclosed proxy card in the postage-prepaid envelope provided for this
purpose to ensure that their Units are voted.
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is voted. Proxies may be revoked by (i) duly
executing a written notice of revocation bearing a later date than the proxy, or
(ii) duly executing a later dated proxy relating to the same Units and
delivering such notice of revocation or later dated proxy (a) in the case of
Units held for the Unitholder by a Record Holder, to the Record Holder, at the
address specified by such Record Holder, in time to permit the Record Holder to
take appropriate action at or before the taking of the vote at the Special
Meeting and (b) in the case of Units held of record by the Unitholder, to
Prime-America Realty Corp., P.O. Box 230, Hawthorne, New Jersey 07507,
Attention: Secretary, or hand delivered to the Secretary of the General Partner
or his representative at or before the taking of the vote at the Special
Meeting. In addition, a person may revoke a proxy by attending the Special
Meeting and voting in person (although attendance at the Special Meeting will
not in and of itself constitute a revocation of a proxy).
If the Special Meeting is postponed or adjourned for any reason, at any
subsequent reconvening of the Special Meeting all proxies will be voted in the
same manner as such proxies would have been voted at the original convening of
the Special Meeting (except for any proxies that have theretofore effectively
been revoked or withdrawn), notwithstanding that they may have been effectively
voted at a previous meeting.
This Proxy Statement is being distributed on behalf of the Partnership by
the General Partner and officers and directors of the General Partner may
solicit consents of Unitholders by personal interview, telephone, telegram, mail
or other means of communication. The Partnership will bear the expenses of the
Special Meeting and the solicitation of Proxies. The officers and directors of
the General Partner will not be additionally compensated for their solicitation
of consents, but may be reimbursed for their out-of-pocket expenses incurred in
connection with such solicitation. Any Record Holder that forwards soliciting
material to the beneficial owners of Units held of record by such Record Holder
will be reimbursed for its reasonable expenses incurred in forwarding such
material.
NO APPRAISAL RIGHTS
If the owners of more than 50% of the outstanding Units consent to the
Proposal, all Unitholders will be bound by such consent (including Unitholders
who do not consent). Non-consenting Unitholders are not entitled to any rights
of appraisal or similar rights that may be available to dissenting shareholders
in a corporation. As indicated above, Servico, the holder of more than 50% of
the Units, has advised the Partnership that it intends to vote its Units to
approve the Proposal. All other Unitholders will be bound by such consent.
SPECIAL CONSIDERATIONS
The following factors should be considered carefully by the Unitholders in
connection with voting on the Proposal and the transactions contemplated
thereby.
A. IF THE PROPOSAL IS NOT CONSENTED TO BY THE UNITHOLDERS:
1. Loss of "Holiday Inn" Franchises. The "Holiday Inn" franchises on ten of
the Inns were to have expired in 1997. HHC extended the "Holiday Inn" franchises
for such Inns a number of times (most recently to March 2, 1998) to enable the
General Partner and AMI to seek financing for the franchise renewal fees and the
capital improvements required by the Capital Improvement Programs ("PIPs") for
such Inns. However, the General Partner has not been able to arrange such
financing on commercially reasonable terms. As a result, on February 12, 1998
HHC advised the General Partner that it would not renew such "Holiday Inn"
franchises and on February 23, 1998 it advised the General Partner that it would
not extend such franchises when they expired on March 2, 1998. HHC subsequently
advised the Partnership that it would extend the "Holiday Inn" franchise for
such Inns for 60 days if an application by a "viable" applicant for franchises
for the six Inns that HHC was willing to keep in the "Holiday Inn" system were
submitted, and the $517,000 of application fees were paid, by March 10, 1998.
Because of AMI's inability to arrange financing, HHC does not consider AMI a
"viable" applicant. Servico filed an application, and AMI paid the application
fee (with the right to have the fee transferred to any other viable applicant in
the event of a transaction more favorable to the Unitholders), by March 10 and
the Inns were able to remain in the "Holiday Inn" system until May 9, 1998.
In order to permit the Proposal to be considered and voted on a the Special
Meeting, HHC further extended the "Holiday Inn" franchises for the Inns to June
10, 1998. If the Proposal were not consented to by the Unitholders, AMI would
lose the "Holiday Inn" franchise for 11 of its Inns if a new applicant
acceptable to HHC were not in place by June 10, 1998. Loss of the "Holiday
Inn" franchise for any Inn is an event of default under AMI's Priming and
Mortgage Loans, entitling the lenders to accelerate the maturity of
the entire principal amount of the respective Loans. The General Partner
believes, based on prior negotiations with the lenders, that the
lenders would not waive such event of default. See "The Proposal--The
Sale--Background; Reasons for
the sale."
2. Operation of the Inns without "Holiday Inn" Affiliation. If any Inn lost
its "Holiday Inn" affiliation and the lenders did not accelerate the maturity of
the Loans, AMI would be required to obtain and operate such Inn with a different
affiliation or to operate such Inn without any affiliation. The General Partner
believes that, without the financing for affiliation fees and capital
improvements, it will be impossible to arrange a franchise affiliation for such
Inn that provides benefits and market position comparable to those provided by
the "Holiday Inn" affiliation. The General Partner believes that operation of
the affected Inns without such affiliation could have a material adverse effect
on AMI's business prospects (including on AMI's ability to pay debt service on
its Priming and Mortgage Loans or provide reserves required under the Priming
and Mortgage Loan Agreements) and on the market value of the affected Inns. See
"The Proposal--The Sale--Background; Reasons for the Sale" and "The
Partnership."
3. Partial Liquidation of Inns. AMI sold one Inn in July, 1997 and a second
on May 1, 1998, and is seeking to sell five other Inns (although, pending the
Sale, only four of the six are now listed for sale) that are either losing money
or, in the opinion of the General Partner, do not produce a sufficient return to
justify the expense of refranchising. HHC has required that five of such Inns be
removed from the "Holiday Inn" system. Under the Priming and Mortgage Loan
Agreements, the net proceeds of sale of such Inns must be applied, first, to pay
the prepayment penalty on and to reduce the outstanding principal amount of
AMI's Priming Loan and, after the payment in full of the Priming Loan, to reduce
the unpaid principal amount of, and pay shared appreciation (if any) on, AMI's
Mortgage Loan. Accordingly, such proceeds will not be available to provide
funding for franchise renewal fees, capital improvements or the purchase of
other properties. In addition, while AMI's property portfolio will be smaller
after the sale of the Inns, many administrative expenses of AMI and the
Partnership are fixed or independent of operations of the Inns and, accordingly,
will not be reduced. See "The Partnership" and "Management's Discussion and
Analysis of Financial Condition and Results of Operation."
4. Maturity of Priming and Mortgage Loans. AMI's Priming and Mortgage Loans
mature and are payable in full on December 31, 1999. The General Partner has
been unable to arrange adequate refinancing of such Loans and, with the
additional financial pressures to which many of the Inns will be subject if the
Sale is not approved, as described above, does not now expect to be able to
refinance such Loans at or prior to maturity. Without giving effect to the sale
of any Inns and the application of net sale proceeds to reduce the outstanding
principal amount of the Priming and Mortgage Loans, if there are no working
capital advances outstanding under the Tranche B Loan referred to below, the
principal amount of such Loans due at maturity will be $63,355,000. In addition,
pursuant to the terms of the Mortgage Loan, the Mortgage lenders are entitled to
receive payments based on the "shared appreciation," if any, in the value of the
Inns at maturity of AMI's Mortgage Loan. See "The Proposal-the Sale-Background;
Reasons for the Sale" and "The Partnership."
5. Real Estate Risks. If AMI and the Partnership continue to own and
operate the Inns, the Unitholders' investment will continue 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 and/or local market condition,
construction of new hotels and/or the franchising by HHC of competitor hotels,
the availability of financing for operating or capital needs, adverse changes in
governmental rules and fiscal policies, and acts of God and other matters beyond
the control of the General Partner, the Partnership or AMI. In addition, there
is intense competition in the geographic areas where the Inns are located.
6. Servico Break-up Fee. Under the Acquisition Agreement, if the Agreement
is terminated other than as a result of a willful breach by Servico of a
representation, warranty or covenant in the Acquisition Agreement and, at the
time of such termination, there exists or is proposed a competing transaction
(as defined in the Acquisition Agreement), then, upon execution of the agreement
for such transaction (or, if there is no agreement, upon consummation of such
transaction), the Partnership is required to pay Servico $1 million.
B. IF THE PROPOSAL IS CONSENTED TO BY THE UNITHOLDERS:
1. Loss of Interest in the Inns. The Sale of the Interest will entirely
extinguish any interest of the Unitholders in the Inns. Any future appreciation
in the value of hotel properties in general, and the Inns in particular, will be
enjoyed solely by Servico and its affiliates.
2. Purchase Price. The General Partner approached a number of potential
lenders to or investors in the Partnership, and a number of owners and operators
of hotel properties, seeking financing for HHC franchise renewal fees and for
the PIPs or sale of AMI or the Inns and did not receive any offers or
commitments that it believed were advantageous to the Unitholders. In addition,
Furman Selz has delivered its opinion that the Purchase Price is fair, from a
financial point of view, to the Unitholders. However, there cannot be any
absolute assurance that some other consideration or structure could not
ultimately have been negotiated with some other party. However, since the
announcement of the Acquisition Agreement through the date of this Proxy
Statement, the General Partner has not been approached by any other person
proposing any other transaction. See "The Proposal--The Sale--Background;
Reasons for the Sale."
3. Taxable Event. Sale of the Interest will cause the Partnership and the
Unitholders to recognize in 1998 certain tax liabilities that would otherwise
have been deferred or recognized only over time. However, the General Partner
believes that the Partnership's tax liability with respect to the Sale and the
operations of AMI through the time of Sale should not exceed approximately
$968,700. Whether and to what extent any individual Unitholder will have any tax
liability with respect to the Liquidation will depend on such Unitholder's cost
basis in, and the holding period for, his, her or its Units. See "Expected
Consequences of Sale and Liquidation" and "Certain Income Tax Considerations."
4. Liquidation. As promptly as practicable following the closing of the
Sale, the Partnership will liquidate, discharge of all of its obligations,
distribute its remaining cash, terminate its registration under the Securities
Exchange Act of 1934 (the "Exchange Act") and terminate its existence under
Delaware law.
5. Benefits to Others. The General Partner and Prime Hospitality, Inc.
("Prime"), which owns all of the capital stock of the General Partner, have
entered into an agreement with Servico pursuant to which Servico will acquire
the 1% general partnership interest of the General Partner in exchange for a
five year warrant to acquire 100,000 shares of Servico common stock at a price
of $18 per share (the reported closing sale price of Servico common stock on the
New York Stock Exchange was $16 per share on November 6, 1997, the business day
preceding such agreement, and was $18.9375 per share on the day prior to the
date of this Proxy Statement).
Pursuant to the Priming and Mortgage Loans, the Partnership is required to
have a chief executive officer. Pursuant to a consulting contract with the
Partnership, S. Leonard Okin, a Vice President and Director of the General
Partner, has performed for the Partnerships functions comparable to those that
would customarily be performed by a chief executive officer of a corporation.
Mr. Okin's consulting contract runs from year to year and, if not extended,
expires on December 31, 1998. During 1998, Mr. Okin's compensation is $140,232
plus reimbursement of certain expenses (which, in 1997, amounted to $36,100). If
the contract is not renewed at December 31, 1998, Mr. Okin is entitled to a
severance payment of $35,058. Under the Acquisition Agreement, Servico (rather
than the Partnerships) will pay the amounts due under Mr. Okin's consulting
contract.
THE PROPOSAL
THE SALE
SUMMARY CONSEQUENCES OF THE SALE
If the Sale is approved by the Unit holders and consummated, (a) SAC will
purchase the Interest, subject to AMI's outstanding indebtedness (amounting to
approximately $63.4 million at the date hereof) and other obligations for
$12,000,000 in cash; (b) the entire equity interest in AMI, and the risks and
benefits of ownership of the Inns, will belong to Servico; and (c) promptly
after the Closing, the Partnership will dissolve, wind up its affairs and be
liquidated. In connection with the winding up and liquidation of the
Partnership, the Partnership will pay or provide for entity level income taxes
on gross income from the Sale and the operations of the Partnership in 1998
through the time of Closing, make the Field Payment, pay the expenses of
dissolution and liquidation of the Partnership, and distribute the balance
(expected to be approximately $2.61 to $2.71 per Unit) to the Unitholders. See
"Expected Consequences of Sale and Liquidation." Following the liquidation of
the Partnership, the Partnership will terminate its registration under the
Exchange Act and terminate its existence under Delaware law.
BACKGROUND; REASONS FOR THE SALE
The Partnership and AMI, were formed in 1986 and purchased the Inns from
subsidiaries of Prime Motor Inns, Inc. (now Prime Hospitality, Inc.) ("Prime").
Initially, the Inns were leased to and managed by affiliates of Prime. When
Prime and its subsidiaries filed for bankruptcy in 1990, AMI, through
Winegardner & Hammons, Inc. ("W&H"), a hotel management company retained by AMI
to manage the Inns, took control of the Inns and since that time has operated
the Inns for the benefit of the Partners. In 1990, when AMI and W&H took control
of the Inns, they found that the physical condition of the Inns, and customer
satisfaction, had deteriorated seriously. As a result of the physical condition
of the Inns and the level of operations at the Inns, the depressed economy in
the Northeast, the depressed state of the travel and hospitality industries, and
the depressed state of the real estate market, in 1991 AMI was required to write
down the value of the Inns from more than $101 million to approximately $55
million. The carrying value of the Inns after that write-down was approximately
$9 million less than the approximately $64 million outstanding balance of and
accrued interest on AMI's mortgage loan at December 31, 1991. As an indirect
consequence of the Prime bankruptcy and the operation of the Inns by Prime's
subsidiaries prior to their bankruptcy, AMI filed for reorganization in a
prepackaged bankruptcy in 1992. In connection with its bankruptcy
reorganization, AMI and its then-existing lenders restructured and restated
AMI's existing mortgage loan (as restructured, the "Mortgage Loan") and AMI and
certain of its then-existing lenders entered into an additional credit facility
(the "Priming Loan") to provide financing for capital improvements and repairs
and to provide a working capital credit line.
Following AMI's reorganization, AMI made approximately $13 million of
improvements and refurbishments to the Inns, funded in part from Priming Loan
proceeds and in part from reserves. Since completion of that capital program, in
addition to ordinary maintenance and repairs, which are funded from operating
revenues, AMI has made more than $7,500,000 in additional capital improvements
and refurbishments, funded from reserves required therefor under the Priming and
Mortgage Loan Agreements, and at December 31, 1997 had approximately $2,164,000
in reserves (referred to as "FF&E Reserves") for future improvements and
refurbishments.
As a result, in part, of increased marketing and sales promotions and the
increased attractiveness of the Inns as a result of the capital improvement
program and the continuing capital improvements and refurbishments, the average
daily rate achieved at the Inns has increased since 1994 without material
adverse effect on occupancies (see "Management's Discussion and Analysis of
Financial Condition and Results of Operations"). In addition, the market for
hotel properties has generally improved since the early `90s. However,
approximately one-third of the Inns are "highway oriented" properties (which, in
general, have lagged behind in demand, compared to midscale and urban, suburban
and airport location properties) which, because they have external corridors and
are older properties, have a dated appearance.
The "Holiday Inn" franchises of ten Inns (one of which was sold in July,
1997) were to expire on June 30, 1997 and the "Holiday Inn" franchises of an
additional two Inns were to expire on December 31, 1997. Beginning in August,
1995, the General Partner began efforts to arrange financing for the costs of
renewal of those "Holiday Inn" franchises, including seeking the consent of the
holders of the Priming and Mortgage Loans to utilize FF&E Reserves to fund PIPs
and seeking to refinance the Priming and Mortgage Loans on terms that would
provide (or enable AMI to generate internally) additional financing for
franchise renewals. Prior to December 31, 1995, HHC had inspected and prepared
PIPs for ten of the Inns whose franchises were to expire in 1997 and, during the
second quarter of 1996, prepared PIPs for the remaining two Inns. Based on those
PIPs and on analyses by W&H, the General Partner estimated the cost of the
capital expenditures required by the PIPs to be approximately $13,000,000,
although the General Partner believed that the scope of the work and related
costs would be subject to negotiation.
During 1996 the General Partner continued its efforts to arrange financing
for the franchise renewals and/or refinancing of the Priming and Mortgage Loans.
At the same time, the General Partner continued its negotiations with HHC as to
the scope of work required for the PIPs, entered into negotiations with
contractors to minimize the costs of capital improvements, and worked with W&H
to identify which capital improvements appeared to enhance the Inns' ability to
compete in their markets and add value to the Inns and which capital
improvements appeared to be less necessary or to add little value (although HHC
has since indicated that it would not grant significant waivers of the scope of
the work required by the PIPs). The General Partner also engaged W&H to evaluate
the relative benefits and costs of renewing the "Holiday Inn" franchise for each
Inn, operating such Inn under other franchises that might be available, and
operating such Inn without a franchise affiliation. Based on W&H's evaluation,
the General Partner determined that the Inns should remain franchised as
"Holiday Inns."
In 1996, the General Partner determined to sell the Glen Burnie South and
Baltimore Moravia Road Inns and in early 1997 entered into a contract for sale
of the Glen Burnie South Inn (which sale was completed on July 29, 1997). In
early 1997, the General Partner determined also to sell the Baltimore
Pikesville, Baltimore Belmont, Frederick MD, Lancaster Rt. 501, York Market
Street and Hazelton Inns, and subsequently entered into a contract for sale of
the Baltimore Pikesville Inn (which sale was completed on May 1, 1998). Those
Inns are either operating at a loss or would not produce a return to the
Partnership sufficient to justify the costs of renewal fees and PIPs. However,
the net proceeds from the sale of the Glen Burnie South and Baltimore Pikesville
Inns were, and the proceeds from the sale of any other Inns are required to be,
applied to pay the 2% prepayment penalty on, and to reduce the outstanding
principal balance of, the Priming Loan and, after repayment of the Priming Loan,
to reduce the outstanding principal balance of, and to pay the shared
appreciation, if any, under, the Mortgage Loan. None of such proceeds will be
available to finance the PIPs or franchise renewal fees (and the holders of the
Priming and Mortgage Loans declined to permit the use of such proceeds for such
purpose or for the acquisition of other properties).
Beginning in December, 1996, and continuing through the early Spring of
1997, the General Partner received correspondence from Dilworth, Paxson, Kalish
& Kaufman LLP (now Dilworth Paxson LLP) ("DP"), a law firm purporting to
represent five Unitholders. In that correspondence, DP broadly charged PARC 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
PIPs and requested that the management agreement with W&H be terminated or
renewed only on a short term basis. The letters threatened filing of a
derivative action on behalf of the Partnership in the event these matters were
not resolved to the satisfaction of the five Unitholders and also requested a
meeting with the General Partner to discuss these and other matters relating to
the Partnership.
In subsequent correspondence, DP stated that its clients were considering
making a tender offer for the Units and requested that additional information be
provided to such clients. The General Partner declined to provide any non-public
information in the context of a tender offer, but did offer to meet with the
clients to discuss the operations and conditions of the Partnerships. In May,
1997, the General Partner met with Jerome Sanzo and members of DP. Mr. Sanzo
stated that he did not have any interest in suing the General Partner and was
not then considering a tender offer, but did want the General Partner to support
a transaction in which one or more persons (including persons who were not then
Unitholders) would contribute capital and/or properties of the Partnership in
exchange for an equity interest in the Partnerships. Mr. Sanzo expressed the
view that, with the additional resources and some restructuring of its
operations, the Partnership could become a growing active real estate business.
The General Partner stated that, while it could not commit to support any
proposed transaction without knowing the terms of the transaction (particularly
since the transaction summarized by Mr. Sanzo appeared to involve dilution of
the interest of the non-contributing Unitholders), it would not impede
presentation to the Unitholders of any proposal that Mr. Sanzo and his
associates chose to make.
In June, 1997, the General Partner requested that HHC extend the franchise
agreements expiring on June 30, 1997 to enable the General Partner and AMI to
continue to seek financing for the PIPs and the franchise renewal fees. In
consideration of a $125,000 payment by AMI of franchise renewal fees, HHC agreed
to extend the franchise expirations for the ten Inns to July 31, 1997 (which was
subsequently extended to August 29, 1997) and prepared revised PIPs.
Through June, 1997, the General Partner had not received any acceptable
financing proposals. The holders of the Priming and Mortgage Loans had indicated
that they were not interested in providing any of the required financing (and
subsequently indicated that they would not permit the FF&E Reserves to be
utilized to finance the PIPs), and were not agreeable to the refinancing
proposals by the General Partner that called for a discount on the Priming and
Mortgage Loans. The General Partner (acting directly in the name and on behalf
of AMI, and not through or with the assistance of any financial advisor)
approached a number of investment banks and financial institutions recognized
for arranging or providing real estate financing (including through
securitization of loan portfolios), including CS First Boston, Lehman Brothers,
Donaldson, Lufkin & Jenrette, Nomura Asset Capital, General Electric Capital
Corporation, GIAC (an affiliate of HHC), Prime, General Motors Acceptance
Corporation, Winston Hotels, Inc., Mass Mutual, Foothill Capital, United Capital
Corp., Deutsche Morgan Grenfell, Inc., Interstate Properties and HFS
Franchising. A number of those institutions were not interested in considering a
financing transaction. While some of those institutions were willing to propose
financing transactions, in each case the amount of financing that the
institution was prepared to consider arranging or providing was significantly
below the outstanding balance of the Priming and Mortgage Loans and did not
provide any financing for the PIPs. In addition, most of the proposals received
were contingent upon the Priming and Mortgage Loans being purchased or
refinanced at a discount and required that the new lenders receive a substantial
equity interest in the Partnership or AMI. The General Partner believed that
such proposals were disadvantageous to the Unitholders. The General Partner also
received a number of proposals to assist or advise the Partnership in proposals
for the sale of interests in, or assets or operations of, AMI and/or to
restructure AMI and the Partnership. However, none of those proposals provided
any evidence of the terms or sources of any financing or any indication of
interest by any party in proceeding with (much less a commitment of any party to
complete) a transaction.
On June 20, 1997, the General Partner received a communication from DP
stating it had been authorized by Unitholders holding 25% of the Units to
request a Special Meeting to remove PARC as General Partner and to elect a new
General Partner. The General Partner and DP first planned to hold the Special
Meeting on August 19, 1997 and then rescheduled the Meeting for November 5,
1997. The Notice of Meeting for the November 5 Special Meeting, mailed in
September, 1997, called for the removal of PARC, as General Partner and the
election of DMC, a corporation owned and controlled by Jerome Sanzo, as the
substitute General Partner. On October 29, 1997, at the request of DMC, the
November 5, Special Meeting was postponed to a date to be determined in the
future.
In August, 1997, HHC advised the General Partner that it did not desire to
renew the franchises of five Inns that were to expire in 1997 (all of which were
Inns that the General Partner had theretofore determined to sell). HHC also
indicated its unwillingness to extend the expiration of the franchises if the
General Partner and AMI could not provide realistic plans for financing the PIPs
and the franchise renewal fees. HHC extended the time within which the General
Partner and AMI must present such plans, first to September 19, then to
September 30, October 15, and November 14, 1997. AMI submitted a plan for the
completion of the PIPs (including the improvements to be made and the schedule
therefor) and the sale of seven of the Inns (including six whose Holiday Inn
franchises were to expire in 1997 and one whose franchise expires on December
31, 2001). The cost of the PIPs for the remaining five Inns whose franchises
were to expire in 1997 was estimated to be approximately $7,500,000. In
addition, AMI would be required to pay franchise renewal fees of approximately
$438,500 ($500 per room), for renewal of the "Holiday Inn" franchises for the
five Inns that were to be retained whose franchises were to expire in 1997.
In response to HHC's reluctance to provide further extensions of expiring
"Holiday Inns" franchises without a firm financing plan, commencing in August,
1997 the General Partner accelerated its efforts to arrange financing for the
PIPs and the franchise renewal fees or to enter into another transaction
(including the sale of Inns) to preserve and protect the interests of the
Unitholders. Among other things, the General Partner solicited proposals from
each party that had approached the General Partner with proposals to provide
financing to, or acquire interests in, the Partnership, or to acquire assets or
operations of AMI. Among the persons approached were DMC, CS First Boston,
Bristol Hotels & Resorts, H.I. Development Corp., InterGroup Corporation, GIAC
and Prime. On September 26, 1997 Servico made, and on September 29, 1997
publicly announced, an offer to acquire the Interest. No other complete offers
or proposals were submitted (nor was there any proposal that contemplated a
price, or return to the Unitholders, as high as that provided by the Servico
offer). After receipt of the Servico offer, the General Partner retained Furman
Selz as financial advisor. After extensive analysis of the alternatives
(including the possible operation of the Inns under a different franchise or
without a franchise affiliation; the feasibility of disposing of less profitable
properties, and enhancing the financial position of the Partnerships, within the
Partnerships' time constraints; the likelihood of obtaining financing, within
the Partnerships' time constraints, through the parties who had, in effect,
proposed acting as brokers to find lenders or investors; and the possibility of
renegotiating the terms of, and/or negotiating amendments of or waivers under,
the Priming and Mortgage Loans), and of the Servico offer, including discussions
with Furman Selz and counsel to the Partnership, the General Partner began
negotiations with Servico. While the General Partner believed that improvements
had been made in the physical condition and attractiveness of the Inns, the
market position and competitiveness of the Inns and the financial condition and
results of operations of AMI, the General Partner determined that financing was
not available on acceptable terms to take the actions necessary to preserve the
Unitholders' interest in the Inns.
The General Partner and counsel to the Partnership engaged in extensive and
detailed negotiations with Servico and its counsel with respect to the terms and
conditions of the transaction and the proposed Acquisition Agreement. Among the
subjects of negotiation were price, the expense reimbursements, the break-up
fee, the indemnities and representations and warranties. Following the
conclusion of such negotiations, the General Partner approved the terms and
conditions of, and executed and delivered, the Acquisition Agreement.
Thereafter, at the request of Servico and the General Partner, HHC extended the
franchises that were expiring in 1997 to December 26, 1997 and then to January
6, 1998, February 9, 1998 and, most recently, March 2, 1998 in order to allow
time for the Unitholders to consider the Sale.
In November, 1997 DMC requested that the theretofore-postponed Special
Meeting be called, and DMC and the General Partner agreed on January 29, 1998 as
the meeting date. In late December, 1997, DMC distributed a proxy statement in
which it solicited proxies for, among other things, the removal of PARC as
General Partner and the election of DMC as the replacement General Partner.
DMC's proxy statement also proposed a "Plan of Action," including, (i) the
renegotiation or refinancing of the Priming and Mortgage Loans, (ii) the
renegotiation of the "Holiday Inn" franchises and (iii) the sale of
underperforming Inns and the acquisition of additional properties. The General
Partner believed that some elements of the DMC "Plan of Action" were already in
place and other elements were neither practicable nor realistic. DMC's proxy
statement disclosed that Field supported and provided financing for, and was
a participant in, the DMC proxy solicitation.
Shortly before the January 29, 1998 Meeting, the principal lender under the
Priming and Mortgage Loans advised the General Partner that removal and
replacement of the general partner of the Partnership or AMI without the consent
of the lenders under the Priming and Mortgage Loans would constitute an event of
default and that "while [the principal lender has] not made a final
determination, based upon the information regarding the identity and background
of the proposed substitute general partner received to date, we would not at
this time grant such consent." By letter dated January 28, 1998, counsel to the
Partnership advised DP that it believed that the Special Meeting should not be
held until DMC's proxy statement had been supplemented to disclose the position
of such lender or otherwise to remove the threat to the Unitholders. DP advised
counsel to the Partnership that, the Meeting having been called and the Meeting
being imminent, there was no way to advise Unitholders of a change of schedule
prior to the meeting time and no mechanism for rescheduling the Meeting except
by convening the Meeting and adjourning the Meeting to a later date. DP proposed
that the Meeting be convened, that Jerome Sanzo, the President of DMC, make a
brief statement, and that the Meeting then be adjourned.
At the meeting on January 29, it was reported that the holders of
approximately 71% of the Units had submitted proxies to DMC to remove PARC as
General Partner and that holders of approximately 63% of the Units had submitted
proxies to admit DMC as the replacement General Partner. Since removal of PARC
as General Partner required the consent of the holders of more than 80% of the
Units and the election of DMC as the replacement General Partner was conditioned
on, among other things, the removal of PARC, the DMC proposals would not have
been adopted at that time. Following a statement on behalf of the Partnership, a
statement by Mr. Sanzo and discussion by those Unitholders present (including
Field), the Meeting was adjourned without action to February 24, 1998. Following
the adjournment of the Meeting, DMC supplemented its proxy statement and
continued its solicitation of proxies. At the February 24 Meeting, the vote was
substantially unchanged and the meeting was again adjourned to a date to be
determined.
On February 12, 1998 HHC advised the General Partner that, as a result of
AMI's failure timely to accept the license agreements offered by HHC in July
1997 to renew AMI's "Holiday Inn" franchises that were to expire in 1997, HHC
had withdrawn the offer. On February 23, 1998, HHC advised the General Partner
that it would not extend such franchises when they expired on March 2, 1998. HHC
subsequently advised the Partnership that it would extend the "Holiday Inn"
franchises for such Inns for 60 days if an application by a "viable" applicant
for franchises for the six Inns that HHC was willing to keep in the "Holiday
Inn" system were submitted, and application fees in the amount of $517,000 were
paid, by March 10, 1998. Because of AMI's inability to arrange financing, HHC
does not consider AMI a "viable" applicant. Servico filed an application, and
AMI paid the application fees (with the right to have the fee transferred to any
other viable applicant in the event that a transaction more favorable to the
Unitholders were subsequently proposed), prior to March 10 and the Inns were
able to remain in the "Holiday Inn" system until May 9, 1998. In order to permit
the Proposal to be considered and voted on at the Special Meeting, HHC further
extended the "Holiday Inn" franchises for the Inns to June 10, 1998.
Beginning in late February, Servico made open market and privately
negotiated purchases of Units at prices ranging from $2.4375 to $3.50 per Unit
and, as of the Record Date, owns and has the right to vote in excess of
2,000,000 Units. Servico then agreed to amend the terms of the Acquisition
Agreement to provide that (a) the Purchase Price be increased from $8,000,000 to
$12,000,000 and (b) Servico bear the expense of Leonard Okin's consulting
contract with the Partnerships and the General Partner, rather than entering
into a separate Consulting Agreement with Mr. Okin. In early April 1998, in
order to permit the Sale to close promptly and without the additional expense
or disruption that would have resulted if the litigation threatened by Field and
related parties had been bought. Servico purchased 441,500 Units held by Field
and certain related associated persons for $3.50 per Unit. See "Principal
Holders, and Certain Transfers, of Depositary Receipts-Recent Transfers of
Depositary Receipts." In connection with those transactions, the Partnership
agreed to make the Field Payment and all parties agreed to exchange mutual
releases (the forms of which are being completed).
RECOMMENDATION OF THE BOARD OF DIRECTORS
In reaching its original conclusion to approve the Sale, the Board of
Directors considered a number of factors. The material factors considered by the
Directors, all of which weighed in favor of approving the Sale and the
Acquisition Agreement, were the following:
(i) the business prospects of AMI, particularly in light of (a) the
inability of the General Partner to refinance the existing debt of AMI
or to arrange financing for the franchise renewal fees and the PIPs
for the Inns with expiring franchises, (b) the possible loss of
"Holiday Inn" franchises for as many as eleven of the Inns, (c)
possible default under the Priming and Mortgage Loans and (d) the
prospects of operating some of the Inns without any national franchise
affiliation, all of which suggested to the Directors that continued
ownership and operation of the Inns was likely to be less beneficial
to the Unitholders than sale of the Interest;
(ii) the terms and conditions of the Acquisition Agreement, including
the then $8,000,000 purchase price for the Interest, which the
Directors determined were fair to the Unitholders;
(iii) the alternatives to the Proposal, including the direct and
indirect relative costs and benefits of (a) continuing to have the
General Partner operate AMI, (b) removing or approving the withdrawal
of PARC and election of a replacement General Partner and/or (c)
selling some or all of the Partnership's assets in one or more
transactions with other third-party purchasers, all of which the
Directors thought, based on the experience of the General Partner,
were impracticable and raised the risk of default under the Priming
and Mortgage Loans and loss of the "Holiday Inn" licenses, with the
resultant risk of loss of the Inns and the Unitholders' investment;
and
(iv) the valuation analyses performed by Furman Selz, on the basis of
trading comparables, precedent transactions and discounted cash flow.
In its original evaluation of the Proposal, the Board of Directors was
cognizant of the fact that the transaction as then structured contemplated S.
Leonard Okin, a Director of the General Partner, entering into a Consulting
Agreement with Servico and that, as a result, Mr. Okin could have a personal
financial interest in the Sale being approved. Mr. Okin recused himself from the
Board's discussion of the Proposal, and the terms and conditions of the
Acquisition Agreement, with Furman Selz and counsel. The disinterested Directors
unanimously approved the Proposal and resolved to recommend that the Unitholders
vote for the Proposal.
In reaching its conclusion to approve the revised terms of the Sale, the
Board of Directors considered, in addition to the foregoing factors (which it
determined still to be applicable), the following factors:
(a) the per Unit value of the increased Purchase Price was higher than
the market price of the Units that had generally prevailed during the
preceding months (although, because the Directors believed that the
trading price for Units was not necessarily indicative of the value of
the Interest, the market price of the Units was not a factor to which
the Directors attached significant weight);
(b) the increase in the Purchase Price to $12,000,000, which the
Directors determined enhanced the benefits of the transaction to the
Unitholders;
(c) the fact that if the Interest or the Inns were not sold to an
applicant acceptable to HHC by May 9, 1998, the "Holiday Inn"
franchises for 11 of the 15 Inns then owned by AMI (and the $517,000
of application fees) would be lost and those Inns would have to
operate under different franchises or without franchise affiliations,
which the Directors felt made AMI's business prospects, and the value
of the Inns, much more uncertain, and the Sale of the Interest more
necessary to preserve the Unitholders' equity;
(d) the advice of Furman Selz that, at the dates and subject to stated
assumptions, qualifications and limitations, the Purchase Price is
fair, from a financial point of view, to the Unitholders other than
Servico, Inc.; and
(e) the fact that subsequent to the time of the announcement of
Servico's offer to purchase the Interest there had not been any
competing offers, proposals or expressions of interest in acquiring
the Interest or the Inns or any other acquisition or financing
transaction, which led the Directors to conclude that the
opportunities for any other transaction or strategy to preserve
Unitholder value were conjectural.
In reviewing the revised terms of the Sale, the Directors were cognizant of
the fact that the price paid by Servico for a substantial number of Units was in
excess of the per Unit value of the Purchase Price. The Directors felt, however,
that, under the circumstances of the Partnership, both the original $8,000,000
purchase price for the Interest and the increased Purchase Price were fair to
the Unitholders other than Servico. The Directors determined that the price paid
in open-market or privately negotiated transactions was not necessarily
indicative of the value the Interest (particularly in the Partnership's
circumstances).
The Directors were also cognizant of the fact that, since Servico controls
a majority of the Units and had advised the General Partner that it intended to
vote in favor of the Proposal, the Proposal would be approved without regard to
the vote of Unitholders other than Servico. The Board noted that Servico was
merely exercising the voting rights granted to it by the Partnership Agreement
as a Unitholder and by Delaware partnership law. The Directors felt that it was
in the nature of majority rule that the minority would be bound by the action of
the majority and Servico's majority position did not, of itself, call in
question the procedural fairness of the Proposal. The Board also concluded that,
even if the inability of Unitholders other than Servico to affect the vote were
deemed to be procedurally unfair, Servico's ability to control the vote did not
alter the substantive fairness of the terms of the Proposal or whether the
Proposal was in the best interest of the Unitholders other than Servico.
The Directors also determined that the DMC proxy solicitation had
contributed to the enhancement in Unitholder value, both through higher open
market prices and through the enhanced Purchase Price. In addition, the
Directors determined that it was more likely that the Sale could be concluded
promptly and without substantial additional expense or disruption if Field's
costs, fees, expenses and disbursements were reimbursed and DMC's contribution
was recognized, which was in the best interests of the Partnership and the
Unitholders.
The Board of Directors unanimously determined, in light of the factors that
it considered, that the Proposal is fair to, and in the best interests of, the
Unitholders other than Servico. Except as indicated above, the Board of
Directors did not quantify or otherwise assign relative weights to the specific
factors considered in reaching its determination. THE BOARD OF DIRECTORS HAS
UNANIMOUSLY APPROVED THE PROPOSAL AND RECOMMENDS THAT THE UNITHOLDERS VOTE "FOR"
APPROVAL OF THE PROPOSAL.
S. Leonard Okin, a Vice President and Director of the General Partner, owns
1,000 Units. Mr. Okin has advised the Partnership that he intends to vote his
Units in favor of the Proposal.
POSITION OF SERVICO
Servico has advised the Partnership as follows:
"Servico has entered into the transaction in order to acquire the Inns
(some of which it will substantially improve and hold and operate and some of
which it will sell, consistent with the existing plan of the Partnerships and
the requirements of HHC). But for tax and transaction costs applicable to
Servico (and not affecting the Unitholders), Servico would have purchased the
Inns directly.
"Servico believes that the proposed sale of the Interest by the Partnership
to Servico pursuant to the Acquisition Agreement is fair to and in the best
interest of the unaffiliated Unitholders and that the amount to be received by
the unaffiliated Unitholders pursuant to the Acquisition Agreement and the Plan
is fair to the unaffiliated Unitholders. At the time the Acquisition Agreement
was entered into, Servico was not an affiliate of the Partnership. The terms of
the Acquisition Agreement were reached after bona fide arms-length negotiations
between Servico and the Partnership. As negotiated by the Partnership, the
Acquisition Agreement permitted the Partnership to terminate the Acquisition
Agreement upon payment of a break up fee, if a proposal for a Competing
Transaction, as defined, was received by the Partnership.
"Since the public announcement of the Acquisition Agreement, no party has
approached the Partnership regarding a Competing Transaction that would result
in consideration payable to the Unitholders in excess of that which would be
received under either the terms of the original Acquisition Agreement (which
called for an $8 million payment for the Interest) or the amended Acquisition
Agreement (which calls for a $12 million payment). The only "proposal" received
was the proposal of DMC, which would not have resulted in any payment to the
Unitholders and, in the view of Servico, potentially could have resulted in the
diminution or entire loss of the Unitholder's equity. Indeed, the DMC "proposal"
for the removal of the Partnership's general partner would have required the
consent of the Partnership's lender under the Partnership's $63 million of
outstanding indebtedness and the lender advised the Partnership that, based on
the information available to it regarding DMC, the lender would not consent to
the removal. Thus the proposal could potentially have resulted in a default
under the terms of the Partnerships' debt and, as previously reported by the
Partnership and disclosed by DMC, neither had been successful in obtaining any
commitment to refinance the Partnership's debt. Accordingly, any such removal
could have resulted in a foreclosure by the lender resulting in a complete loss
of the Partnership's equity in the Inns.
"Further, subsequent to the execution of the original Acquisition
Agreement, HHC advised the Partnership that it would no longer extend the
expiration of AMI's Holiday Inn franchises beyond March 10, 1998 unless an
application was filed by a "viable" applicant. Servico believes that the loss of
those franchises would have had a catastrophic effect on the operations of the
Partnership and the inherent values of the Inns.
"In order to preserve the benefits that it was to receive under the terms
of the Acquisition Agreement, Servico acquired in excess of 50% of the
Partnership's outstanding Units in open market and privately negotiated
transactions at prices ranging between $2.4375 and $3.50 per Unit and filed the
required applications with HHC. As a consequence, the Partnership was able to
avoid a possible default under its loan and the termination of the Holiday Inn
franchises.
"Notwithstanding that the price received by the Unitholders who sold in
privately negotiated transactions was higher than the amount to be received by
Unitholders pursuant to the Proposal, Servico believes that the proposed
transaction is fair to the unaffiliated Unitholders by virtue of (a) the
historical market price of the Units (the Units were trading at less than $1.00
at the time Servico first approached the Partnership with respect to pursuing a
transaction) and the current market value ($2.8125 at April 30, 1998), (b) the
negative net book value of the Partnership per Unit at December 31, 1997, (c)
the going concern value of the Partnership (which Servico believes is not in
excess of the Purchase Price), (d) the liquidation value of the Partnership
(which Servico believes is not in excess of the Purchase Price), (e) the fact
that the Partnership does not have the funds required to make the improvements
required to maintain its franchises and has not been successful in refinancing
its indebtedness, (f) the fact that the Partnership's outstanding indebtedness
matures in 1999, (g) the fact that, to Servico's knowledge, no other person or
entity has made any firm offer during the preceding 18 months for a merger or
sale of all or substantially all of the Partnership's assets or to purchase a
controlling interest in the Partnership and (h) the future prospects and
negative impact of the loss of the Holiday Inn franchise if the transaction does
not go forward.
"While Servico, as the holder of a majority of the Units, is in a position
to control the outcome of the vote on the Proposal, Servico believes that the
exercise by it of the vote granted to it by the Partnership's partnership
agreement and Delaware partnership law does not make unfair what is otherwise a
fair transaction.
"In reaching its conclusion that the proposed transaction is fair to the
unaffiliated Unitholders, Servico has taken into account, among other things,
the reported financial statements of the Partnership, the analyses of Furman
Selz, and its own experience as an operator of hotel properties, but it has not
prepared any appraisals of the Inns or any forecast of the liquidation value of
AMI or the Partnership."
Servico has advised the Partnership that it intends to vote its Units in
favor of the Proposal and that it recommends that the Unitholders vote for
approval of the Proposal.
OPINION OF THE FINANCIAL ADVISOR TO THE BOARD OF DIRECTORS
Furman Selz was retained by the Board of Directors of the General Partner
to render an opinion (the "Fairness Opinion") to the Board of Directors as to
the fairness, from a financial point of view, of the Purchase Price to the
Unitholders. Furman Selz is an internationally recognized investment banking
firm which, as a part of its investment banking services, is regularly engaged
in the valuation of businesses and their securities in connection with mergers
and acquisitions, negotiated underwritings, secondary distributions of listed
and unlisted securities, private placements, and valuations for corporate and
other purposes. In addition, individuals at Furman Selz who have responsibility
for the advisory assignment are familiar with, and recognized experts on, the
hospitality industry and, having advised AMI with respect to its prepackaged
bankruptcy in 1992, were familiar with the Partnership's properties and
operations. The Partnership has agreed to pay Furman Selz a fee of $200,000 and
to indemnify Furman Selz against claims arising from its acting as financial
advisor to the General Partner, other than claims arising from Furman Selz'
gross negligence or willful misconduct. An affiliate of Furman Selz is a holder
of notes under AMI's Priming Loan and Mortgage Loan, but, as a holder of a
minority position, was not involved in any of the negotiations with the General
Partner described under "Background; Reasons for the Sale" above.
On the date of this Proxy Statement, pursuant to the General Partner's
request, Furman Selz delivered its written opinion to the Board of Directors of
the General Partner to the effect that, as of November 7, 1997, the date of the
execution and delivery of the Acquisition Agreement, and the date of this Proxy
Statement, the Purchase Price is fair, from a financial point of view, to the
Unitholders other than Servico, Inc. Furman Selz has consented to the use of its
name and the Fairness Opinion in this Proxy Statement.
The summary of the opinion of Furman Selz set forth in this Proxy Statement
is qualified in its entirety by reference to the full text of such opinion, a
copy of which is attached hereto as Appendix C and incorporated herein by
reference. Unitholders are urged to read the opinion in its entirety for
assumptions made, procedures followed, other matters considered and limits of
the review by Furman Selz. In arriving at its opinion, Furman Selz made its
determination as to the fairness of the consideration based on the foregoing and
on the amount of the Purchase Price, the financial terms of the Acquisition
Agreement and the financial and comparative analyses described below.
Furman Selz's opinion was prepared for the Board of Directors of the
General Partner and is directed only to the fairness, from a financial point of
view as of November 7, 1997 and the date of this Proxy Statement, of the
Purchase Price and the financial terms of the Acquisition Agreement to the
Partnership and the Unitholders. Furman Selz's Fairness Opinion does not
constitute a recommendation to any Unitholders as to how to vote at the Special
Meeting. In addition, Furman Selz was not asked to opine as to, and its opinion
does not address, the underlying business decision of the Board of Directors to
proceed with or to effect the Sale.
In connection with rendering its opinion, Furman Selz among other things:
(i) reviewed the Acquisition Agreement as executed and delivered by the parties;
(ii) reviewed the Partnership's Annual Reports on Form 10-K for the fiscal years
ended December 31, 1996, and December 31, 1997; (iii) reviewed certain operating
and financial information, including projections, provided to Furman Selz by the
General Partner relating to the Partnership's business and prospects (the
"Projections"); (iv) reviewed the financial terms of the Priming and Mortgage
Loans; (v) met with certain members of the General Partner's senior management
to discuss the operations, historical financial statements and future prospects
of AMI and the Inns; (vi) spoke with certain employees of W&H familiar with the
operations and prospects of the Inns; (vii) reviewed the historical prices and
trading volumes of the Units; (viii) reviewed publicly available financial data
and stock market valuations of companies that it deemed generally comparable to
the Partnership; (ix) reviewed the terms of recent acquisitions of companies
that it deemed generally comparable to the Partnership; and (x) conducted other
such studies, analyses, inquiries, and investigations as it deemed appropriate.
With respect to the Projections, Furman Selz assumed that they were
reasonably prepared on bases reflecting the best currently available estimates
and judgments of the management of the General Partner as to the expected future
performance of AMI and the Inns. Furman Selz also relied on management's
estimate that entity level taxes as a result of Partnership operations and the
Sale should not exceed approximately $968,700 and that expenses (other than the
Field Payment) payable by the Partnership out of the Purchase Price should not
exceed $100,000, with the result that the amount per Unit payable out of the
Purchase Price for taxes, the Field Payment and other expenses should not exceed
approximately 39(cent). Furman Selz did not assume any responsibility for the
information or Projections provided to it, and Furman Selz further relied upon
the assurances of the management of the General Partner that they were not aware
of any facts that would make the information or Projections provided to Furman
Selz incomplete or misleading. The Projections reflect the current best judgment
of management of the General Partner as to the future financial condition,
operating results and Federal income tax liability of AMI and the Inns. The
actual future results of AMI and the Inns may be significantly more or less
favorable than suggested by such Projections. The material assumptions upon
which the Projections were based relate to various matters, including: 1) the
levels of growth in demand and pricing in the motor hotel industry in the
markets in which the Inns are located; 2) the competitive environment in the
motor hotel industry; 3) levels of indebtedness and debt service requirements of
AMI; and 4) the future financing requirement of AMI for the Inns. The
Projections assume that AMI (i) is unable to refinance the Priming and Mortgage
Loans on commercially reasonable terms, (ii) has disposed of six of the Inns, as
planned, and (iii) maintains ownership of the remaining eight Inns. The
Projections and certain of the other information reviewed by Furman Selz are not
publicly available and have not been disseminated to any party other than Furman
Selz. In arriving at its opinion, Furman Selz did not perform or obtain any
independent appraisal or evaluation of the Inns.
In rendering its opinion, Furman Selz assumed, without independent
verification, the accuracy, completeness and fairness of all the financial and
other information that was available to it from public sources or that was
provided to it by the General Partner or its representatives. Furman Selz's
Fairness Opinion is necessarily based on economic, market, financial and other
conditions as they existed on, and on the information made available to it as
of, the date of such opinion. It should be understood that, although subsequent
developments may affect its opinion, except as agreed upon by Furman Selz,
Furman Selz does not have any obligation to update, revise, or reaffirm its
opinion.
The following is a summary of the material factors considered and the
principal financial analyses performed by Furman Selz to arrive at its opinion.
In arriving at its opinion, Furman Selz did not quantify or attempt to assign
relative weights to the specific factors considered and financial analyses
performed. Furman Selz, however, considers the discounted cash flow analysis to
be most pertinent because of the lack of companies sufficiently comparable to
the Partnership and the lack of precedent transactions sufficiently comparable
to the Sale.
1. Discounted Cash Flow Analysis. Furman Selz performed a discounted cash flow
analysis for the Partnership on a stand-alone basis based on the
Projections. The discounted cash flow analysis estimated the theoretical
present value of the Partnership based on the sum of (i) the discounted
cash flows that the Inns could generate through December 31, 1999 (the
maturity of the Priming and Mortgage Loans) and (ii) a terminal value
assuming the Inns perform in accordance with the Projections and reflecting
the shared appreciation feature of the Mortgage Loan.
Furman Selz's calculation of a theoretical terminal value of the
Partnership was based upon a capitalization rates of 10%, 12% and 14%
applied to operating earnings before interest, taxes, depreciation and
amortization ("EBITDA") assuming the Inns perform in accordance with the
Projections. This terminal value and the cash flows generated by the
Partnership were discounted at rates of 10%, 12% and 14% to derive the
total present value of the Partnership. The value of the Units was
calculated by taking the total value of the Partnership, as so determined,
and subtracting the principal amount of the total debt outstanding and
adding cash on hand. Applying what Furman Selz believed to be the most
appropriate capitalization rates and discount rates, Furman Selz estimated
that based on discounted cash flow analysis of the Projections, the total
value of the Partnership ranged from $53.4 million to $59.3 million and the
value of the Units ranged from $5.6 million to $7.2 million.
In arriving at its opinion, Furman Selz took into account that, in general,
the Purchase Price was greater than the range of present values for the
Units derived from the discounted cash flow analysis based upon the
Projections.
2. Analysis of Certain Other Publicly Traded Companies. Furman Selz compared
selected historical share prices, and operating and financial ratios for
the Partnership to the corresponding data and ratios for selected motor
hotel companies whose securities are publicly traded and that Furman Selz
believed were comparable in certain respects to the Partnership. The
companies selected for this comparison were Hallwood Realty Partners, L.P.;
National Realty, L.P.; and Red Lion Inns Limited Partnership. Such data and
ratios included the ratio of market capitalization of the common stock (the
"equity value") plus the principal amount of total debt outstanding less
cash on hand (in the aggregate, the "enterprise value") to EBITDA (such
ratio being the "EBITDA multiple") and the ratio of the equity value to
funds from operations ("FFO") (such ratio being the "FFO multiple"). The
EBITDA multiples for the selected companies ranged from 9.4 to 10.8, and
the FFO multiples for the selected companies ranged from 7.1 to 9.5.
Applying the median EBITDA multiple of the selected companies to the
Partnership's 1997 and forecast 1998 EBITDA yields an implied value of the
Partnership that ranges from $52.5 million to $55.4 million and implied
value of the Units that ranges from $2.9 million to $4.0 million. Applying
the median FFO multiple of the selected companies to the Partnership's 1997
and forecast 1998 FFO yields and implied value of the Partnership that
ranges from $54.4 to $56.7 million and an implied value of the Units that
ranges from $3.7 million to $4.5 million.
In arriving at its opinion, Furman Selz took into account that, in general,
the Purchase Price compared favorably to the valuations derived for the
selected companies. Furman Selz noted that no company utilized in the above
comparable company analysis is identical to the Partnership. Accordingly,
an analysis of the foregoing is not purely mathematical and involves
complex considerations and judgments concerning differences in financial
and operating characteristics of the comparable companies and other factors
that could affect their public trading value.
3. Comparable Precedent Transaction Analysis. Furman Selz conducted a review
of selected real estate company transactions in which a majority ownership
position was purchased. These transactions were analyzed to provide a
reference point as to the valuation of the Partnership and the Units. The
transactions selected were the acquisition of Power Test Investors, L.P. by
Getty Realty Corp.; the acquisition of Perkins Family Restaurants, L.P. by
The Restaurant Company; the acquisition of AIRCOA Hotel Partners, L.P. by
Regal Hotel Management, Inc.; the acquisition from Bass PLC of
approximately 100 "Holiday Inn" hotels by Bristol Hotel Co.; and the
acquisition of La Quinta L.P. by La Quinta Inns, Inc. From the transactions
selected, there was a range of multiples, which was related to the quality
and size of the companies. Furman Selz calculated the ratio of the
consideration paid by the acquiror (the "consideration") plus the principal
amount of debt assumed by the acquiror or to which the acquired assets were
subject less cash on hand available to the acquiror (in the aggregate, the
"transaction value") to the acquired company's EBITDA for the 12 months
prior to the acquisition (the "EBITDA ratio") and the ratio of the
consideration to the acquired company's FFO for the 12 months prior to the
acquisition (the "FFO ratio"). The EBITDA ratios for the selected
transactions ranged from 4.4 to 12.9, and the FFO ratios for the selected
companies ranged from 6.3 to 10.3. Applying the median EBITDA ratio of the
selected real estate company transactions to the Partnership's 1997 and
forecast 1998 EBITDA yields and implied value of the Partnership that
ranges from $43.5 million to $45.9 million and an implied value of the
Units that ranges from $0.0 million to $0.2 million. Applying the same
median FFO ratio to the Partnership's 1997 and forecast 1998 FFO yields an
implied value of the Partnership that ranges from $53.7 million to $55.8
million and an implied value of the Units that ranges from $3.4 million to
$4.2 million.
In arriving at its opinion, Furman Selz took into account that, in general,
the Purchase Price compared favorably to the valuations derived for the
selected transactions. Furman Selz noted that no transactions utilized in
the above selected acquisition transaction analysis is identical to the
Sale. Accordingly, an analysis of the foregoing is not purely mathematical
and involves complex considerations and judgments concerning differences in
financial and operating characteristics of the acquired companies in such
transactions and other factors that could affect their acquisition and
public trading values.
REGULATORY MATTERS
The General Partner is not aware of any material approval or other action
by any state, federal or foreign governmental agency that would be required
prior to the consummation of the Sale or the Liquidation in order to effect the
Sale and the Liquidation.
THE FIELD PAYMENT
As indicated under "Principal Holders, and Certain Transfers, of Depositary
Receipts--Recent Transfers of Depositary Receipts," Servico has purchased the
Units held by Field and certain of his related persons and associates for $3.50
per Unit. In connection with such transactions, the Partnership has agreed that,
immediately after the Closing, the Partnership will make the Field Payment from
the Purchase Price and all parties will exchange mutual releases. The Field
Payment is not subject to documentation or verification of, or upward or
downward adjustment based on the actual amount of, costs, fees, expenses or
disbursements in connection with the DMC proxy solicitation. The amount and
terms and conditions of the Field Payment were determined in arms' length
negotiations among Field, Servico and the Partnership. The Partnership and
Servico originally proposed that the Field Payment be made only for, and against
documentation of, costs, expenses and fees paid to third parties. Field argued
that the tracing and allocation of amounts was burdensome and that Field, Jerome
Sanzo and others were entitled to compensation for the substantial time and
energy that they had expended (as well as expenses that they had incurred) in
connection with their review of the Partnerships' assets and operations, the
formulation of the DMC "Plan of Action" and the DMC proxy solicitation. The
amount of money originally sought by Field was higher, and the amount of money
originally offered by the Partnership was lower, than the Field Payment
ultimately agreed upon by the parties. The Partnership has been advised that the
Field Payment will pay or reimburse costs, fees and expenses incurred or
payable, and expenditures (including compensation to Field and Mr. Sanzo for the
substantial time and energy that they devoted to the proxy solicitation and to
the business plan of DMC) made, in connection with the DMC proxy solicitation.
The Partnership, AMI and Servico will release Field, Jerome Sanzo and
certain persons related to or associated with Field (collectively, the
"Davenport Associates") and their respective officers, directors, partners,
managers, consultants, agents and attorneys , and, effective upon the making of
the Field Payment, the Davenport Associates will release the Partnership, the
General Partner, Servico and their respective officers, directors, partners,
managers, consultants, agents and attorneys, from all claims relating to the
Partnership, AMI, operation or properties of AMI, or the Units.
THE LIQUIDATION
Immediately after the Closing the Partnership will wind up its affairs,
dissolve and distribute the Purchase Price, net of (i) entity level taxes
payable by the Partnership in connection with operations of AMI through the
Closing and the Sale of the Interest, (ii) the Field Payment and (iii) expenses
of the liquidation and final distribution, to the Unitholders.
THE ACQUISITION AGREEMENT
The description of the Acquisition Agreement set forth below summarizes the
material terms of the Acquisition Agreement, but does not purport to be complete
and is qualified in its entirety by, and made subject to, the more complete and
detailed information set forth in the Acquisition Agreement among Servico, Inc.,
the Partnership, the General Partner and SAC, a copy of which is attached as
Appendix A to this Proxy Statement and incorporated herein by reference.
PURCHASE PRICE
Subject to the terms and conditions of the Acquisition Agreement, at the
Closing, the Partnership will sell to Servico, and Servico shall purchase from
the Partnership, the Interest for the Purchase Price of $12,000,000 in cash.
INDEMNIFICATION
Servico has agreed to indemnify, defend and hold harmless the present
directors and officers of the General Partner and certain consultants to the
Partnership, AMI and the General Partner (each an "Indemnified Party") against
all losses, claims, demands, costs, damages, liabilities, expenses, judgments,
fines, settlements and other amounts arising out of actions or omissions
occurring at or prior to the Closing to the same extent (including mandatory
advancement of expenses), but without limitation as to amount, provided under
the organizational documents of the Partnership, AMI and the General Partner.
During such period, Servico will maintain in effect a directors' and officers'
liability insurance policy or a noncancellable runoff policy insuring the
Indemnified Party, with coverage in amount and scope substantially equivalent to
the General Partners' existing coverage, for events prior to Closing.
CLOSING DATE OF THE SALE
The Closing of the Sale will take place as promptly as practicable (and, in
any event, within three business days) after the satisfaction or waiver (where
permissible) of the conditions to the Sale. See "The Acquisition
Agreement--Conditions to Consummation of the Sale."
REPRESENTATIONS AND WARRANTIES
Representations and Warranties of the Partnership and the General Partner.
The Acquisition Agreement includes customary representations and warranties of
the Partnership and the General Partner as to, among other things: (i) the due
organization, valid existence and good standing of each of the Partnership, the
General Partner and AMI and their corporate power and authority to enter into
the Acquisition Agreement and the transactions contemplated thereby; (ii) the
due authorization, execution and delivery of, and the validity, binding effect
and enforceability of, the Acquisition Agreement; (iii) the authority of each of
the Partnership, the General Partner and AMI to conduct its business; (iv) the
absence of certain defaults, violations of law or conflicts with organizational
documents; (v) the absence of any interest of the Partnership, the General
Partner or AMI in any subsidiary other than the Partnership's interest in AMI;
(vi) the absence of the need for material governmental consents; (vii) timely
filing of all reports required to be filed under the Securities Exchange Act of
1934; (viii) the fair presentation, in all material respects of the
Partnership's financial position, results of operations and cash flows, in
accordance with generally accepted accounting principles, in the financial
statement of the Partnership; (ix) compliance with law, including applicable
environmental laws; (x) the absence of any pending, or to their knowledge,
threatened materially adverse litigation; (xi) the absence of any material
adverse changes; (xii) the due authorization and validity of the Interest;
(xiii) the absence of any outstanding securities relating to any partnership
interest in AMI; (xiv) AMI's ownership of all personal, real and intangible
property set forth on schedules to the Acquisition Agreement; and (xv) the
absence of the use of any broker, except for Furman Selz as financial advisor,
in connection with the transactions contemplated by the Acquisition Agreement.
Representations and Warranties of Servico, Inc. and SAC. The Acquisition
Agreement includes representations and warranties of Servico, Inc. and SAC as
to, among other things: (i) the due organization, valid existence and good
standing of each of Servico, Inc. and SAC and their corporate power and
authority to enter into the Acquisition Agreement and the transactions
contemplated thereby; (ii) the due authorization, execution and delivery of, and
the validity and binding effect and enforceability of, the Acquisition
Agreement; (iii) the absence of certain defaults, violations of law or conflict
with organizational documents; (iv) the absence of the need for material
governmental consents; and (v) the absence of the use of any broker in
connection with the transactions contemplated by the Acquisition Agreement.
COVENANTS
The Acquisition Agreement contains a number of customary and
transaction-specific covenants including the following:
Interim Operations of AMI and the Partnership. The General Partner has
agreed, prior to the Closing Date or the earlier termination of the Acquisition
Agreement, except as permitted by the Acquisition Agreement, to use its best
efforts to cause each of AMI and the Partnership to operate its business only in
the usual and ordinary course and not to engage in certain actions specified in
the Acquisition Agreement. At the request of Servico, the General Partner has
taken off the market two Inns (one whose franchise was to have expired in 1997
and would have required capital expenditures estimated at approximately $1.8
million and franchise renewal fees of $78,500, and one whose franchise expires
in 2001) that the General Partner had earlier determined to sell and had listed
with brokers for sale.
Access. The Partnership and the General Partner have agreed to provide
Servico full access to its properties, books, records and to use their
reasonable best efforts to cause their employees and agents to assist Servico in
its investigation of AMI and the Inns.
No Solicitation. The Partnership and the General Partner have agreed not
(i) to directly or indirectly solicit, encourage or initiate any negotiations
with respect to any offer or proposal to acquire all or substantially all of the
business and assets or capital stock or partnership interests of the
Partnership, the General Partner or AMI or (ii) to disclose any nonpublic
information or any other information not customarily disclosed to any person or
entity concerning the business and assets of the Partnership, the General
Partner and AMI. However, the Partnership, the General Partner and/or AMI may
participate in such negotiations with respect to any unsolicited offer or
proposal that the Partnership, the General Partner and/or AMI reasonably
determines is more favorable to the Limited Partners.
Dissolution of the Partnership. Immediately, after the Closing, the
Partnership will wind up its affairs, dissolve and distribute the Purchase Price
to the Limited Partners in accordance with the Partnership Agreement and the
Delaware Act.
CONDITIONS TO CONSUMMATION OF THE SALE
Mutual Conditions Precedent. The respective obligations the parties to
consummate the transactions contemplated by the Acquisition Agreement are
subject to the satisfaction or waiver, where permissible, of customary
conditions precedent and to the conditions that: (i) the Limited Partners shall
have approved the Acquisition Agreement and the transactions contemplated
thereby and (ii) Servico shall have entered into a binding agreement with the
General Partner pursuant to which Servico will acquire the general partner
interest in AMI and Servico or its designee will be substituted and admitted as
the general partner of AMI.
Conditions Precedent to the Obligations of Servico. The obligation of
Servico to consummate the transactions contemplated by the Acquisition Agreement
is subject to customary conditions precedent (such as the truth and accuracy at
the time of Closing of the representations and warranties of the Partnership and
the General Partner and the performance by the Partnership and the General
Partner of actions required to be performed by them at or prior to Closing).
Conditions Precedent to the Obligations of the Partnership. The obligation
of the Partnership and the General Partner to consummate the transactions
contemplated by the Acquisition Agreement is subject to customary conditions
precedent.
TERMINATION
The Acquisition Agreement may be terminated at any time prior to the
Closing Date, whether before or after approval of the Proposal, by mutual
written consent of Servico and the Partnership or by either of Servico or the
Partnership under certain circumstances, including if (i) the Closing has not
occurred by June 1, 1998 or (ii) the Special Meeting has been held and the
Limited Partners shall have failed to approve the Proposal.
The Acquisition Agreement may be terminated at any time prior to the
Closing Date, whether before or after approval of the Proposal, by Servico under
certain circumstances, including if any of the representations or warranties of
the Partnership or the General Partner are not in all material respects true and
correct, or if the Partnership or the General Partner breach in any material
respect any covenant contained in the Acquisition Agreement and, if such
misrepresentation or breach is curable, it is not cured within ten business days
after notice thereof, but in any event prior to the June 1, 1998.
The Acquisition Agreement may be terminated at any time prior to the
Closing Date, whether before or after approval of the Proposal, by the
Partnership under certain circumstances, including if any of the representations
or warranties of Servico, Inc. or SAC are not in all material respects true and
correct, or if Servico, Inc. or SAC breach in any material respect any covenant
contained in the Acquisition Agreement and, if such misrepresentation or breach
is curable, it is not cured within ten business days after notice thereof, but
in any event prior to the June 1, 1998.
SURVIVAL OF REPRESENTATIONS AND WARRANTIES
The representations and warranties of the Partnership, the General Partner
and Servico contained in the Acquisition Agreement shall terminate at the
Closing.
EXPENSES AND FEES
Except as discussed below, each party will bear its own expenses, including
the fees and expenses of any attorneys, accountants or other intermediaries,
incurred in connection with the Acquisition Agreement and the transactions
contemplated thereby. However, AMI will bear up to $700,000 of the fees and
expenses payable by the Partnerships in connection with the transactions.
If the Acquisition Agreement is terminated as the result of an intentional
or willful breach by the Partnership or the General Partner of any
representation, warranty or covenant contained therein, then the Partnership
will pay Servico an amount equal to all costs and out-of-pocket expenses
(including reasonable attorneys' fees and advisors' fees), up to $300,000,
incurred by Servico in connection with the Acquisition Agreement and the
transactions contemplated thereby.
If the Acquisition Agreement is terminated as the result of an intentional
or willful breach by Servico of any representation, warranty or covenant
contained therein, then Servico will pay the Partnership an amount equal to all
costs and out-of-pocket expenses (including reasonable attorneys' fees and
advisors' fees, including the fees and expenses of Furman Selz), up to $700,000,
incurred by the Partnership, in connection with the Acquisition Agreement and
the transactions contemplated thereby.
If the Acquisition Agreement is terminated by the Partnership for any
reason other than the circumstances described in the preceding paragraph and at
the time of such termination, there exists or there is proposed a competing
transaction (as defined in Section 7.8(d) of the Acquisition Agreement), then,
promptly after the execution of any agreement with respect to the competing
transaction (or, if no agreement is executed, the consummation of the competing
transaction), the Partnership will pay to Servico $1,000,000. At the time of the
negotiation of the Acquisition Agreement, the Partnership, the General Partner
and Servico were aware of DMC's proposal to remove PARC as General Partner and
to elect DMC as the replacement General Partner, but they were not aware of
DMC's "Plan of Action." The break-up fee in the Acquisition Agreement was not
included in anticipation of, in response to , or to forestall the DMC proposal.
When DMC's "Plan of Action" was subsequently disclosed, Servico advised the
Partnership and the General Partner that it was Servico's position (which
neither the Partnership nor the General Partner conceded) that the proposals
made by DMC constituted a "competing transaction" that would entitle Servico to
the $1,000,000 payment. Neither the Partnership nor the General Partner believed
that DMC's proposals necessarily constituted a "competing transaction."
OTHER AGREEMENTS
The General Partner and Prime, which owns all of the capital stock of the
General Partner, has entered into an agreement with Servico pursuant to which
the General Partner will form a new subsidiary, AMIOP Acquisition Corp., and
transfer to the new subsidiary the General Partner's 1% general partnership
interest in AMI. At the Closing, Servico will acquire the stock of AMIOP
Acquisition in exchange for a five year warrant to acquire 100,000 shares of
Servico common stock at a price of $18.00 per share. As part of that
transaction, the General Partner and Prime will waive any rights that they may
have to receive any distribution by the Partnership of the proceeds of the sale
of the Interest.
Pursuant to a consulting contract with the Partnership originally entered
into in 1994, S. Leonard Okin, a Vice President and Director of the General
Partner, has performed for the Partnerships functions comparable to those that
would customarily be performed by a chief executive officer of a corporation.
Mr. Okin's consulting contract runs from year to year, is renewed each year for
the next year if not terminated by either party, and unless extended will expire
on December 31, 1998. During 1998, Mr. Okin's compensation is $140,232 plus
reimbursement of certain expenses (which, in 1997, amounted to $36,100) and, if
the contract is not renewed at December 31, 1998, Mr. Okin is entitled to a
severance payment of $35,058. Under the Acquisition Agreement, Servico (rather
than the Partnership) will pay the amounts due under Mr. Okin's consulting
contract.
THE PLAN
The description of the Plan set forth below summarizes the material terms
of the Plan, but does not purport to be complete and is qualified in its
entirety by, and made subject to, the more complete and detailed information set
forth in the Plan, a copy of which is attached as Appendix B to this Proxy
Statement and incorporated herein by reference.
Immediately after the Closing, the Partnership will wind up its affairs and
dissolve and as promptly thereafter as practicable will distribute the Purchase
Price, net of (i) entity level taxes payable by the Partnership with respect to
operations of AMI between January 1, 1998 and the date of the Sale or with
respect to the Sale, (ii) the Field Payment, and (iii) expenses payable by the
Partnership out of the Purchase Price, to the Unitholders in accordance with the
Plan, the Partnership Agreement and the Delaware Act (the "Liquidation
Distribution"). Under the Plan, the General Partner will waive its right to
receive its distributive share as general partner, under the Partnership
Agreement, of the Liquidation Distribution. The entity level taxes, and expenses
(excess of fees and expenses borne by AMI), expected to be payable by the
Partnership out of the Purchase Price are set forth under "Expected Consequences
of Sale and Liquidation." The Liquidation Distribution will be distributed to
the Unitholders in proportion to the number of Units beneficially owned by them
on the date of liquidation, with the result that, based on the assumptions and
analyses set forth under "Expected Consequences of Sale and Liquidation," the
Liquidation Distribution is expected to be equivalent to approximately $2.61 to
$2.71 per Unit.
After making the Liquidation Distribution, the Partnership will file a Form
15 terminating the registration of the Partnership under the Exchange Act and
will file a Certificate of Cancellation with the Secretary of State of the State
of Delaware, canceling the Partnership's Certificate of Limited Partnership
(thereby terminating the existence of the Partnership under Delaware law).
Therefore the Partnership will cease to exist and will not have any properties
or carry on any business and the Unitholders will not have any interest in the
Partnership or AMI or the business theretofore carried on by the Partnerships.
Following the termination of the registration of the Partnership and the
termination of its existence, the provisions of the Exchange Act will not be
applicable to the Unitholders, and, except for reports dealing with the final
year of the Partnership and its Liquidation Distribution, the Unitholders will
not receive any reports under the Exchange Act or Delaware law.
EXPECTED CONSEQUENCES OF SALE AND LIQUIDATION
Promptly following the Closing of the Sale, the Partnership will dissolve,
wind up its affairs and liquidate. In connection with the winding-up and
liquidation of the Partnership, the General Partner, as liquidator of the
Partnership, will, in the name and on behalf of the Partnership, pay the entity
level taxes payable by the Partnership, make the Field Payment, and pay expenses
of the dissolution and liquidation in excess of amounts payable by AMI under the
Acquisition Agreement. The balance--the Liquidation Distribution--will be
distributed to the Unitholders, as described under "The Plan."
As described under "Certain U.S. Federal Income Tax Matters," there is some
uncertainty as to what will constitute "gross income" from the operation of the
Inns. However, on the basis of the operating budgets prepared by the General
Partner in the ordinary course of business (based on prior year's results and
forecasts of future operating conditions), the General Partner believes that, if
the Closing occurs on or prior to May 31, 1998, and federal gross income tax
were payable by the Partnership in connection with the sale of the Baltimore
Pikesville Inn, the Federal tax income payable by the Partnership on gross
income from active trades and businesses conducted by the Partnership from
January 1, 1998 through the time of Closing should not exceed approximately
$703,700. As described under "Certain U.S. Federal Income Tax Matters," there is
some uncertainty as to whether the net proceeds from the sale of the Baltimore
Pikesville Inn will be deemed to constitute gross income from the conduct of an
active trade or business by the Partnership.
As described under "Certain U.S. Federal Income Tax Matters," there is also
uncertainty as to whether the gain recognized by the Partnership on the Sale of
the Interest will be deemed to constitute gross income from the conduct of an
active trade or business by the Partnership. Based on the taxable income or loss
of the Partnership from prior years and on the basis of the operating budgets
prepared by the General Partner in the ordinary course of business (based on
prior year's results and forecasts of future operating conditions), the General
Partner believes that, if the Closing occurs on or prior to May 31, 1998, and
federal income tax were payable by the Partnership on the gain on the Sale, such
tax should not exceed approximately $265,000.
Under the Acquisition Agreement, AMI will bear up to $700,000 of costs and
expenses payable by the Partnerships in connection with the transactions
contemplated by the Acquisition Agreement. In addition, under the Priming and
Mortgage Loan agreements, operating income of AMI may be applied to pay
operating and administrative expenses of the Partnership, to the extent provided
in the operating budget approved by the Lenders. The General Partner believes
that costs and expenses of the Partnership in excess of amounts borne by AMI
should not exceed approximately $100,000.
If the Proposal is approved and the Closing occurs, the Field Payment of
$500,000 will paid from the Purchase Price.
Based on the foregoing (and subject to the foregoing assumptions), the
Liquidation Distribution should not be less than approximately $10,431,300 (that
is, $12,000,000 less (i) $703,700 of entity level taxes from operations
(including the sale of the Baltimore Pikesville Inn), (ii) $265,000 of entity
level taxes on the gain from the Sale, (iii) $100,000 of expenses payable from
the Purchase Price and (iv) the Field Payment), which is equivalent to
approximately $2.61 per Unit. Also based on the foregoing (and subject to the
foregoing assumptions), the Liquidation Distribution could be approximately
$10,838,500 (that is, $12,000,000 less (i) $661,500 of entity level taxes from
operations (not including the sale of the Baltimore Pikesville Inn), and (ii)
the Field Payment), which is equivalent to approximately $2.71 per Unit.
In addition, the Unitholders will recognize their share of the
Partnership's tax loss for 1998, may recognize suspended passive activity
losses, and will recognize taxable gain or loss on the termination of their
interests in the Partnership, as described under "Certain U.S. Federal Income
Tax Matters." Following the making of the Liquidating Distribution and the
termination of the registration of the Partnership under the Exchange Act and
the termination of the existence of the Partnership under Delaware law, (i) the
Partnership will cease to exist and will not have any properties or carry on any
business, (ii) the Unitholders will not have any interest in the Partnership or
AMI or the business theretofore carried on by the Partnerships, (iii) the
provisions of the Exchange Act will not be applicable to the Unitholders, and
(iv) except for reports dealing with the final year of the Partnership and its
liquidating distribution, the Unitholders will not receive any reports under the
Exchange Act or Delaware law.
The foregoing discussion is based on analyses and forecasts of future
events and is presented solely to assist Unitholders to assess the possible
consequences of the Sale and the Liquidation and the making of the Field
Payment. Although the operating budgets and forecast are prepared on the bases
that the General Partner considers reasonable and represent the General
Partner's best judgments at this time, the actual Liquidation Distribution will
depend on the interpretation of the Code and future events, all of which are not
now predictable and are beyond the control of the General Partner. The foregoing
is not intended as a prediction of future events and no assurance can be given
that future events will not vary materially from the budgets, forecasts or
expectations of the General Partner.
As a consequence of the Sale, Servico will own the entire limited
partnership and general partnership interests in AMI and will control and derive
the entire economic benefit from the Inns. Servico has advised the Partnership
that Servico will pay the Purchase Price for the Interest from its working
capital. Following the closing of the Sale, Servico intends to seek to refinance
the Priming and Mortgage Loans.
THE PARTNERSHIPS
The Partnership and its 99% owned subsidiary, AMI, were formed in October
1986 under the Delaware Act. PARC, the General Partner of the Partnership, is
also the general partner of AMI 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 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 issuance and sale of $61,470,000 of mortgage notes (the
"Mortgage Notes") of AMI and the public offering of 4,000,000 Units. 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 AMI (the "Lease"). On September 18, 1990, Prime and certain of
its subsidiaries, including AMI Management, filed for reorganization under
Chapter 11 of the Bankruptcy Code and, effective November 30, 1990, AMI
Management rejected the Lease. At that time, AMI, through 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 Directors 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 in order to provide funds to maintain and improve the Inns
and pay suppliers, AMI suspended the monthly payments of 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 AMI 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 AMI, 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, AMI 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, AMI paid fees to acquire franchise agreements to
replace those that had been held by AMI Management. HHC issued a new ten-year
franchise agreement for the Baltimore Inner Harbor Inn to December 2005, and
extended to June 30, 1997 the terms of the franchise agreements that previously
expired prior to June 30, 1997.
AMI 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 AMI, 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 AMI. 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.
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, 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 AMI to maintain a working capital reserve of $2 million, must be applied
by AMI 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 AMI; 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 in the payment 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 Priming Lenders, of
the Partnership's interest in AMI 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 (as restated, the "Mortgage Loan"), 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 Mortgage Loan includes a shared appreciation feature,
pursuant to which, upon the sale of any Inn and/or upon the maturity (by
acceleration, at the stated maturity date or otherwise) of the Mortgage Loan, a
portion of the appreciation, if any, in the value of such Inn (in the case of
sale of an Inn) or all of the Inns (in the case of maturity of the Mortgage
Loan) over the amount of the Mortgage Loan allocated thereto would be payable as
additional interest on the Mortgage Loan. However, no amount is payable as
shared appreciation until all obligations under the Priming Loan have been met.
During the term of the Mortgage Loan, operating revenues in excess of the $2
million of working capital that AMI 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, AMI and the Partnership deposited the
deeds to the Inns and assignments of other assets of AMI 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 uncured for 90 days. Such defaults include, among others, (a)
non-payment when due, of any principal, interest or other charges under the
Priming or Mortgage Loans, (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 or Mortgage
Loans, 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, AMI 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 AMI files another bankruptcy
case, contest the lifting of any stay to permit the Mortgage Lenders to exercise
such rights.
AMI is currently in compliance with all covenants and requirements of the
Priming Loan and the Mortgage Loan.
Following its reorganization, AMI made the capital improvements,
refurbishments and repairs necessary to render the condition of the Inn suitable
and adequate for AMI's business, to satisfy HHC quality standards, to correct
deficiencies at the Inns, and to restore the competitive position of the Inns.
AMI also substantially upgraded the Baltimore Inner Harbor Inn. Improvements and
refurbishments totaling $13,000,872 were completed in 1994, $11,500,000 of which
was funded from the proceeds of the Tranche A Loan and $1,500,872 of which was
funded from the FF&E Reserve. Subsequent to the completion of that capital
improvement program, AMI has made additional improvements and refurbishments
totaling in excess of $7,500,000, funded from the FF&E Reserve, in additional to
ongoing maintenance and repairs.
Historically, the Inns have experienced cash flow deficiencies in the first
quarter of each year, reflecting reduced travel and high operating costs in the
winter months. AMI has made borrowings under the Tranche B Loan during the first
quarter of each of 1995, 1996, 1997 and 1998, and repaid the 1995, 1996 and 1997
borrowings, and expects to repay the 1998 borrowings, in the second and third
quarters of the year. There have not been any unpaid balances under the Tranche
B Loan at December 31, 1995, 1996 or 1997.
As described under "The Proposal--The Sale--Background; Reasons for the
Sale," the "Holiday Inn" franchises of ten of the Inns were to expire on June
30, 1997 and the franchises of two additional Inns were to expire on December
31, 1997. Before the renewal of an expiring franchise for any "Holiday Inn"
property, the property is inspected by HHC 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,
HHC had inspected and prepared PIPs for ten of the Inns whose franchises were to
expire in 1997. During the second quarter of 1996, HHC inspected and prepared
PIPs for the remaining two Inns whose franchises were to expire in 1997 (though
HHC 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, AMI estimated the cost of the capital expenditures required by
those PIPs to be approximately $13,000,000, although AMI believed that the scope
of work and related costs would be subject to negotiation. In addition, the
franchise renewal fees for those Inns would have been approximately $884,000
($500 per room). AMI 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, AMI,
determined that the Inns should remain franchised as "Holiday Inns". On that
basis, AMI reached an agreement with HHC as to the terms and conditions of the
franchise renewals. At the same time, the General Partner and AMI continued to
evaluate the improvements and expenditures included in each of the PIPs, in
order to identify those items that AMI believed would enhance the Inn's ability
to continue to compete in its market and would add value to the Inn, and those
improvements or expenditures that AMI believed to be less necessary or which
would add little value. The General Partner also continued negotiations with HHC
as to the scope of work included in each PIP and the length of time within which
such improvements would be completed. Generally, in connection with the renewal
of the franchise for an Inn, AMI would have one year, which the General Partner
thought might be negotiable, from the expiration date of the old franchise to
complete the capital improvements included in the PIP.
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 and
Mortgage Loans, 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.
In 1996, the General Partner determined to sell the Glen Burnie South and
Baltimore Moravia Road Inns and in early 1997 entered into a contract for sale
of the Glen Burnie South Inn (which sale was completed on July 29, 1997). In
early 1997, the General Partner determined also to sell the Baltimore
Pikesville, Baltimore Belmont, Frederick MD, Lancaster Rt. 501, York Market
Street and Hazelton Inns, and subsequently entered into a contract for sale of
the Baltimore Pikesville Inn (which sale was completed on May 1, 1998). Those
Inns are either operating at a loss or would not produce a return to the
Partnership sufficient to justify the costs of renewal fees and PIPs. However,
the net proceeds from the sale of the Glen Burnie South and Baltimore Pikesville
Inns were, and the proceeds from the sale of the other Inns are required to be,
applied to pay the prepayment penalty on, and to reduce the outstanding
principal balance of, the Priming Loan and, after repayment of the Priming Loan,
to reduce the outstanding principal balance of, and to pay the shared
appreciation, if any, under the Mortgage Loan. None of such proceeds were or
will be available to finance the PIPs or franchise renewal fees.
In June, 1997, the General Partner requested that HHC extend the franchise
agreements expiring on June 30, 1997, to enable the General Partner and AMI to
continue to seek financing for the PIPs and the franchise renewal fees. In
consideration of a $125,000 payment by AMI of franchise renewal fees, HHC agreed
to extend the franchise agreements for the ten Inns to July 31, 1997 (which has
been extended from time to time since). In June and July, 1997, HHC prepared
revised PIPs for the Inns based on HHC's current standards.
The renewal of the "Holiday Inn" franchises (or any change in the franchise
affiliation of the Inns), capital expenditures for improvements required by the
PIPs, and any financing for PIPs and franchise renewal fees requires the consent
of the Lenders. AMI submitted the franchise renewal agreements to the Lenders
for their review, but the Lenders were unwilling to take action in the absence
of firm indications of the source and availability of financing. The Lenders did
consent, however, to AMI's making a $125,000 prepayment to HHC of franchise
renewal fees in consideration of HHC's extension of ten expiring franchises to
enable the General Partner and AMI to continue to seek financing for the PIPs
and franchise renewal fees.
In August, 1997, HHC indicated its unwillingness to extend the expiration
of the franchises if the General Partner and AMI could not provide realistic
plans for financing the PIPs and the franchise renewal fees and advised AMI that
it did not wish to retain in the "Holiday Inn" system five of the Inns whose
franchises were to expire in 1997. Those Inns, being older, highway oriented
properties did not satisfy HHC's current requirements. HHC extended the time
within which the General Partner and AMI must present such financing plans,
first to September 19, then to September 30, October 15, 1997 and November 14,
1997. AMI submitted a plan for the completion of the PIPs and the sale of seven
of the Inns. The cost of the PIPs for the remaining five Inns whose franchises
expire in 1997 was estimated to be approximately $7,500,000 and the franchise
renewal fees for renewal of the "Holiday Inn" franchises for Inns that are
approximately $438,500 ($500 per room). However, as described in greater detail
under "The Proposal--The Sale--Background; Reasons for the Sale," despite
efforts that commenced in 1995, the General Partner and AMI were unable to
arrange financing on acceptable terms for the franchise renewal costs.
As described under "The Proposal--The Sale--Background; Reasons for the
Sale," on February 12, 1998, HHC advised the General Partner that it would not
renew the expiring franchises and on February 23, 1998, HHC advised the General
Partner that it would not extend such franchises when they expired on March 2,
1998. HHC subsequently agreed that it would extend the expiring "Holiday Inn"
franchises for all 11 Inns for 60 days if applications for franchises for the
six Inns that HHC was willing to keep in the "Holiday Inn" system were
submitted, and the $517,000 of application fees were paid, by March 10, 1998.
Servico filed such applications and, with the consent of the Lenders, AMI paid
the application fees, by March 10 and the Inns were able to remain in the
"Holiday Inn" system until May 9, 1998. In order to permit the Proposal to be
considered and voited on at the Special Meeting, HHC further extended the
"Holiday Inn" franchises for the Inns to June 10, 1998.
So long as AMI owns the Inns or the Partnership owns AMI, the Partnership's
investment in the Inns will continue 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, AMI or W&H.
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
As of May 1, 1998, there are approximately 879 persons employed in the
operation of the Inns (not including W&H employees engaged in management and
supervision). AMI 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.
PROPERTIES
Each of the Inns was purchased by AMI from subsidiaries of Prime in
December, 1986, as described under "The Partnerships." The Inns, each of which
is franchised as a "Holiday Inn," are located in Maryland, Pennsylvania and
Connecticut. The franchises with HHC expire, or were to have expired, 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 EXPIRATION STATUS OF OWNERSHIP
LOCATION OPENED OF ROOMS DATE BY AMI
- ------------------------------- -------- -------- -------------------- -------------------------
<S> <C> <C> <C> <C>
MARYLAND
Baltimore Inner Harbor 1964 375 Dec. 31, 2005 Land and building lease
Baltimore Washington 1973(2) 259 June 30, 1997(1) Land and building lease
International Airport
Frederick 1963(3) 157 June 30, 1997(1) Fee
Baltimore-Cromwell 1972 139 Dec. 31, 1997(1) Fee
Bridge Rd.
Baltimore-Moravia Road(4) 1974 139 Dec. 31, 1997(1) Fee
Baltimore-Belmont Blvd. 1973 135 Dec. 31, 2001 Fee
Baltimore-Glen Burnie No. 1973 128 Dec. 31, 1999 Land Lease
PENNSYLVANIA
Lancaster-Route 30 1971 189 June 30, 1997(1) Land Lease and Fee
Lancaster-Route 501(4) 1964 160 June 30, 1997(1) Land Lease
York-Market Street(4) 1964 120 June 30, 1997(1) Land Lease
York-Arsenal Road 1970 100 Dec. 31, 1998 Fee
Hazleton(4) 1969 107 June 30, 1997(1) Fee
CONNECTICUT
New Haven 1965 160 June 30, 1997(1) Fee
East Hartford 1974 130 June 30, 1997(1) Land and building lease
--------------
SUB-TOTAL 2,298
Baltimore-Glen Burnie So. 1965 100 June 30, 1997 Sold July 29, 1997
Baltimore-Pikesville 1963 108 June 30, 1997 Sold May 1, 1998
--------------
TOTAL 2,506
==============
</TABLE>
--------------
(1) Franchise extended to May 9, 1998
(2) 96 room addition completed in 1985
(3) 63 room addition completed in 1985
(4) Listed for sale
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 AMI 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 Loan. 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.
AMI sold the Baltimore Pikesville Inn on May 1, 1998 for a gross sale price
is $2,400,000. From that price, AMI paid customary expenses of sale (including
survey costs, legal fees, transfer taxes and brokerage commissions), the fee
payable to W&H under the W&H Management Agreement, expenses of asbestos
remediation and clean-up, and expenses of the removal of the "Holiday Inn"
signs. The balance was applied to pay the 2% prepayment penalty on, and to
reduce the outstanding principal balance of, the Priming Loan. No amount of the
sale proceeds was available for distribution to the Unitholders.
The following table represents the occupancy percentage, average daily room
rate (ADR), and revenue per available room (REVPAR) achieved by each Inn for the
years indicated:
<TABLE>
<CAPTION>
1997 1996 1995
----------------------- ------------------------- ------------------------
Occup. Occup. Occup.
Location: % ADR REVPAR % ADR REVPAR % ADR REVPAR
--------------------- ----- ------- ------ ----- ------ ------ ---- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
MARYLAND
Baltimore Inner 67.9% $103.25 $70.11 66.3% $95.02 $63.01 67.5% $87.52 $59.06
Harbor
Balt. Washington 73.5% $83.20 $61.13 72.4% $78.08 $56.50 68.5% $73.23 $50.20
Int'l Airport
Frederick 61.6% $54.05 $33.31 60.4% $54.52 $32.96 59.6% $54.61 $32.53
Balt.-Cromwell 63.9% $72.70 $46.43 61.1% $69.89 $42.71 58.4% $65.65 $38.31
Bridge Road
Balt.-Moravia Road 50.8% $50.01 $25.39 43.8% $47.99 $21.02 49.9% $41.89 $20.89
Balt.-Belmont Blvd. 51.2% $61.21 $31.33 53.6% $57.73 $30.92 56.9% $52.32 $29.78
Balt.-Glen Burnie 63.1% $66.40 $41.92 65.3% $59.24 $38.68 56.5% $58.25 $32.94
North
Balt.-Glen Burnie S.
(Sold 7/29/97) 69.3% $56.68 $39.98 75.4% $53.28 $40.18 77.2% $48.32 $37.29
Balt.-Pikesville 57.9% $64.50 $37.31 58.4% $59.10 $34.51 57.8% $51.28 $29.63
(Sold 5/1/98)
PENNSYLVANIA
Lancaster-Route 30 53.7% $70.35 $37.80 59.6% $67.20 $40.06 60.8% $63.45 $38.60
Lancaster-Route 501 55.2% $60.25 $33.27 58.1% $59.86 $34.75 60.7% $56.94 $34.56
York-Market Street 50.7% $54.15 $27.43 43.1% $56.50 $24.37 45.9% $56.86 $26.12
York-Arsenal Road 54.6% $56.98 $31.11 50.9% $57.67 $29.34 55.3% $57.51 $31.79
Hazleton 56.8% $56.36 $32.03 53.8% $56.36 $30.31 56.6% $53.07 $30.04
CONNECTICUT
New Haven 69.6% $76.73 $53.43 65.2% $70.78 $46.17 70.3% $65.76 $46.21
East Hartford 71.1% $69.36 $49.33 64.2% $68.37 $43.89 64.7% $62.79 $40.65
</TABLE>
S
THE PARTIES TO THE SALE
THE PARTNERSHIP AND THE GENERAL PARTNER
Each of the Partnership and AMI is a Delaware limited partnership organized
in 1986. Certain administrative functions are performed for the Partnership and
AMI by W&H. Therefore, the principal executive office of the Partnership is c/o
Winegardner & Hammons, Inc., 4243 Hunt Road, Cincinnati, Ohio 45242 and its
telephone number is 513-891-2920. The operation of the Inns is supervised from
W&H's regional office at 301 West Lombard Street, Baltimore Maryland 2120.
The General Partner is a Delaware corporation organized in 1986. The
principal executive office of the General Partner is located at 21-00 Route 208
South, 2nd Floor, Fair Lawn, New Jersey 07410 and its telephone number is
201-791-6166. The mailing address of the General Partner is P.O. Box 230,
Hawthorne, New Jersey 07507.
None of the Partnership, AMI and the General Partner, nor, to the best of
the Partnership's knowledge, any directors, officers or controlling persons of
the General Partner has, during the last five years, (a) been convicted in any
criminal proceeding (excluding traffic violations or similar misdemeanors) or
(b) been a party to any civil proceeding of a judicial or administrative body of
competent jurisdiction and, as a result of such proceeding, was or is subject to
a judgment, decree or final order enjoining future violations of, or prohibiting
or mandating activities subject to, federal or state securities laws or finding
any violations with respect to such laws.
SERVICO
Servico, Inc. is a Florida corporation with its principal executive offices
located at 1601 Belvedere Road, West Palm Beach, Florida 33406. Its telephone
number is 561-689-9970. The principal business of Servico is the ownership and
operation of approximately 75 hotels located in 23 states and Canada. Neither
Servico nor, to the best of Servico's knowledge, any directors, executive
officers or controlling persons has, during the last five years, (a) been
convicted in any criminal proceeding (excluding traffic violations or similar
misdemeanors) or (b) been a party to a civil proceeding of a judicial or
administrative body of competent jurisdiction and, as a result of such
proceeding, was or is subject to a judgment, decree or final order enjoining
future violations of, or prohibiting or mandating activities subject to, federal
or state securities laws or finding any violations with respect to such laws.
DIRECTORS AND EXECUTIVE OFFICERS OF THE PARTNERSHIP AND THE GENERAL PARTNER
As limited partnerships, the entire management and control of each of the
Partnership and AMI is vested in the General Partner. Neither the Partnership
nor AMI has officers or directors.
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. Each such director and
officer is a citizen of the United States of America. The Unitholders of the
Partnership do not have voting rights with respect to the election of directors
of the General Partner.
<TABLE>
<CAPTION>
Name Position, Employer, Business and Address
- ---- ----------------------------------------
<S> <C>
S. Leonard Okin 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); 21-00 Route 208
South, 2nd Floor, Fair Lawn, New Jersey 07410.
Robert A. Familant Director of the General Partner since
August 19, 1994; Secretary of the General Partner
since November 5, 1997; Treasurer/CEO of
Progressive Credit Union (credit union) since prior
to 1989 (2); 370 Seventh Avenue, 14th Floor, New
York, New York 10001.
Seymour G. Siegel 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); 310 Madison Avenue, Suite 1509, New York, New York 10017.
</TABLE>
- ------------------
(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 General Partner. First American
Realty Associates, Inc. had performed mortgage brokerage services for
Prime.
S
(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, AMI 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, 1998.
Unless the parties or the Lenders exercise their rights to terminate the
Consulting Services Agreement, it is 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, AMI, 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,
AMI 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.
DIRECTORS AND EXECUTIVE OFFICERS OF SERVICO
Certain information is set forth below concerning the directors and
officers of Servico, Inc., each of whom has been elected or appointed to serve
until his or her successor is duly elected and qualified. Each such director and
officer is a citizen of the United States of America.
<TABLE>
<CAPTION>
Name Position Employer, Business and Address
- ---- ---------------------------------------
<S> <C>
David Buddemeyer Chairman of the Board of Servico, Inc. since August 1997, Chief Executive Officer since
December 1995, a Director since April 1994 and President since May 1993. Mr. Buddemeyer
served as the Chief Operating Officer of Servico from May 1993 to December 1995 and its
Executive Vice President from June 1990 to May 1993. Prior to such time, from 1987 to
June 1990, he served as Vice President-Operations of Prime. 1601 Belvedere Road, West
Palm Beach, FL 33406
Karyn Marasco Executive Vice President and Chief Operating Officer of Servico, Inc. since May 1997.
Prior to such time, Ms. Marasco was affiliated with Westin Hotels and Resorts for 19
years. Most recently, Ms. Marasco served Westin as Area Managing Director, based in
Chicago. 1601 Belvedere Road, West Palm Beach, FL 33406
Warren M. Knight Vice President-Finance and Chief Financial Officer of Servico, Inc. since December 1991.
Prior to such time, from March 1988 to November 1991, Mr. Knight served as Director of
Finance for W.A. Taylor & Co., an importer of distilled spirits into the United States.
1601 Belvedere Road, West Palm Beach, FL 33406
Charles M. Diaz Vice President-Administration and Secretary of Servico, Inc. since December 1997. Mr.
Diaz joined Servico in March 1993 and has held positions in the construction and
operations areas of Servico. 1601 Belvedere Road, West Palm Beach, FL 33406
Peter J. Walz Vice President-Acquisitions of Servico, Inc. since February 1996. Prior to such time,
from December 1994 to January 1996, he was a consultant to Servico. From October 1993 to
November 1994, Mr. Walz was an executive officer of Hospitality Investment Trust, Inc., a
development stage lodging real estate investment trust. Prior to such time, from April
1987 to September 1993, Mr. Walz was Executive Vice President of CMS Development, Inc., a
developer of office buildings, condominiums and hotels. 1601 Belvedere Road, West Palm
Beach, FL 33406
Michael A. Leven Director of Servico, Inc. since August 1997. Mr. Leven is President and Chief Executive
Officer of US Franchise Systems, Inc., a hotel franchise company. Prior to joining US
Franchise Systems, Inc., Mr. Leven was President and Chief Operating Officer of Holiday
Inn Worldwide. 13 Corporate Square E250, Atlanta, GA 30329
S
Joseph C. Calabro Director of Servico, Inc. since August 1992. Mr. Calabro has been a principal of Joseph
C. Calabro, C.P.A., a Devon, Pennsylvania accounting firm, since 1982. Mr. Calabro has
also been an officer and director of Bibsy Corporation, which previously owned and
operated a "Holiday Inn" hotel in Bensalem, Pennsylvania, since 1971. 868 Lancaster
Avenue, Devon, PA 19333
Peter R. Tyson Director of Servico, Inc. since August 1992. From December 1990 to the present, Mr. Tyson
has been President of Peter R. Tyson & Associates, Inc., a firm offering consulting
services to clients in the hospitality industry. Prior to forming Peter R. Tyson &
Associates, Inc., Mr. Tyson was the partner-in-charge of the hospitality industry
consulting practice in the Philadelphia office of the accounting and consulting firm of
Laventhol & Horwath, with which he was associated for 20 years. 135 E. State Street,
Kenneth Square, PA 19348
Richard H. Weiner Director of Servico, Inc. since August 1992. Mr. Weiner is a senior partner in the
Albany, New York law firm of Cooper, Erving, Savage, Nolan & Heller, where he has
practiced law since 1975. 39 North Pearl Street, Albany, NY 12207
</TABLE>
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS OF THE GENERAL PARTNER
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, 1997, 1996
and 1995.
Other Annual Long Term All Other
Year Salary Bonus Compensation Compensation Compensation
- ---- ---------- ----- ------------ ------------ ------------
1997 $ 133,560 $ - $ - $ - $ -
1996 $ 126,000 $ - $ - $ - $ -
1995 $ 120,000 $ - $ - $ - $ -
Mr. Okin receives compensation as Managing Director of the General Partner.
In addition, Mr. Okin received reimbursement for out-of-pocket expenses in 1997,
1996 and 1995 totaling approximately $36,100, $27,300 and $27,500, respectively
(for office rent, secretarial services, utilities, airfare, postage, office
supplies, etc.), and $19,000, $18,500 and $6,250, 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.
Beginning in 1996, the Partnerships retained the services of Siegel Rich,
Inc., a consulting firm in which Seymour G. Siegel is a shareholder. In 1996 and
1997, the Partnerships paid Siegel Rich, Inc., approximately $16,000 and
$44,000, respectively.
LEGAL PROCEEDINGS
In the ordinary course of business, the Partnership and AMI 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 AMI 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.
S
MARKET PRICE OF, AND DISTRIBUTIONS ON, THE DEPOSITARY RECEIPTS
The Units are units of limited partnership interest in the Partnership and
are represented by Depositary Receipts. Since the initial public offering of the
Units in December, 1986 through the date of this Proxy Statement, there have
been 4,000,000 Units outstanding. At the Record Date, the Units were held of
record by 526 persons.
From the time of the initial public offering of Units in December, 1986,
through June 19, 1997, the Depositary Receipts were traded on the New York Stock
Exchange (the "NYSE"). Effective before the opening of the market on June 20,
1997, the Depositary Receipts were delisted by the NYSE because 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 fell below
the NYSE's continued listing criteria. From June 20, 1997 through July 8, 1997,
the Depositary Receipts were traded by brokers who made a market in the
Depositary Receipts, and since July 9, 1997, the Depositary Receipts have been
traded on the Over the Counter Bulletin Board (the "OTCBB") under the ticket
symbol "PMPI." Set forth below for each quarter since January 1, 1996 are the
high and low reported sale price per Depositary Receipt on the NYSE (as reported
in The Wall Street Journal) through June 19, 1997, the high and low reported bid
price quoted by brokers (as reported by National Quotation Bureau, LLC) from
June 20, 1997 through July 8, 1997, and the reported high ask and low bid price
quoted on the OTCBB (as reported by IDD Information Services, Tradeline) since
July 9, 1997. On November 6, 1997, the last trading day prior to the public
announcement of the Proposal, the last reported bid price per Depositary Receipt
on the OTCBB was $ 2-1/32.
HIGH LOW
-------- ----------
1996:
-----
First Quarter 13/16 7/16
Second Quarter 1-1/8 9/16
Third Quarter 1 5/8
Fourth Quarter 15/16 5/8
1997:
-----
First Quarter 1 5/8
Second Quarter (through June 19) 1 9/16
Second Quarter (from June 20) 1 1/2
Third Quarter (through July 8) 1 3/4
Third Quarter (from July 9) 2-1/2 3/8
Fourth Quarter 2-15/16 1-3/4
1998:
-----
First Quarter 3-1/2 1-15/16
Second Quarter (through April 30) 2-15/16 1-1/2
On November 6,1997, the last trading day prior to the public announcement
of the Proposal, the last reported bid price per Depositary Receipt on the OTCBB
was $2-1/32. Subsequent to the public announcement through the date of this
Proxy Statement, the Depositary Receipts traded above $2 per Unit, peaking at
$3.50 per Depositary Receipt on March 2, and March 4, 1998. The General Partner
understands that during the period from February 25, 1998 through March 5, 1998,
Servico was making open market purchases of Depositary Receipts and a limited
number of privately-negotiated transactions (which were reflected on the OTCBB).
Since March 5, 1998, the reported bid and asked prices for, and trading volume
of, Depositary Receipts on the OTCBB has declined. On May 5, 1998, the last
reported bid price per Depositary Receipt on the OTCBB was $2-1/2.
The Transfer Agent for the Partnership is First Chicago Trust Company of
New York. The address of the Transfer Agent is P.O. Box 2500, Jersey City, New
Jersey 07303-2500.
There have not been any distributions by the Partnership since the second
quarter of 1990 (the last complete quarter before Prime's bankruptcy). The
Partnership's cash flow, which is dependent on revenues from operations of the
Inns, has not been sufficient to maintain quarterly distributions. In addition,
the Partnership cannot make distributions to Unitholders until the Priming Loan
is repaid, and then only so long as Mortgage Loan payments are maintained and
proper reserves are funded as required.
PRINCIPAL HOLDERS, AND CERTAIN TRANSFERS,
OF DEPOSITARY RECEIPTS
PRINCIPAL HOLDINGS AT THE RECORD DATE
The following table sets forth, as of March 16, 1998, the Record Date, 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 Total No. Percentage
Of Units of Units of Units
Name & Address of Owner Held 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 0.0250%
============= ============ =============
Servico, Inc.
1601 Belvedere Road
West Palm Beach, FL 33406 2,004,319(1) 2,004,319(1) 50.1080%(1)
============= ============ =============
Prussia Associates, LP (2)
d/b/a Valley Forge Hilton
251 West DeKalb Pike
King of Prussia, PA 19406 26,000(1)
CLBW Associates, LP (2)
d/b/a Holiday Inn Cityline
4100 Presidential Boulevard
Philadelphia, PA 19131 24,000(1)
Martin W. & Kathleen P. Field
251 West DeKalb Pike
King of Prussia, PA 19406 151,500(1) 201,500(1)(3) 5.0375%(1)(3)
------------- ------------ -------------
Jerome S. Sanzo
1127 High Ridge Road
Stamford, CT 06905 7,000(4) 208,500(5) 5.2125%(5)
============= ============ =============
Robert M. Broder, Trustee,
The Field Family Trust
c/o Blank Rome Comisky &
McCauley LLP
One Logan Square
Philadelphia, PA 19103-6998 240,000(1) 240,000(1) 6.0000%(1)
============= ============ =============
</TABLE>
- --------------
(1) Subsequent to the Record Date, the Units held by Prussia Associates, LP,
CLBW Associates, LP, Martin W. and Kathleen P. Martin, and Robert M.
Broder, as Trustee of The Field Family Trust, were sold to Servico, Inc. As
a consequence of such purchases, on the date of this Proxy Statement
Servico owns 2,445,819 Units, representing 61.1455% of the Units.
(2) Holder is a limited partnership whose sole general partner is Martin W.
Field.
(3) Includes 26,000 Units held by Prussia Associates, L.P., 24,000 Units held
by CLBW Associates, LP and 151,500 Units held by Martin W. Field and
Kathleen P. Field.
(4) Includes 5,000 Units held by Mr. Sanzo individually and 2,000 Units held by
Mr. Sanzo jointly with his wife.
(5) Includes 26,000 Units held by Prussia Associates, L.P., 24,000 Units held
by CLBW Associates, LP, 151,500 Units held by Martin W. Field and Kathleen
P. Field and 7,000 Units held by Jerome S. Sanzo as a "Group" (within the
meaning of Rule 13d-5(b)(1)) under the Exchange Act.
RECENT TRANSFERS OF DEPOSITARY RECEIPTS
During the past two years neither the General Partner nor any of its
officers or directors has purchased or sold any Units. During the past two
years, Servico, Inc. has made the following purchases of Units:
<TABLE>
<CAPTION>
Price Range of Average Price of
Quarter Number of Units Units Acquired Units Acquired
------------------------- --------------- ---------------- -----------------
<S> <C> <C> <C>
First Quarter of 1998 2,004,319 $2.4375-$3.50 $3.4315
Second Quarter of 1998 441,500* $3.50 $3.50
</TABLE>
- --------------
* Comprised of the Units sold by Prussia Associates, LP, CLBW Associates, LP,
Martin W. and Kathleen P. Martin, and Robert M. Broder, as Trustee of The
Field Family Trust.
As indicated under "The Proposal--The Sale--The Field Payment," if the
Proposal is approved by the holders of a majority of the Units, Field and/or his
designees will be entitled to receive the $500,000 Field Payment. The
Partnership understands the Field paid, or will pay or reimburse, various fees,
costs, expenses and expenditures in connection with the proxy solicitation by
DMC.
Servico, Inc. acquired the Units purchased by it with its working capital
and has advised the Partnership that it also intends to pay the Purchase Price
with its working capital.
<TABLE>
<CAPTION>
SELECTED FINANCIAL DATA
1997(a) 1996(a) 1995(a) 1994(a) 1993(a)
-------- -------- -------- -------- --------
(IN THOUSANDS EXCEPT PER UNIT AMOUNTS)
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Total revenues(b) $ 50,352 $ 49,584 $ 47,469 $ 44,173 $ 46,261
Net loss $ (3,330) $ (2,188) $ (2,280) $ (4,673) $ (1,215)
Net loss allocable
to limited partners $ (3,297) $ (2,166) $ (2,257) $ (4,626) $ (1,203)
Per Unit loss
allocable to
limited partners $ (0.82) $ (0.54) $ (0.56) $ (1.16) $ (0.30)
BALANCE SHEET DATA:
Total assets $ 51,707 $ 53,972 $ 57,001 $ 60,673 $ 64,009
Long-term debt, $ 63,544 $ 65,691 $ 65,645 $ 66,627 $ 65,912
net of current
maturities
Partners' deficit $ (21,251) $ (17,921) $(15,733) $(13,453) $ (8,780)
</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 (1993 through 1995
were 52 week years, 1996 was a 53 week year, and 1997 was a 52 week year)
that closes for bookkeeping purposes on that Friday which is most proximate
to December 31 of any given year, the financial year of AMI for 1997 ended
January 2, 1998; for 1996 ended January 3, 1997; for 1995 ended December
29, 1995; for 1994, December 30, 1994; and for 1993, December 31, 1993.
(b) Includes $362,000, $361,000, $374,000, $341,000 and $304,000 for the years
ended December 31, 1997, 1996, 1995, 1994 and 1993, respectively, of other
income (principally interest income). In addition, it includes $1,025,000
and $4,389,000 for the years ended December 31, 1995 and 1993,
respectively, of non-recurring revenue from the settlement of claims by the
Partnership and AMI against Prime and its affiliates in the Prime
bankruptcy.
The Inns' room statistics are as follows:
<TABLE>
<CAPTION>
1997 1996 1995 1994
----------------------- ----------------------- ----------------------- -----------------------
AVERAGE OCCUPANCY AVERAGE OCCUPANCY AVERAGE OCCUPANCY AVERAGE OCCUPANCY
DAILY ROOM PERCENTAGE DAILY ROOM PERCENTAGE DAILY ROOM PERCENTAGE DAILY ROOM PERCENTAGE
RATE RATE RATE RATE
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1st Quarter $66.94 48.9% $63.76 45.3% $59.84 47.8% $56.33 48.0%
2nd Quarter $73.95 70.0% $69.50 68.7% $64.74 69.4% $61.79 69.4%
3rd Quarter $75.01 72.8% $71.44 72.4% $67.06 72.2% $61.10 72.7%
4th Quarter $72.64 55.6% $67.54 57.2% $62.51 56.8% $58.72 57.5%
Full Year $72.56 61.8% $68.53 60.8% $63.95 61.6% $59.82 61.9%
</TABLE>
S
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION
FINANCIAL CONDITION
Until the end of September, 1997, it had been the intention of AMI to
continue to operate the Inns as going concerns. In late September, the General
Partner entered into negotiations with Servico for the Sale of the Interest and,
on November 7, 1997, entered into an acquisition agreement amended as of March
12, 1998, for such Sale. If the Sale is consented to by a majority of the
Unitholders, the Partnership's interest in the Inns will terminate at the
Closing and the Partnership will be dissolved and liquidated. See "The
Proposal," "The Acquisition Agreement" and "The Liquidation."
AMI sold the Glen Burnie South Inn in July, 1997, has entered into a
purchase contract for the Baltimore Pikesville Inn, has listed for sale the
Baltimore-Moravia Road, Lancaster-Rt. 501, York-Market Street and Hazleton Inns,
and had intended to sell (but, at the request of Servico, has taken off the
market) the Baltimore-Belmont and Frederick Inns. These Inns are "highway
oriented" properties that, having exterior corridors and being older properties,
have a dated appearance and are either losing money or, in the opinion of the
General Partner, will not produce a sufficient return to justify the costs to
complete the PIPs and the franchise fees for renewal of their "Holiday Inn"
franchises. As with the sale of the Glen Burnie South Inn, the net sale proceeds
of these Inns will be applied to reduce the outstanding principal balance of the
Priming and Mortgage Loan, as required by the Priming and Mortgage Loan
Agreements.
So long as the Partnership owns the Interest, the Partnership's 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 HHC of competitor hotels, changes in interest rates, the
availability of financing for operating or capital needs (including to finance
any PIPs and the renewal of the "Holiday Inn" franchise agreements), the
availability of suitable franchise affiliations, changes in 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, AMI or W&H.
RESULTS OF OPERATIONS
The Partnership derives its income from its 99% interest in AMI, 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>
1997 1996 1995
----------------- ---------------- ----------------
<S> <C> <C> <C>
Operating revenues:
Lodging $ 40,852 $ 39,488 $ 36,668
Food & beverage 9,138 9,735 9,402
----------------- ---------------- ----------------
Totals 49,990 49,223 46,070
----------------- ---------------- ----------------
Direct operating expenses:
Lodging 9,622 9,462 8,998
Food & beverage 7,827 9.112 7,809
Marketing 3,521 3,500 3,334
Utilities 2,896 3,053 2,956
Repairs & maintenance 3,600 3,680 3,490
Rent 1,304 1,316 1,317
Insurance 771 705 630
Property taxes 1,395 1,382 1,380
Other 8,644 8,369 7,718
----------------- ---------------- ----------------
Totals 39,580 39,579 37,632
----------------- ---------------- ----------------
Operating revenues in excess of
direct operating expenses $ 10,410 $ 9,644 $ 8,438
================= ================ ================
</TABLE>
Total revenues increased to $50,352,000 in 1997, from $49,584,000 in 1996
and $47,469,000 in 1995 (including non-recurring income of $1,025,000 in 1995
from the settlement of claims by the Partnerships against Prime and AMI
Management in the Prime Bankruptcy (the "Prime Settlement")). The Partnerships'
net loss for the year ended December 31, 1997 was $3,330,000 (which includes an
expense for accrued shared appreciation of $4,500,000 and $1,011,000 of a gain
on the sale of the Glen Burnie South Inn). Net income before the expense for
accrued shared appreciation and the gain on sale of the Glen Burnie South Inn
was $159,000, as compared to a net loss from operations of $2,188,000 for the
year ended December 31, 1996 and a loss of $2,280,000 (which includes
non-recurring income of $1,025,000 from the Prime Settlement) for the year ended
December 31, 1995.
S
The following table compares the room revenues, occupancy percentage levels
and ADR for the years indicated:
<TABLE>
<CAPTION>
1997 1996 1995
--------------- -------------- --------------
<S> <C> <C> <C>
Lodging revenues (in thousands) $ 40,852 $ 39,488 $ 36,668
Occupancy percentage 61.8% 60.8% 61.6%
ADR $ 72.56 $ 68.53 $ 63.95
</TABLE>
The continued increase in the ADRs at the Inns has been accomplished 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 of capital
improvements during 1995, 1996 and 1997. 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). The repositioning of market segment
business contributed to the slight declines in occupancies over 1995 and 1996.
However, the Inns were able to increase their occupancy 1.0%, to 61.8%, in 1997,
compared to 60.8% in 1996. The increase in occupancy was reflective of fair
weather conditions in the first quarter of 1997 as compared to the harsh winter
weather in the first quarter of 1996. In addition, the Inns were able to
increase rooms occupied due to the stable and growing economic conditions and
the increase in business and leisure travel during 1997. Since there continues
to be intense competition in the geographic areas where the Inns are located,
the Partnerships and W&H believe occupancy levels at the Inns will not
substantially increase over the next year. This is partially 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). 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 declined to $9,138,000 in 1997 from $9,735,000
in 1996 and $9,402,000 in 1995. The decline is partially attributable to the
loss in food and beverage sales in the fourth quarter of 1997 (approximately
$90,000) from the sale of the Glen Burnie South Inn. During the third and fourth
quarter of 1997, breakfast, lunch, dinner and banquet revenues declined
substantially, largely as a result of the Inns' inability to retain their
respective share of the food and beverage market, due to increased restaurant
and bar competition. The decline in banquet revenues was partially offset by
increased meeting room business, which tends to generate more lodging business,
reflected in increased occupancies (and the increased revenues from that use) by
the higher rated market segments that the Inns have attracted.
Direct operating expenses were $39,580,000 in 1997, as compared to
$39,579,000 in 1996 and $37,632,000 in 1995. The increase in lodging expenses is
reflective of increased labor costs and increases in expenses that are incurred
in servicing the higher rated market segments, such as complimentary room
amenities, travel agent commissions, and guest supplies. Food and beverage
expenses decreased, primarily as a result of the decrease in food and beverage
sales. Increases in marketing expenses, such as advertising costs and hotel
promotions, were incurred in an effort to attract and maintain the higher rated
market segments. The utility costs decreased in 1997 as a result of the milder
weather as compared to 1996. The repair and maintenance costs decreased in 1997
over 1996, although the repairs and maintenance costs were reflective of the age
of the Inns. Insurance costs increased due to general liability and property
insurance rate increases. 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 HHC, management fees paid to W&H, and credit card
commissions.
Other general and administrative costs increased due to the additional time
and expense incurred with respect to the franchise renewals, review and
negotiation of the PIP's and related costs and financing, the Servico
transaction and other matters. Depreciation and amortization expense decreased
in 1997 due to assets becoming fully depreciated in 1997. In addition, property
and equipment expenditures decreased in 1997 as a result of the negotiations
with HHC over the PIPs. Interest expense decreased in 1997 as a result of the
lower principal amount of the Tranche A portion of the Priming Loan following
the application of the net proceeds from the sale of the Glen Burnie South Inn
in July, 1997 to reduction of the Tranche A Loan. For 1997, the Partnerships
recorded $4,500,000 as additional interest and incentive management fees under
the Mortgage Loan and the W&H Management Agreement.
S
LIQUIDITY AND CAPITAL RESOURCES
The changes in cash and cash equivalents are summarized as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ -------------
<S> <C> <C> <C>
Net cash provided by operating activities $ 2,807 $ 2,317 $ 2,092
Net cash used in investing activities (456) (2,275) (2,668)
Net cash used in financing activities (2,196) - -
------------ ------------ -------------
Net increase (decrease) in cash and cash equivalents $ 155 $ 42 $ (576)
============ ============ =============
</TABLE>
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.
AMI 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.
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.
AMI 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.
In 1997, 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 1997, as compared to 1996, as a result of increased revenues from
operations.
Cash used in investing activities was $456,000 in 1997, which included
additions to property and equipment of $1,519,000 and increases in restricted
cash of $1,176,000, offset by the net proceeds from the sale of the Glen Burnie
South Inn of $2,239,000. The restricted cash accounts included the net increase
in the FF&E Reserve of $970,000 (funding plus interest earned of $2,604,000 less
capital expenditures of $1,634,000) and increases of $206,000 in the interest
reserve and tax escrow accounts.
Net cash used in financing activities totaled $2,196,000 in 1997, from the
payment to the Tranche A portion of the Priming Loan from the net proceeds of
the sale of the Glen Burnie South Inn. AMI borrowed $1,600,000 under the Tranche
B Loan to supplement operating cash flow deficiencies during the first quarter
of 1997. The entire Tranche B Loan was repaid from excess working capital prior
to the end of the second quarter of 1997.
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.
AMI 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,
1997, 1996 and 1995. Approximately $989,000 of working capital cash was on hand
as of December 31, 1997.
S
Presently the Partnerships have a capital replacement reserve of
approximately $2,165,000, 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 $658,000. 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 distributions to Unitholders.
As indicated under "The ProposalABackground; Reasons for the Sale," the
General Partner and AMI have been unable to arrange financing necessary for
renewal of the "Holiday Inn" franchises that were to have expired in 1997 and
the General Partner believes that sale of the Partnership's Interest, or the
sale of the Inns, is the only alternative to loss of the "Holiday Inn"
franchises for many of the Inns and a consequent Event of Default under the
Priming and Mortgage Loans (which the General Partner believes will result in
foreclosure on the Inns and the loss of the Unitholder's equity in the
Partnership. Accordingly, the Partnership has contracted to sell the Interest to
Servico and anticipates closing the Sale during early 1998 and liquidating.
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 were generally exempt from taxation as a
corporation until after 1997. If the Partnerships' operations continue as
described herein, the Partnership would 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.
Effective on January 1, 1998, the Partnership would be treated as a
corporation for Federal income tax purposes, unless the Partnership made an
election to be treated as an "electing partnership". As an electing partnership,
the Partnership would still be treated as a partnership for Federal income tax
purposes but would be subject to a 3.5% tax on all gross income earned by the
Partnership. The General Partner made this election in 1998.
S
CERTAIN U.S. FEDERAL INCOME TAX MATTERS
The following is a summary of material Federal income tax considerations
associated with the Sale of the Interest and Liquidation of the Partnership.
This summary is based on the Internal Revenue Code of 1986, as amended (the
"Code"), the Treasury Regulations thereunder and relevant administrative and
judicial precedent as of the date of this Proxy Statement. There can be no
assurance that legislative or administrative changes or judicial decisions
significantly modifying the Federal income tax consequences described herein
will not occur in the future, possibly with retroactive effect. In addition,
there can be no assurance that the described tax consequences of the Sale and
Liquidation will not be challenged by the Internal Revenue Service (the
"Service"), or that such challenge would not ultimately be sustained, possibly
resulting in an increase in the income tax liability of the Partnership or the
Unitholders. In the event of any such challenge to a Unitholder's income tax
return, the Unitholder will bear the cost incurred in contesting such challenge,
regardless of the outcome.
The summary of U.S. Federal income tax considerations contained herein is
not intended to be a complete summary of tax consequences of the Sale or
Liquidation and is not intended as a substitute for careful tax planning and
analysis. In addition, this discussion only addresses the tax consequences to
Unitholders treated as U.S. persons under the Code and does not discuss the
consequences to non-U.S. Unitholders. Further, the tax aspects of the Sale and
Liquidation may differ for Unitholders subject to specialized rules, such as S
corporations, insurance companies and qualified employee benefit plans.
ACCORDINGLY, UNITHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS CONCERNING
THE TAX IMPACT OF THE SALE AND LIQUIDATION ON THEIR OWN PARTICULAR SITUATIONS.
GROSS INCOME TAX IMPOSED ON THE PARTNERSHIP
As a result of 1997 Federal income tax law changes applicable to certain
publicly-traded partnerships, effective on January 1, 1998, the Partnership
would have been classified as a corporation for Federal income tax purposes,
unless the Partnership made an election to be treated as an "electing
partnership". The General Partner believed that it would be in the best
interests of the Partnership and the Unitholders to make this election, and the
General Partner has filed such an election with the Service. As an electing
partnership, the Partnership will be entitled to retain its tax status as a
partnership for Federal income tax purposes, but will be subject to a 3.5% tax
on all gross income from the active conduct of trades and businesses by the
Partnership. The Partnership's distributive share of gross income from its
interest in AMI for the portion of 1998 ending the date of the Sale will be
considered "gross income from the active conduct of a trade or business" by the
Partnership. Thus, the Partnership will be subject to such 3.5% tax on the gross
income ("Gross Income Tax") from the operations of AMI includable in the
Partnership's gross income. In computing its taxable income, the Partnership
will not be entitled to a deduction for the Gross Income Tax, and thus, a
Unitholder's distributive share of the Partnership's operating income and
expenses will not include a deduction for the Gross Income Tax paid and a
Unitholder will not otherwise be entitled to a deduction for the Gross Income
Tax paid by the Partnership.
Calculation of Partnership's Gross Income. The Partnership's gross income
will generally include its share of the gross income of the AMI. Gross income
generally includes all revenues generated from providing services and any gain
from the sale of property. Therefore, AMI's gross income from the active conduct
of its trade or businesses will include (i) all revenues generated from room and
facility rentals and (ii) net revenues generated from sale of food and beverages
(i.e., gross sales less the cost of goods sold). In addition, the Partnership
will recognize gain on the sale of the Baltimore Pikesville Inn (i.e., the gross
sale price less the brokerage commission and the selling price adjustment in the
nature of an asbestos remediation expense). As discussed under "Sale of Limited
Partnership Interest - Gross Income Tax" below, it is not clear whether such
gain will be subject to the Gross Income Tax.
Adjustment to Unitholder's Tax Basis. A Unitholder's tax basis in the
Partnership generally will equal the Unitholder's cost (including liabilities
assumed) increased by (i) the Unitholder's share of the Partnership's taxable
income each year, (ii) the Unitholder's share of tax-exempt income (if any), and
(iii) any increase in Unitholder's share of nonrecourse liabilities of the
Partnership. A Unitholder's tax basis will generally be decreased (i) the
Unitholder's share of each distribution from the Partnership, (ii) the
Unitholder's share of losses and deductions of the Partnership, (iii) any
decrease in the Unitholder's share of nonrecourse liabilities of the Partnership
and (iv) the Unitholder's share of nondeductible expenditures that are not
properly chargeable to the capital account. Since the Gross Income Tax is a
nondeductible expenditure and should not create basis in an asset, a Unitholder
will likely be required to decrease his, her or its basis in the Partnership by
the Unitholder's share of the Gross Income Tax.
SALE OF LIMITED PARTNERSHIP INTEREST
As a result of the Sale of the Interest, the Partnership will recognize
gain to the extent that the Purchase Price plus the Partnership's share of the
liabilities of AMI prior to the Sale exceeds its tax basis in the Interest. Such
gain or loss will generally be capital gain or loss except to the extent that
the Sale is attributable to the Partnership's allocable share of Section 751
assets (generally unrealized receivables, inventory and potential depreciation
recapture), in which case a portion of the gain or loss will be ordinary gain or
loss. In addition, as a result of the Sale, the Partnership will cease to be a
limited partner in AMI, and the Partnership will be allocated its share of AMI's
income, gain, loss, and deductions for 1998 through the date of the Sale.
S
Gross Income Tax. The term "gross income from the active conduct of a trade
or business" is not defined in the Code, and no Regulations or Service rulings
have addressed this issue. The legislative history accompanying the enactment of
the Gross Income Tax provision provides no guidance regarding the meaning of
this term, and therefore, it is uncertain at this time whether the Gross Income
Tax will apply to the Partnership's share of the gain realized on the sale of
the Baltimore Pikesville Inn or to the gain realized by the Partnership on the
Sale. Since the gross income received by the Partnership from its interest in
AMI is considered gross income from the active conduct of a trade or business,
the Service may contend that the gains recognized as a result of the sale of the
Baltimore Pikesville Inn and the Sale should also be considered gross income
from the active conduct of a trade or business. However, since neither the
Partnership's, nor AMI's, regular trade or business is selling hotels or
portfolios of hotels, and the Partnership's trade or business is not selling
partnership interests, the gains on the sale of the Baltimore Pikesville Inn and
the Sale could arguably not be considered the active conduct of a trade or
business. If the Partnership is subject to a Gross Income Tax on the sale of the
Baltimore Pikesville Inn and the Sale, the proceeds available for distribution
to Unitholders upon liquidation will be reduced. To date, the General Partner
has not determined whether the Partnership intends to pay Gross Income Tax on
such gains.
Liquidation of the Partnership
The Partnership will distribute the Purchase Price, less any taxes owed by
the Partnership for its 1998 taxable year (including the Gross Income Tax and
any applicable state and local taxes), the Field Payment and any expenses of the
Partnership payable from the Purchase Price, to the Unitholders in complete
liquidation of the Partnership. See "Expected Consequences of Sale and
Liquidation." The Partnership will not recognize additional gain or loss upon
the liquidating distribution. A Unitholder will recognize gain or loss equal to
the difference between such Unitholder's tax basis in his, her or its Units and
the cash the Unitholder receives upon the Liquidation. A Unitholder's basis in
his, her or its Units will be adjusted to account for his, her or its share of
the Partnership's income or loss for the 1998 taxable year until the liquidation
(including gain from the Sale) and as discussed previously a Unitholder should
be required to reduce his, her or its basis in the Units for his, her or its
Share of the Gross Income Tax. Such gain or loss will be capital gain or loss if
the Units were held as capital assets, but the tax rate applicable to such gain
will depend upon the Unitholder's holding period (that is, one year or less,
more than one year but not more than 18 months or more than 18 months).
Tax Deductibility of the Field Payment. It is not entirely clear whether
all or a portion of the Field Payment made by the Partnership will be treated as
an ordinary and necessary deductible business expense of the Partnership. If all
or a portion of the Field Payment is not treated as a deductible expense, it is
possible that all or a portion of the Field Payment will be deemed to originate
pursuant to the Sale. Under this characterization, the Field Payment (or a
portion of the payment) will result in a decrease in the gain recognized by the
Partnership on the Sale. Alternatively, it is possible that all or a portion of
the Field Payment will be treated as nondeductible expense which creates an
intangible capital asset. Unlike the Gross Income Tax, a Unitholder would not be
required to reduce his, her or its basis by the Unitholder's share of the Field
Payment. Therefore, if the payment is not deductible and results in the creation
of an intangible capital asset, the Unitholder's pro rata portion of the payment
will either (i) reduce the capital gain recognized by the Unitholder on the
Liquidation, and/or (ii) increase the capital loss recognized by the Unitholder
on the Liquidation. To date, the General Partner has not determined how the
Partnership will treat the Field Payment for Federal income tax purposes.
PASSIVE ACTIVITY RULE CONSEQUENCES
Upon the Liquidation of the Partnership, any gain recognized by a
Unitholder should be considered a passive activity gain (for purposes of
applying the passive activity rules of Code Section 469). Any loss will
constitute a passive activity loss to the extent the Limited Partner has other
passive activity income for the year. Any losses in excess of a Unitholder's
passive activity income (including prior suspended losses) may be utilized to
offset other nonpassive income of the Unitholder. Unitholders subject to the
passive activity rules (generally individuals and certain closely held
corporations) are urged to consult their tax advisors regarding the consequences
of the Sale and Liquidation.
RESPONSIBILITY FOR FINAL PARTNERSHIP RETURN AND FUTURE TAX ISSUES
Following the Sale and Liquidation, the General Partner, on behalf of a
Partnership, will file the Partnership's final partnership income tax return.
The General Partner will also have full responsibility and authority for any
other accounting or tax-related matter arising after the dissolution of a
Partnership, including acting as the "tax matters partner" representing the
Partnership in any Federal or other audit of returns of the Partnership for any
prior year.
S
Unitholders should be aware that, while the Partnership will be dissolved
if the Sale is consummated, such dissolution will not eliminate the possibility
that the Service will challenge the tax treatment of the Partnership's
activities for any prior year for which the statute of limitations for making
adjustments has not lapsed. In particular, if the Partnership does not pay a
Gross Income Tax on the gain on the Sale and the Service successfully contends
that the Gross Income Tax applies to such gain, a Unitholder will be liable for
his, her or its pro rata share of the Gross Income Tax plus applicable interest.
If any adjustments are made to the Partnership's tax returns, the General
Partner will so notify the Unitholders. Any tax audit or adjustments could
result in the assessment of additional tax liabilities upon the Unitholders,
which would be payable from their own funds and would not be reimbursable by the
General Partner.
STATE AND LOCAL INCOME TAX MATTERS
Unitholders should consider potential state and local tax consequences to
them of the Sale and Liquidation. The state and local tax consequences to a
Unitholder of the Sale, the Liquidation and the Field Payment may differ
significantly from the Federal income tax treatment described above. EACH
UNITHOLDER IS URGED TO CONSULT HIS, HER OR ITS OWN TAX ADVISOR REGARDING THE
STATE AND LOCAL TAX CONSEQUENCES OF THE SALE AND LIQUIDATION.
S
INDEPENDENT ACCOUNTANTS
The consolidated financial statements and financial statement schedules of
the Partnership for each of the years in the three-year period ended December
31, 1997 included in the Partnership's Annual Report on Form 10-K for the fiscal
year ended December 31, 1997 have been audited by Coopers & Lybrand L.L.P.
The General Partner has retained Coopers & Lybrand L.L.P. as the
Partnership's independent accountants for the current fiscal year and has been
advised that Coopers & Lybrand L.L.P. is independent with respect to the
Partnership and its subsidiaries within the meaning of the Securities Act of
1933 and the applicable published rules and regulations thereunder.
Representatives of Coopers & Lybrand L.L.P. are expected to be present at the
Special Meeting and will have the opportunity to make statements if they desire
and to respond to appropriate questions from Unitholders.
S
Prime Motor Inns Limited Partnership
INDEX TO FINANCIAL STATEMENTS
PAGES
Report of Independent Accountants ..........................................F-2
Consolidated Balance Sheets December 31, 1997 and 1996.................F-3
Consolidated Statements of Operations for the
years ended December 31, 1997, 1996 and 1995...........................F-5
Consolidated Statements of Partners' Deficit
for the years ended December 31, 1997, 1996 and 1995...................F-6
Consolidated Statements of Cash Flows for the
years ended December 31, 1997, 1996 and 1995...........................F-7
Notes to Consolidated Financial Statements..................................F-9
S
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 (the Partnerships)
as of December 31, 1997 and 1996, and the related consolidated statements of
operations, partners' deficit and cash flows for each of the three years in the
period ended December 31, 1997. 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, 1997
and 1996, and the consolidated results of their operations and their cash flows
for each of the three years in the period ended December 31, 1997, 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,
1997. 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 27, 1998, except for Note 2,
as to which the date is March 12, 1998, and Note 4b, as to which the date is
March 10, 1998
S
PRIME MOTOR INNS LIMITED PARTNERSHIP
AND SUBSIDIARY LIMITED PARTNERSHIP
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
(dollars in thousands)
<TABLE>
<CAPTION>
ASSETS 1997 1996
-------------- -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 989 $ 834
Accounts receivable, net of allowance for doubtful
accounts in 1997 and 1996 of $22 and $19, respectively 823 774
Inventories 205 222
Prepaid expenses 719 952
Other current assets 90 106
-------------- -----------
Total current assets 2,826 2,888
-------------- -----------
Property and equipment:
Land 7,130 7,653
Buildings and leasehold improvements 54,156 55,382
Furniture and equipment 39,227 39,978
-------------- -----------
100,513 103,013
Less allowance for accumulated depreciation and
amortization (54,950) (54,188)
-------------- -----------
45,563 48,825
-------------- -----------
Cash and cash equivalents restricted for:
Acquisition of property and equipment 2,165 1,195
Interest and taxes 728 522
Other assets, net 425 542
-------------- -----------
Total assets $ 51,707 $ 53,972
============== ===========
</TABLE>
S
PRIME MOTOR INNS LIMITED PARTNERSHIP
AND SUBSIDIARY LIMITED PARTNERSHIP
CONSOLIDATED BALANCE SHEETS, CONTINUED
DECEMBER 31, 1997 AND 1996
(dollars in thousands)
<TABLE>
<CAPTION>
LIABILITIES AND PARTNERS' DEFICIT 1997 1996
-------------- -------------
<S> <C> <C>
Current liabilities:
Trade accounts payable $ 481 $ 484
Accrued payroll 614 660
Accrued payroll taxes 149 165
Accrued vacation 453 437
Accrued utilities 287 322
Sales tax payable 265 274
Other current liabilities 486 772
-------------- -------------
Total current liabilities 2,735 3,114
Long-term debt 63,544 65,691
Deferred interest 1,974 2,872
Accrued shared appreciation 4,500 -
Other liabilities 205 216
-------------- -------------
Total liabilities 72,958 71,893
-------------- -------------
Commitments
Partners' deficit:
General partner (784) (751)
Limited partners (20,467) (17,170)
-------------- -------------
Total partners' deficit (21,251) (17,921)
-------------- -------------
Total liabilities and partners' deficit $ 51,707 $ 53,972
============== =============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
S
Prime Motor Inns Limited Partnership
and Subsidiary Limited Partnership
Consolidated Statements of Operations
for the years ended December 31, 1997, 1996 and 1995
(dollars in thousands, except per unit amounts)
<TABLE>
<CAPTION>
1997 1996 1995
------------- ----------- -----------
<S> <C> <C> <C>
REVENUES:
Direct operating revenues:
Lodging $40,852 $39,488 $36,668
Food and beverage 9,138 9,735 9,402
Other income 362 361 374
Lease settlement proceeds -- -- 1,025
------------- ----------- -----------
Total revenues 50,352 49,584 47,469
------------- ----------- -----------
Direct operating expenses:
Lodging 9,622 9,462 8,998
Food and beverage 7,827 8,112 7,809
Marketing 3,521 3,500 3,334
Utilities 2,896 3,053 2,956
Repairs and maintenance 3,600 3,680 3,490
Rent 1,304 1,316 1,317
Insurance 771 705 630
Property taxes 1,395 1,382 1,380
Other 8,644 8,369 7,718
Other general and administrative 887 701 587
Depreciation and amortization 3,838 5,423 5,473
Interest expense 5,888 6,069 6,057
Shared appreciation expense 4,500 -- --
Net gain on sale of Inn (1,011) -- --
------------- ----------- -----------
53,682 51,772 49,749
------------- ----------- -----------
Net loss (3,330) (2,188) (2,280)
Net loss allocable to general partner (33) (22) (23)
------------- ----------- -----------
Net loss allocable to limited partners $ (3,297) $(2,166) $(2,257)
============= =========== ===========
Number of limited partner units outstanding 4,000 4,000 4,000
============= =========== ===========
Net loss allocable to limited partners per unit $ (.82) $ (.54) $ (.56)
============= =========== ===========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
S
PRIME MOTOR INNS LIMITED PARTNERSHIP
AND SUBSIDIARY LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF PARTNERS' DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(dollars in thousands)
<TABLE>
<CAPTION>
General Limited
Partner Partners Total
----------- ------------ ----------------
<S> <C> <C> <C>
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)
----------- ------------ ----------------
Net loss (33) (3,297) (3,330)
----------- ------------ ----------------
Balance at December 31, 1997 $(784) $(20,467) $(21,251)
=========== ============ ================
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
S
PRIME MOTOR INNS LIMITED PARTNERSHIP
AND SUBSIDIARY LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(dollars in thousands)
<TABLE>
<CAPTION>
1997 1996 1995
-------------- ------------- ---------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (3,330) $ (2,188) $ (2,280)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization of property 3,596 5,201 5,158
Lease settlement proceeds - - (1,025)
Amortization of other assets 242 222 315
Amortization of debt discount 49 46 43
Long-term borrowings prepayment penalty (43) - -
Gain on sale of Inn (1,011) - -
Changes in operating assets and liabilities:
Accounts receivable (49) (113) 220
Inventories 17 40 10
Prepaid expenses 233 (11) 45
Other current assets 16 7 6
Other assets (125) - 10
Trade accounts payable (3) (84) 166
Accrued payroll (46) (28) (26)
Accrued payroll taxes (16) (121) 28
Accrued vacation 16 (36) 37
Accrued utilities (35) (4) 77
Sales tax payable (9) 32 21
Other current liabilities (286) 101 28
Deferred interest (898) (813) (741)
Accrued shared appreciation 4,500 - -
Other liabilities (11) 66 -
-------------- ------------- ---------------
Net cash provided by operating activities 2,807 2,317 2,092
-------------- ------------- ---------------
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
S
Prime Motor Inns Limited Partnership
and Subsidiary Limited Partnership
Consolidated Statements of Cash Flows, Continued for the years
ended December 31, 1997, 1996 and 1995
(dollars in thousands)
<TABLE>
<CAPTION>
1997 1996 1995
----------- --------- ----------
<S> <C> <C> <C>
Cash flows from investing activities:
Net proceeds from sale of Inn $ 2,239 $ - $ -
Additions to property and equipment (1,519) (1,880) (2,423)
Increase in restricted cash (1,176) (395) (245)
----------- --------- ----------
Net cash used in investing activities (456) (2,275) (2,668)
----------- --------- ----------
Cash flow from financing activities:
Repayment of long-term borrowings (2,196) - -
Borrowings under revolving credit facility 1,600 1,600 1,200
Repayment of revolving credit facility (1,600) (1,600) (1,200)
----------- --------- ----------
Net cash used in financing activities (2,196) - -
----------- --------- ----------
Net increase (decrease) in cash and cash equivalents 155 42 (576)
Cash and cash equivalents, beginning of year 834 792 1,368
----------- --------- ----------
Cash and cash equivalents, end of year $ 989 $ 834 $ 792
=========== ========= ==========
Supplementary cash flow data:
Interest paid $ 6,737 $ 6,836 $ 6,755
=========== ========= ==========
Noncash activities:
Lease settlement received from former affiliate
in the form of stock used to reduce long-term
debt $ - $ - $ 1,025
=========== ========= ==========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
S
Prime Motor Inns Limited Partnership 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. ("AMI"), were formed in October, 1986
under the Delaware Revised Uniform Limited Partnership Act. The Partnership and
AMI 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 AMI.
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 AMI. AMI 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. At December 31, 1997, the Partnerships
operated and maintained 8 Inns in Maryland, 5 in Pennsylvania and 2 in
Connecticut, all of which are presently franchised as part of the "Holiday Inn"
system (see Note 4b).
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 AMI (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).
AMI was in default under its mortgage loan agreement as of and prior to December
31, 1990 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, AMI filed with the United States Bankruptcy Court for the
Southern District of New York 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 (see Note 5 for a further discussion
of this matter).
S
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, 1997. While the General Partner believes that improvements have
been made in the physical condition and attractiveness of the Inns, the market
position and competitiveness of the Inns and the financial condition and results
of operations of AMI, the General Partner believes that financing is not
available on acceptable terms to take the actions necessary to preserve the
Unitholders' interest in the Inns. Additionally, the General Partner believes
that the sale to Servico (see Note 2) maximizes and protects Unitholder value
better than any of the available alternative courses of action, including
continuing to hold and trying to operate the Inns and that further delay is
likely to result in the loss of certain "Holiday Inn" franchises (see Note 4b),
foreclosure of the Priming and Mortgage Loans (see Note 6), and diminution or
loss of the value of the Unitholders' equity in the Partnership. 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. PROPOSED SALE OF AMI AND THE GENERAL PARTNER:
The Partnerships entered into a definitive agreement dated as of November 7,
1997, as amended as of March 12, 1998, pursuant to which the 99% limited
partnership interest in AMI will be sold for $12,000,000 in cash to Servico
Acquisition Corp., a wholly owned subsidiary of Servico, Inc. ("Servico"). The
closing is conditioned on, among other things, approval of the limited partners.
Upon closing of the aforementioned transaction the Partnership's only asset will
be the cash received from Servico. It is anticipated that the Partnership will
dissolve and wind up its affairs and distribute the net proceeds from the sale
to the limited partners in accordance with a Plan of Liquidation.
The General Partner and its parent have entered into an agreement with Servico
pursuant to which Servico will acquire the General Partner's 1% general
partnership interest in AMI in exchange for a five year warrant to acquire
100,000 shares of Servico common stock at a price of $18 per share.
3. 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.
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, AMI. AMI operates on the basis of a 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. Inventories: Inventories are stated at the lower of cost or market, with cost
determined on the first-in, first-out method. Inventories consist of:
1997 1996
-------------- --------------
Food $130,000 $131,000
Beverage 64,000 70,000
Linen 11,000 21,000
-------------- --------------
$205,000 $222,000
============== ==============
d. Property and Equipment: Property and equipment are stated at the lower of
cost and 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, ranging from 15 to 40 years for buildings and
leasehold improvements and 3 to 10 years for furniture and equipment, and the
terms of the related leases. For federal income tax purposes, accelerated
methods are used in calculating depreciation.
S
e. Impairment of Long Lived Assets: The Partnerships review for impairment and
recoverability of 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 asset's carrying
amount to determine if a write-down to fair market value would be required.
Properties held for sale are stated at the lower of cost and fair value less
cost to sell. No write-downs have been recorded by the Company under the
provisions of SFAS 121, "Accounting for the Impairment of Long-Lived Assets".
f. 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.
g. Net Loss per Unit: Net loss per Unit is calculated based on the net loss
allocable to limited partners divided by the 4,000,000 Units outstanding.
h. Reclassification: Certain 1996 amounts have been reclassified to conform to
the 1997 presentation.
i. Fair Value of Financial Instruments: It is not practicable to estimate the
fair value of borrowings under the Partnerships' long term debt due to the lack
of quoted market prices for similar debt issues and the lack of current rates
which would be offered to the Partnerships for debt with similar terms.
4. 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 AMI 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. AMI
entered into an agreement in 1992 (the "Omnibus Agreement") under which, among
other things, AMI 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; AMI will not make any payments to or for the benefit of any other
party; and Prime, AMI Management and AMI have exchanged mutual releases.
Since 1992, AMI and the mortgage lenders received total proceeds as a
result of the Settlement of approximately $8,874,000, of which $8,827,000 was
utilized to reduce the principal amount of the Mortgage Notes (of which
$1,025,000 was recognized in 1995) and $47,000 was used to fund capital
improvements as required by the Omnibus Agreement. Lease settlement proceeds
recorded as income in 1995 represent the value assigned to 127,924 shares of
Prime common stock allocated to the Partnerships during 1995 related to the
settlement of financial claims. In accordance with the terms of the Omnibus
Agreement, the settlement proceeds were required to be applied to the repayment
of the Mortgage Notes.
b. Franchise Agreements: The Inns are operated as a part of the "Holiday Inn"
system which is administered by Holiday Hospitality Corporation, formerly
Holiday Inns Inc., and its affiliates (collectively, "HHC"). The Holiday Inn
franchise agreements for four Inns expire one each in 1998, 1999, 2001 and 2005.
S
During 1997, eleven of the Inns' franchise agreements expired, which
subsequently were extended through March 10, 1998. For five of these Inns, HHC
has advised the Partnerships that they do not intend to renew such franchises.
However, HHC agreed that if, by March 10, 1998, it received franchise license
applications from a "viable" applicant for the remaining six Inns and were paid
application fees of $517,000, it would extend the franchises for all eleven Inns
for 60 days. Applications were filed by Servico, and the fees were paid by the
Partnerships, on or prior to March 10, 1998. HHC has also notified the
Partnerships that certain capital expenditure projects at the Inns will be
required to renew the Inns' franchise status, the scope and cost of which are
currently not determinable. The loss of the Holiday Inn franchise status of
these Inns may have a near term adverse impact on the Partnership's 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 AMI
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 AMI, without cause or
penalty, upon ninety days' written notification. At December 31, 1997 and 1996,
the Partnerships had approximately $57,000 and $61,000, respectively, in
receivables from an entity controlled by W&H which manages certain of the Inns'
lounges.
d. Properties Sold and Held for Sale: In July 1997, the Partnerships sold an Inn
located in Glen Burnie, Maryland for $2,400,000 in cash, which resulted in a
gain of $1,011,000. Direct revenues of approximately $945,000, $1,724,000 and
$1,565,000, and direct expenses of approximately $813,000, $1,364,000 and
$1,295,000, related to this Inn were included in the Consolidated Statement of
Operations for the years ended December 31, 1997, 1996 and 1995, respectively.
The Partnerships intend to sell the five Inns whose franchises will not be
renewed (see Note 4b). Direct revenues of approximately $9,148,000, $8,875,000
and $8,735,000, and direct expenses of $7,908,000, $7,876,000 and $7,645,000,
related to these five Inns were included in the Consolidated Statement of
Operations for the years ended December 31, 1997, 1996 and 1995, respectively.
5. OTHER ASSETS:
The components of other assets are as follows (in thousands):
1997 1996
---------- -----------
Deferred lease costs $ 21 $ 21
Debt acquisition costs 2,839 2,839
Franchise fees 945 820
Other 4 4
---------- -----------
3,809 3,684
Less accumulated amortization 3,384 3,142
---------- -----------
$ 425 $ 542
========== ===========
In June 1997, the Partnerships paid $125,000 to HHC to extend the Holiday
Inn franchises to July 31, 1997, which were subsequently extended to May 9, 1998
(see Note 4b).
Amortization of debt acquisition costs charged to expense was $163,000,
$161,000 and $174,000 in 1997, 1996 and 1995, respectively. Amortization of
franchise fees charged to expense was $79,000, $61,000 and $141,000 in 1997,
1996 and 1995, respectively.
6. DEBT:
<TABLE>
<CAPTION>
Long-term debt consists of:
1997 1996
---------------- ----------------
<S> <C> <C>
Mortgage notes, net of unamortized discount of
$109,000 in 1997 and $158,000 in 1996 $ 54,240,000 $ 54,191,000
Priming loan, interest at 11% 9,304,000 11,500,000
---------------- ----------------
$ 63,544,000 $ 65,691,000
================ ================
</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
AMI 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.
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, 1997 and 1996. 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
AMI 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, 1997 or 1996.
As of December 31, 1997 and 1996, the outstanding balance under the Priming Loan
was $9,304,000 and $11,500,000, respectively, and the entire amount in 1997 and
1996 represents borrowings under the Tranche A Loan. The Priming Loan agreement
places certain restrictions on the use of AMI's 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
first to 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.
During 1997, the Partnerships sold an Inn and received net proceeds of
approximately $2,239,000 (See Note 4d). As required by the Priming Loan, the
proceeds were used to repay approximately $2,196,000 of outstanding borrowings
under the Tranche A Loan and to pay a prepayment premium of approximately
$43,000.
7. SHARED APPRECIATION:
The Restated Loan Agreement and the W&H Management Agreement provide for a
shared appreciation feature that calls for AMI to pay additional interest and an
additional incentive management fee to the Lenders and W&H, respectively, based
on (i) in the case of any Inn sold prior to the maturity date of the Mortgage
Notes, the amount (if any) by which the net sale price of the Inn exceeds the
amount of the Mortgage Notes allocated to it, and (ii) in the case of the Inns
still owned by AMI at the maturity of the Mortgage Notes (December 31, 1999 or
upon acceleration), the amount (if any) by which the sale price or appraised
value of such Inns exceeds the then outstanding principal amount of the Mortgage
Notes, with such computations also being net of any obligations under the
Priming Loan. However, no amount is payable as additional interest or incentive
management fees until all obligations under the Priming Loan have been paid. The
Partnerships periodically estimate the fair value of the Inns to determine if an
accrual is needed for future payments to the Lenders and W&H under the shared
appreciation feature. The Partnerships did not provide for additional interest
or incentive management fees in 1995 or 1996. For 1997, the Partnerships
recorded $4,500,000 as additional interest and incentive management fees under
the Restated Loan Agreement and the W&H Management Agreement. The additional
interest and incentive management fees are based on estimates of fair value of
ten of the Inns at December 31, 1999 and the estimated sales proceeds for the
five Inns held for sale. However, such amounts (if any) as the Partnerships will
ultimately realize upon the sale of any of the Inns and the appraised values of
the Inns owned by AMI at the maturity of the Mortgage Notes, could differ
materially from the estimated fair values used in the determination of the
additional interest and incentive management fee. In addition, any amount of
shared appreciation that may be paid is subject to interpretation or negotiation
by the Partnerships, the Lenders and W&H.
8. COMMITMENTS:
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 inflation
indexes, which adjust 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:
Year Amount
-------------------------- ---------------------
1998 $ 1,324,000
1999 1,324,000
2000 1,332,000
2001 1,308,000
2002 1,308,000
2003 and thereafter 15,209,999
---------------------
$21,805,000
=====================
Rent expense under these leases totaled $1,273,000, $1,258,000 and $1,260,000 in
1997, 1996, and 1995, respectively.
9. 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, effective January
1, 1998, the Partnership will be treated as a corporation for federal income tax
purposes, unless the Partnership makes an election to be treated as an "electing
partnership". As an electing partnership, the Partnership would still be treated
as a partnership for federal income tax purposes, but would be subject to a 3.5%
tax on all gross income earned by the Partnership. The Partnership made this
election.
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, 1997.
APPENDIX A
ACQUISITION AGREEMENT (WITHOUT EXHIBITS)
==========================================================================
ACQUISITION AGREEMENT
AMONG
SERVICO, INC.,
PRIME MOTOR INNS LIMITED PARTNERSHIP,
PRIME-AMERICAN REALTY CORP.,
AND
SERVICO ACQUISITION CORP.
DATED AS OF NOVEMBER 7, 1997
==========================================================================
TABLE OF CONTENTS
_________________
Page
____
ARTICLE I. - ACQUISITION
1.1 Purchase and Sale of the Limited Partnership Interest. . . . . . 1
1.2 Delivery. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.3 Closing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE II. - REPRESENTATIONS AND WARRANTIES OF SERVICO AND SAC
2.1 Organization, Standing and Power. . . . . . . . . . . . . . . . . 2
2.2 Legal, Valid and Binding Agreement. . . . . . . . . . . . . . . . 2
2.3 No Violation or Conflict. . . . . . . . . . . . . . . . . . . . . 2
2.4 Governmental Consents. . . . . . . . . . . . . . . . . . . . . . 3
2.5 Brokers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
ARTICLE III. - REPRESENTATIONS AND WARRANTIES OF PRIME AND THE GENERAL
PARTNER
3.1 Organization, Standing and Power. . . . . . . . . . . . . . . . . 3
3.2 Legal, Valid and Binding Agreement. . . . . . . . . . . . . . . . 4
3.3 Authority to do Business. . . . . . . . . . . . . . . . . . . . . 4
3.4 Certificate of Limited Partnership, Limited Partnership
Agreement and Records. . . . . . . . . . . . . . . . . . . . . . 4
3.5 Subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3.6 No Violation or Conflict. . . . . . . . . . . . . . . . . . . . . 4
3.7 Governmental Consents. . . . . . . . . . . . . . . . . . . . . . 5
3.8 Exchange Act Reports; Financial Statements.5
3.9 Compliance with Laws.6
3.10 Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . . 7
3.11 Brokers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3.12 Absence of Material Adverse Changes. . . . . . . . . . . . . . . 7
3.13 Capitalization. . . . . . . . . . . . . . . . . . . . . . . . . . 7
3.14 Rights, Warrants, Options. . . . . . . . . . . . . . . . . . . . 8
3.15 Title to Personal Property and Condition of Assets. . . . . . . . 8
3.16 Real Property. . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.17 Intangible Property. . . . . . . . . . . . . . . . . . . . . . . 9
3.18 Governmental Authorizations. . . . . . . . . . . . . . . . . . 10
3.19 Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . 10
3.20 Employment Matters. . . . . . . . . . . . . . . . . . . . . . . 10
3.21 Material Agreements. . . . . . . . . . . . . . . . . . . . . . 12
3.22 Related Party Transactions. . . . . . . . . . . . . . . . . . . 12
3.23 Tax Matters. . . . . . . . . . . . . . . . . . . . . . . . . . 13
3.24 Disclosure. . . . . . . . . . . . . . . . . . . . . . . . . . . 13
ARTICLE IV. - COVENANTS
4.1 Interim Operations of AMI. . . . . . . . . . . . . . . . . . . 14
4.2 Access. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
4.3 Schedules. . . . . . . . . . . . . . . . . . . . . . . . . . . 15
4.4 Consents. . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
4.5 Reasonable Efforts. . . . . . . . . . . . . . . . . . . . . . . 16
4.6 Notification. . . . . . . . . . . . . . . . . . . . . . . . . . 16
4.7 No Solicitation. . . . . . . . . . . . . . . . . . . . . . . . 16
4.8 Confidentiality. . . . . . . . . . . . . . . . . . . . . . . . 17
4.9 Publicity. . . . . . . . . . . . . . . . . . . . . . . . . . . 17
4.10 Proxy Statement. . . . . . . . . . . . . . . . . . . . . . . . 18
4.11 Special Meeting. . . . . . . . . . . . . . . . . . . . . . . . 18
4.12 Dissolution of Prime. . . . . . . . . . . . . . . . . . . . . . 19
ARTICLE V. - ADDITIONAL AGREEMENTS
5.1 Survival of the Representations, Warranties, Covenants and
Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . 19
5.2 Investigation. . . . . . . . . . . . . . . . . . . . . . . . . 19
5.3 Indemnification. . . . . . . . . . . . . . . . . . . . . . . . 19
ARTICLE VI. - CONDITIONS PRECEDENT
6.1 Mutual Conditions Precedent. . . . . . . . . . . . . . . . . . 20
6.2 Conditions Precedent to the Obligations of Servico. . . . . . . 21
6.3 Conditions Precedent to the Obligations of Prime and the
General Partner. . . . . . . . . . . . . . . . . . . . . . . . 22
6.4 Termination. . . . . . . . . . . . . . . . . . . . . . . . . . 23
ARTICLE VII. - MISCELLANEOUS
7.1 Further Assurances. . . . . . . . . . . . . . . . . . . . . . . 24
7.2 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
7.3 Entire Agreement. . . . . . . . . . . . . . . . . . . . . . . . 24
7.4 Assignment. . . . . . . . . . . . . . . . . . . . . . . . . . . 24
7.5 Waiver. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
7.6 No Third Party Beneficiary. . . . . . . . . . . . . . . . . . . 25
7.7 Severability. . . . . . . . . . . . . . . . . . . . . . . . . . 25
7.8 Fees and Expenses. . . . . . . . . . . . . . . . . . . . . . . 25
7.9 Headings. . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
7.10 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . 27
7.11 Time of Essence. . . . . . . . . . . . . . . . . . . . . . . . 27
7.12 Litigation; Prevailing Party. . . . . . . . . . . . . . . . . . 27
7.13 Remedies Cumulative. . . . . . . . . . . . . . . . . . . . . . 27
7.14 Injunctive Relief. . . . . . . . . . . . . . . . . . . . . . . 27
7.15 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . 27
7.16 Certain Definitions. . . . . . . . . . . . . . . . . . . . . . 27
GLOSSARY OF DEFINED TERMS
-------------------------
Defined Term Section
- ------------ -------
affiliate . . . . . . . . . . . . . . . . . . . Section7.17(a)
Agreement . . . . . . . . . . . . . . . . . . . . . . Preamble
AMI . . . . . . . . . . . . . . . . . . . . . . Preamble
AMI Material Agreements . . . . . . . . . . . . . . Section3.21
business day . . . . . . . . . . . . . . . . . . Section7.17(b)
Closing . . . . . . . . . . . . . . . . . . . . . Section1.3
Code . . . . . . . . . . . . . . . . . . . . Section4.20
Competing Transaction . . . . . . . . . . . . . . Section7.8(d)
employee pension benefit plan . . . . . . . . . . Section3.20(d)
employee welfare benefit plan . . . . . . . . . . Section3.20(d)
End Date . . . . . . . . . . . . . . . . . . . Section6.4(c)
Environmental Law . . . . . . . . . . . . . . . . Section3.9(b)
Environmental Permit . . . . . . . . . . . . . . Section3.9(b)
ERISA . . . . . . . . . . . . . . . . . . . Section4.20(d)
Exchange Act . . . . . . . . . . . . . . . . . . . . Section2.4
Furman Selz . . . . . . . . . . . . . . . . . . . . Section3.11
Governmental Entity . . . . . . . . . . . . . . . . . Section2.4
General Partner . . . . . . . . . . . . . . . . . . . . Preamble
General Partner
Purchase Agreement . . . . . . . . . . . . . . Section6.1(d)
GP Interest . . . . . . . . . . . . . . . . . . . . . . Preamble
group health plan . . . . . . . . . . . . . . . . . Section3.20
Improvements . . . . . . . . . . . . . . . . . . . Section3.16
knowledge . . . . . . . . . . . . . . . . . . . Section7.17(c)
Law . . . . . . . . . . . . . . . . . . . Section7.17(d)
Licenses . . . . . . . . . . . . . . . . . . . . Section3.18
Liens . . . . . . . . . . . . . . . . . . . . . Section1.1
Limited Partners . . . . . . . . . . . . . . . . . . . Preamble
Limited Partnership Agreement . . . . . . . . . . . . Section3.4
Limited Partnership Interests . . . . . . . . . . . . . Preamble
multiemployer plan . . . . . . . . . . . . . . . Section3.20(d)
NYSE . . . . . . . . . . . . . . . . . . . . . Section2.4
partnership interests . . . . . . . . . . . . . . Section7.17(e)
Permitted Exceptions . . . . . . . . . . . . . . . Section3.16
Personal Property . . . . . . . . . . . . . . . . . Section3.15
person . . . . . . . . . . . . . . . . . . . Section7.17(f)
Prime . . . . . . . . . . . . . . . . . . . . . . Preamble
Prime Financial Statements . . . . . . . . . . . Section3.8(b)
Prime Hospitality . . . . . . . . . . . . . . . . . Section3.14
Prime Indemnified Party . . . . . . . . . . . . . Section5.3(a)
Prime Material Adverse Effect . . . . . . . . . . Section7.17(g)
Prime Pension Plan . . . . . . . . . . . . . . . Section4.20(d)
Prime Plans . . . . . . . . . . . . . . . . . . . Section3.20(d)
Prime Related Parties . . . . . . . . . . . . . . . Section3.22
Prime Related Party . . . . . . . . . . . . . . . . Section3.22
Prime SEC Reports . . . . . . . . . . . . . . . . Section3.8(a)
Prime Special Meeting . . . . . . . . . . . . . . Section4.10(a)
Prime Welfare Plan . . . . . . . . . . . . . . . Section3.20(d)
Proxy Statement . . . . . . . . . . . . . . . . . Section4.10(a)
Real Property . . . . . . . . . . . . . . . . . . . Section3.16
SAC . . . . . . . . . . . . . . . . . . . . . . Preamble
SEC . . . . . . . . . . . . . . . . . . . . . Section3.8
Securities Act . . . . . . . . . . . . . . . . . . Section3.13
Servico . . . . . . . . . . . . . . . . . . . . . . Preamble
subsidiaries . . . . . . . . . . . . . . . . . . Section7.17(h)
subsidiary . . . . . . . . . . . . . . . . . . . Section7.17(h)
Tax . . . . . . . . . . . . . . . . . . . Section7.17(i)
ACQUISITION AGREEMENT
---------------------
THIS ACQUISITION AGREEMENT (the "Agreement") is made and entered into as
of the 7/th/ day of November, 1997, by and among SERVICO, INC., a Florida
corporation ("Servico"), SERVICO ACQUISITION CORP., a Florida corporation and
a wholly-owned subsidiary of Servico ("SAC"), PRIME MOTOR INNS LIMITED
PARTNERSHIP, a Delaware limited partnership ("Prime") and PRIME-AMERICAN
REALTY CORP., a Delaware corporation (the "General Partner").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Prime owns a 99% limited partnership interest (the "Limited
Partnership Interest") in AMI Operating Partners, L.P., a Delaware limited
partnership ("AMI");
WHEREAS, the General Partner owns a 1% general partnership interest (the
"GP Interest") in AMI, which, together with the Limited Partnership Interest,
constitutes 100% of all partnership interests in AMI;
WHEREAS, the General Partner is the sole general partner of each of
Prime and AMI;
WHEREAS, the board of directors of the General Partner has determined
that it is in the best interests of Prime and its limited partners (the
"Limited Partners") that Prime sell, assign and transfer to SAC the Limited
Partnership Interest on the terms set forth herein; and
WHEREAS, the board of directors of the General Partner has approved this
Agreement and agreed to recommend that the Limited Partners vote to approve
this Agreement and the transactions set forth herein as contemplated by this
Agreement;
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth in this
Agreement and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
ARTICLE I
ACQUISITION
1.1 Purchase and Sale of the Limited Partnership Interest. Subject
-----------------------------------------------------
to the terms and conditions set forth herein, at the Closing, Prime shall
sell, assign and transfer to SAC and SAC shall purchase and acquire from
Prime, the Limited Partnership Interest free and clear of any and all claims,
liens, charges, security interests, pledges or encumbrances of any nature
whatsoever (whether absolute, accrued contingent or otherwise) ("Liens"). At
the Closing, SAC shall, subject to the terms and conditions set forth herein,
and in consideration of the sale, assignment and transfer of the Limited
Partnership Interest as set forth herein, pay to Prime, the sum of Eight
Million Dollars ($8,000,000) (the "Purchase Price"), by wire transfer of
immediately available funds to such account as Prime shall designate and make
the indemnifications and undertakings provided herein to survive the Closing.
1.2 Delivery. The sale, assignment and transfer of the Limited
--------
Partnership Interest at the Closing shall be effected by (i) the delivery to
SAC (in addition to any other deliveries required under this Agreement ) of
an instrument of transfer, duly executed on behalf of Prime, sufficient to
transfer such Limited Partnership Interest to SAC, free and clear of all
Liens and (ii) the execution and delivery by Prime or the General Partner of
such other documents necessary to admit SAC as a substitute limited partner
of AMI, having all the rights of a limited partner under the Delaware Revised
Uniform Limited Partnership Act and the Limited Partnership Agreement of AMI
with respect to the Limited Partnership Interest.
1.3 Closing. Unless this Agreement shall have been terminated
-------
pursuant to Section 6.4, the consummation of the transactions contemplated by
this Agreement shall take place as promptly as practicable (and in any event
within three business days) after satisfaction or waiver of the conditions
set forth in Article VI, at a closing (the "Closing") to be held at the
offices of Stearns Weaver Miller Weissler Alhadeff & Sitterson, P.A., 150
West Flagler Street, Suite 2200, Miami, Florida, 33130, unless another date,
time or place is agreed to by Prime and Servico.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF SERVICO AND SAC
-------------------------------------------------
Servico and SAC hereby represent and warrant to Prime and the General
Partner as follows:
2.1 Organization, Standing and Power. Each of Servico and SAC has
--------------------------------
been duly organized and is validly existing and in good standing under the
laws of the State of Florida and has all requisite right, power and authority
to enter into this Agreement, to perform its obligations hereunder and to
consummate the transactions contemplated hereby.
2.2 Legal, Valid and Binding Agreement. The execution, delivery and
----------------------------------
performance of this Agreement by Servico and SAC and the consummation by
Servico and SAC of the transactions contemplated hereby have been duly and
effectively authorized by all requisite corporate action and no other
corporate proceedings on the part of Servico or SAC are necessary to
authorize this Agreement or to consummate the transactions contemplated
hereby. This Agreement has been duly executed and delivered by Servico and
SAC and, assuming the due authorization, execution and delivery by the other
parties hereto, constitutes the legal, valid and binding obligations of
Servico and SAC, enforceable against Servico and SAC in accordance with its
terms.
2.3 No Violation or Conflict. Except as set forth on Schedule 2.3,
------------------------ ------------
the execution, delivery and performance of this Agreement by Servico and SAC
and the consummation by Servico and SAC of the transactions contemplated
hereby do not and will not (i) conflict with or violate any provision of the
Articles of Incorporation or Bylaws of Servico or SAC, (ii) assuming that all
consents, approvals, authorizations and permits described in Section 2.4 have
been obtained and all filings and notifications described in Section 2.4 have
been made, violate or conflict with any Law applicable to Servico or SAC or
by which any property or asset of Servico or SAC is bound or affected, and
(iii) with or without the passage of time or the giving of notice, result in
the breach of, or constitute a default under, cause the acceleration of
performance under, permit the unilateral modification or termination of, or
require any consent under, or result in the creation of any liens or other
encumbrance upon any property or assets of Servico or SAC pursuant to, any
note, bond, mortgage, indenture, contract, agreement, lease, license, permit,
franchise or other obligation, except, with respect to clauses (ii) and
(iii), for any such conflicts, violations, breaches, defaults or other
occurrences which would not, individually or in the aggregate, prevent or
materially delay the performance by Servico or SAC of its obligations
pursuant to this Agreement or the consummation of the transactions
contemplated hereby.
2.4 Governmental Consents. The execution and delivery of this
---------------------
Agreement by each of Servico and SAC does not, and the performance by each of
Servico and SAC of its obligations hereunder and the consummation of the
transactions contemplated hereby will not, require any consent, approval,
authorization or permit of, or filing by Servico or SAC with or notification
by Servico or SAC to, any United States federal, state or local or any
foreign governmental, regulatory or administrative authority, agency or
commission or any court, tribunal or arbitral body (a "Governmental Entity"),
except (i) applicable requirements of the Securities Exchange Act of 1934, as
amended (together with the rules and regulations promulgated thereunder, the
"Exchange Act") and the rules and regulations of the New York Stock Exchange
(the "NYSE") and (ii) where failure to obtain such consents, approvals,
authorizations or permits, or to make such filings or notifications, would
not, individually or in the aggregate, prevent or materially delay the
performance by Servico or SAC of its obligations pursuant to this Agreement
and the consummation of the transactions contemplated hereby.
2.5 Brokers. Except as indicated on Schedule 2.5, neither Servico nor
------- ------------
SAC has employed any financial advisor, broker or finder and has not incurred
and neither will, except as provided in Section 7.9, incur any broker's,
finder's, investment banking or similar fees, commissions or expenses to any
other party in connection with the transactions contemplated by this
Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PRIME AND THE GENERAL PARTNER
---------------------------------------------------------------
Prime and the General Partner hereby represent and warrant to Servico
and SAC as follows:
3.1 Organization, Standing and Power. Each of Prime, AMI and the
--------------------------------
General Partner has been duly organized and is validly existing and in good
standing under the laws of the state of Delaware. Each of Prime and the
General Partner has all requisite right, power and authority to enter into
this Agreement, to perform its obligations hereunder and to consummate the
transactions contemplated hereby.
3.2 Legal, Valid and Binding Agreement. The execution, delivery and
----------------------------------
performance of this Agreement by Prime and the General Partner and the
consummation by Prime and the General Partner of the transactions
contemplated hereby have been duly and effectively authorized by all
requisite corporate or partnership, as the case may be, action and no other
corporate or partnership proceedings on the part of Prime or the General
Partner are necessary to authorize this Agreement or to consummate the
transactions contemplated hereby (other than the approval of this Agreement
and the transactions contemplated hereby by the holders of at least a
majority of the units of limited partnership interest of Prime ("Prime
Units") at the Prime Special Meeting). This Agreement has been duly executed
and delivered by Prime and the General Partner and, assuming the due
authorization, execution and delivery by the other parties hereto,
constitutes the legal, valid and binding obligations of Prime and the General
Partner, enforceable against Prime and the General Partner in accordance with
its terms.
3.3 Authority to do Business. Except as provided on Schedule 3.3,
------------------------ ------------
each of Prime, the General Partner and AMI has all requisite power and
authority and all necessary governmental approvals to own, operate and lease
its properties and assets and to conduct its business as presently conducted.
Schedule 3.3 sets forth (i) those jurisdictions in which Prime, the General
- ------------
Partner or AMI manages or operates facilities and/or properties and (ii) all
jurisdictions in which Prime, the General Partner or AMI is qualified to do
business. Except as provided on Schedule 3.3, each of Prime, the General
------------
Partner and AMI is duly qualified or licensed to do business and is in good
standing in all jurisdictions where the ownership or leasing of its
properties or the conduct of its business requires such qualification or
license, except where the failure to be so qualified or licensed,
individually or in the aggregate, would not have a Prime Material Adverse
Effect.
3.4 Certificate of Limited Partnership, Limited Partnership Agreement
-----------------------------------------------------------------
and Records. Copies of the Amended and Restated Agreement of Limited
- -----------
Partnership of Prime and the Agreement of Limited Partnership of AMI (each a
"Limited Partnership Agreement"), in each case as in effect on the date
hereof, have been delivered to Servico and are complete and correct as of the
date hereof.
3.5 Subsidiaries. Except for Prime's ownership of AMI, neither Prime
------------
nor AMI has any equity investment in any other corporation, limited liability
company, association, partnership, joint venture or other entity.
3.6 No Violation or Conflict. Except as set forth on Schedule 3.6,
------------------------ ------------
the execution, delivery and performance of this Agreement by Prime and the
General Partner and the consummation by Prime and the General Partner of the
transactions contemplated hereby do not and will not (i) conflict with or
violate any provision of the Certificate of Limited Partnership or Limited
Partnership Agreement of Prime or AMI or the Certificate of Incorporation or
Bylaws of the General Partner, (ii) assuming that all consents, approvals,
authorizations and permits described in Section 3.7 have been obtained and
all filings and notifications described in Section 3.7 have been made,
violate or conflict with any Law applicable to Prime, the General Partner or
AMI or by which any property or asset of Prime, the General Partner or AMI is
bound or affected, and (iii) with or without the passage of time or the
giving of notice, result in the breach of, or constitute a default under,
cause the acceleration of performance under, permit the unilateral
modification or termination of, or require any consent under, or result in
the creation of any liens or other encumbrance upon any property or assets of
Prime or AMI pursuant to, any note, bond, mortgage, indenture, contract,
agreement, lease, license, permit, franchise or other obligation, except,
with respect to clauses (ii) and (iii), for any such conflicts, violations,
breaches, defaults or other occurrences which would not, individually or in
the aggregate, (A) have a Prime Material Adverse Effect nor (B) prevent or
materially delay the performance by Prime or the General Partner of its
obligations pursuant to this Agreement or the consummation of the
transactions contemplated hereby.
3.7 Governmental Consents. Except as provided on Schedule 3.7, the
--------------------- ------------
execution and delivery of this Agreement by each of Prime and the General
Partner does not, and the performance by each of Prime and the General
Partner of its obligations hereunder and the consummation of the transactions
contemplated hereby will not, require any consent, approval, authorization or
permit of, or filing by Prime with or notification by Prime or the General
Partner to, any Governmental Entity, except (i) applicable requirements of
the Exchange Act and (ii) where failure to obtain such consents, approvals,
authorizations or permits, or to make such filings or notifications, would
not, individually or in the aggregate, (A) prevent or materially delay the
performance by Prime or the General Partner of its obligations pursuant to
this Agreement and the consummation of the transactions contemplated hereby
or (B) have a Prime Material Adverse Effect.
3.8 Exchange Act Reports; Financial Statements.
------------------------------------------
(a) Since January 1, 1995, Prime has timely filed all reports and
other documents required to be filed by it with the Securities and Exchange
Commission (the "SEC") under the Exchange Act, including but not limited to
proxy statements and reports on Form 10-K, Form 10-Q and Form 8-K
(collectively, the "Prime SEC Reports"). As of the respective dates they
were filed with the SEC, the Prime SEC Reports, including all documents
incorporated by reference into such reports, complied in all material
respects with the rules and regulations of the SEC and did not contain any
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were
made, not misleading.
(b) The consolidated financial statements (the "Prime Financial
Statements") of Prime included in the Prime SEC Reports, as of the dates
thereof and for the periods covered thereby, present fairly, in all
material respects, the financial position, results of operations, and cash
flows of Prime and AMI on a consolidated basis (subject, in the case of
unaudited statements, to normal recurring year-end audit adjustments which
were not and are not expected, individually or in the aggregate, to have
a Prime Material Adverse Effect). Any supporting schedules included in the
Prime SEC Reports present fairly, in all material respects, the information
required to be stated therein. Such Prime Financial Statements and
supporting schedules were prepared: (A) in accordance with Regulation S-X
promulgated by the SEC; and (B) except as otherwise noted in the Prime
SEC Reports, in conformity with generally accepted accounting principles
("GAAP") applied on a consistent basis. Other than as disclosed by the Prime
Financial Statements included in the Prime SEC Reports or on Schedule 3.8
------------
hereto, none of Prime, the General Partner or AMI has any liabilities,
commitments or obligations of any nature whatsoever, whether accrued,
contingent or otherwise that would be required to be reflected on, or
reserved against in, a balance sheet or in notes thereto prepared in
accordance with GAAP, other than liabilities, commitments or obligations
incurred since December 31, 1996 in the ordinary course of business that
would not, individually or in the aggregate, have a Prime Material Adverse
Effect. Except as set forth on Schedule 3.8 and except for the Limited
------------
Partnership Interest, Prime has no assets of any nature whatsoever, and
Prime has no liabilities (whether accrued, contingent or otherwise), of any
nature whatsoever, except as specifically set forth in the Prime Financial
Statements and specifically designated therein as a liability of Prime
and not of AMI.
3.9 Compliance with Laws.
--------------------
(a) Except as set forth on Schedule 3.9, each of Prime, the
------------
General Partner and AMI is in compliance with all federal, state, local and
foreign laws, ordinances, regulations, judgments, rulings, orders and other
legal requirements applicable to it, its operations or its properties,
including, without limitation, those relating to employment, building,
zoning, safety and health, and environmental matters, except where the
failure to so comply, individually or in the aggregate, would not have a
Prime Material Adverse Effect. Except as set forth on Schedule 3.9 or as
------------
could not reasonably be expected to have a Prime Material Adverse Effect,
neither Prime, the General Partner nor AMI has received written notification
from any Governmental Entity asserting that it may not be in compliance with,
or may have violated, any of the Laws which said Governmental Entity
enforces, or threatening to revoke any authorization, consent, approval,
franchise, license or permit, and neither Prime, the General Partner nor AMI
is subject to any agreement or consent decree with any Governmental Entity
arising out of previously asserted violations.
(b) Without limiting the generality of Section 3.9(a), except as
set forth on Schedule 3.9 or in the Prime SEC Reports, or as would not,
------------
individually or in the aggregate, have a Prime Material Adverse Effect: (i)
Prime, the General Partner and AMI are, to the best of their knowledge, in
compliance with all applicable Environmental Laws. All past noncompliance of
Prime or AMI with Environmental Laws or Environmental Permits has been
resolved without any pending, ongoing or future obligation, cost or
liability; and (ii) neither Prime, the General Partner nor AMI has, to the
best of their knowledge, released a Hazardous Material at, or transported a
Hazardous Material to or from, any real property currently or formerly owned,
leased or occupied by Prime or AMI in violation of any Environmental Law.
For purposes of this Agreement: "Environmental Law" means any federal,
-----------------
state or local statute, law, ordinance, regulation, rule, code or order of
the United States or any other jurisdiction and any enforceable judicial or
administrative interpretation thereof, including any judicial or
administrative order, consent decree or judgment, relating to pollution or
protection of the environmental or natural resources, including, without
limitation, those relating to the use, handling, transportation, treatment,
storage, disposal, release or discharge of Hazardous Material, as in effect
as of the date of this Agreement. "Environmental Permit" means any permit,
--------------------
approval, identification number, license or other authorization required
under or issued pursuant to any applicable Environmental Law. "Hazardous
---------
Material" means (i) any petroleum, petroleum products, by-products or
- --------
breakdown products, radioactive materials, asbestos-containing materials or
polychlorinated biphenyls or (ii) any chemical, material or substance defined
or regulated as toxic or hazardous or as a pollutant or contaminant or waste
under any applicable Environmental Law.
3.10 Legal Proceedings. Except as set forth on Schedule 3.10 or in the
----------------- -------------
Prime SEC Reports, neither Prime, the General Partner nor AMI is, nor during
the past three years has been, a party to any pending or, to the knowledge of
Prime, threatened, legal, administrative or other proceeding, arbitration or
investigation, that is or could have been reasonably expected to,
individually or in the aggregate, result in a Prime Material Adverse Effect.
Except as set forth on Schedule 3.10, Prime has no knowledge of any set of
-------------
facts which could reasonably be expected to result in any such legal,
administrative or other proceeding, arbitration or investigation involving
Prime, the General Partner or AMI. Except as set forth on Schedule 3.10,
-------------
neither Prime, the General Partner nor AMI is subject to any order, writ,
injunction, decree, judgment, stipulation, determination or award entered by
or with any Governmental Entity which could, individually or in the
aggregate, reasonably be expected to have a Prime Material Adverse Effect.
3.11 Brokers. Except for Furman Selz Incorporated ("Furman Selz"), who
-------
is acting as financial advisor to the General Partner and will be entitled to
a fee of up to $350,000 and expenses in compensation therefor, neither Prime,
the General Partner nor AMI has employed any financial advisor, broker or
finder and has not incurred and none will incur any broker's, finder's,
investment banking or similar fees, commissions or expenses to any other
party in connection with the transactions contemplated by this Agreement.
3.12 Absence of Material Adverse Changes. Except as set forth on
-----------------------------------
Schedule 3.12 or in the Prime SEC Reports, since December 31, 1996: (i) each
- -------------
of Prime, the General Partner and AMI has conducted its business only in the
ordinary and usual course and in a manner consistent with past practices;
(ii) there has not been any Prime Material Adverse Effect, (iii) there has
not been any event that could reasonably be expected to prevent or materially
delay the performance of Prime's or the General Partner's obligations
pursuant to this Agreement and the consummation of the transactions
contemplated hereby by Prime or the General Partner; and (iv) neither Prime
nor AMI has engaged or agreed to engage in any of the actions described in
Section 4.1 (except as otherwise specifically permitted in Section 4.1). All
proceeds from any sales of any properties of AMI since December 31, 1996 have
been used solely to (a) pay costs and expenses of or related to such sales,
(b) pay prepayment penalties in connection with the repayment of AMI's
outstanding indebtedness to persons other than Prime Related Parties, (c)
repay such indebtedness or (d) fund renovations to AMI's existing properties.
3.13 Capitalization. The only partnership interests in AMI are the
--------------
Limited Partnership Interest and the GP Interest. The Limited Partnership
Interest has been duly authorized, is validly issued and outstanding, and is
fully paid. The Limited Partnership Interest is owned beneficially and of
record by Prime, free and clear of all Liens. No interests or securities
issued by Prime or AMI from the date of its organization to the date hereof
were issued in violation of any statutory or common law preemptive rights or
the Securities Act of 1933, as amended (the "Securities Act") or the rules
and regulations of the SEC thereunder, or any state securities or "blue sky"
laws. There are no distributions which have accrued or been declared but are
unpaid on the partnership interests of AMI. All Taxes required to be paid in
connection with the issuance by AMI of its partnership interests have been
paid.
3.14 Rights, Warrants, Options. There are no outstanding: (i)
-------------------------
securities or instruments convertible into or exercisable for any partnership
interests of AMI; (ii) options, warrants, subscriptions or other rights to
acquire partnership interests of AMI; (iii) debt securities with any voting
rights or convertible into securities with voting rights; or (iv)
commitments, agreements or understandings of any kind, including employee
benefit arrangements, relating to any partnership interests of AMI, or the
issuance or repurchase by Prime, the General Partner or AMI of any
partnership interests of AMI, any such securities or instruments convertible
into or exchangeable for partnership interests of AMI or any such options,
warrants or rights. Neither Prime Hospitality, Inc., a Delaware corporation
("Prime Hospitality") nor AMI Management Corp., a subsidiary of Prime
Hospitality, nor any of their successors, assigns or affiliates have any
right under the Limited Partnership Agreement of Prime or otherwise to
acquire the Limited Partnership Interest or to receive notice of the
transactions contemplated hereby.
3.15 Title to Personal Property and Condition of Assets. Except as set
--------------------------------------------------
forth on Schedule 3.15, AMI is the legal and beneficial owner of each item
-------------
of personal property, tangible and intangible, as reflected on the September
30, 1997 Prime Financial Statements and to each item of personal property,
tangible and intangible, acquired by or on behalf of AMI since September 30,
1997 (other than non-material property disposed of in the ordinary course of
business consistent with past practice since September 30, 1997 to persons
who are not affiliates of Prime, the General Partner or AMI), free and clear
of any Liens, except as set forth on the September 30, 1997 Prime Financial
Statements or in Schedule 3.15 hereto (all such personal property being
-------------
hereinafter referred to as the "Personal Property"). Except as set forth on
Schedule 3.15, all equipment, machinery, fixtures and other Personal Property
- -------------
owned or utilized by AMI are in good operating condition and in a good state
of maintenance and repair and are adequate for the conduct of their
respective businesses. Except for leasehold interests and other leased
properties, and properties used under license or franchise agreements,
specifically identified in either Schedule 3.15 or 3.16 hereto, there are no
------------- ----
assets owned by any third party (including Prime and the General Partner)
which are used in the operations or the business of AMI, as presently
conducted or proposed to be conducted.
3.16 Real Property. Schedule 3.16 hereto sets forth a true and
------------- -------------
complete list, with the legal description thereof, of all real property owned
or leased by AMI, together with a brief description of all structures,
fixtures or improvements ("Improvements") thereon (such real property and
Improvements, collectively, the "Real Property"). AMI owns good and
marketable title to, or holds a valid leasehold interest in, all of the Real
Property, free and clear of all Liens, mortgages, conditional sales
agreements, restrictions, reservations, covenants, encumbrances, charges,
restraints on transfer, or any other title defect of any nature, other than
liens for real property taxes not yet due and other than those matters
specifically disclosed on Schedule 3.16 or any title insurance policies or
-------------
commitments provided to Servico and listed on Schedule 3.16, which matters,
-------------
individually or in the aggregate, do not materially adversely impair the
marketability of the Real Property as it is now used by AMI (the "Permitted
Exceptions"). Except as disclosed on Schedule 3.16, all Improvements are in
-------------
good structural condition, free of any structural or other defect or
impairment which impairs in any material respect the value, utility, or life
expectancy of such Improvements, or which might otherwise adversely affect,
in any material respect, the operation thereof. Except as disclosed on
Schedule 3.16 or on any surveys delivered to Servico, none of the
- -------------
Improvements encroach onto adjoining land or onto any easements and there is
no encroachment of Improvements from adjoining land onto any of the Real
Property. None of the Real Property is located in an area identified by any
Governmental Entity as having special flood or mud slide hazards or wetlands.
There are no soil or geological conditions which might impair or adversely
affect in any material respect the current use of any of the Real Property.
Except as set forth on Schedule 3.16, neither the whole nor any portion of
-------------
the Real Property is being condemned or otherwise taken by any public
authority, nor is any such condemnation or taking, to the knowledge of Prime,
threatened or contemplated. No portion of any of the Real Property is
affected by any outstanding special assessments or impact fees imposed by any
Governmental Entity. Except for any Permitted Exceptions, no commitments
relating to the Real Property have been made to any Governmental Entity,
utility company, school board, church or other religious body or any
homeowner or homeowners association, merchant's association or any other
organization, group or individual which would impose an obligation upon
Prime, the General Partner or AMI or any of their successors or assigns to
make any contribution or dedication of money or land or to construct, install
or maintain any improvements of a public or private nature on or off the Real
Property; and no Governmental Entity has imposed any requirement that any
owner of the Real Property pay directly or indirectly any special fees or
contributions or incur any expenses or obligations in connection with the
Real Property. The parking facilities at each parcel of Real Property are
adequate to comply with all Laws and the conduct of business on the
respective properties as presently conducted or proposed to be conducted.
Neither Prime nor the General Partner has any information or knowledge of (a)
any change contemplated in any Law, (b) any judicial or administrative
action, (c) any action by adjacent landowners, or (d) any other fact or
condition of any kind or character which could materially adversely affect
the current use or operation of the Real Property. Neither the General
Partner nor any of its affiliates owns or leases, directly or indirectly, any
property adjacent to the Real Property. Neither the air rights over the Real
Property nor any other "development rights" with respect to the Real Property
has been assigned, transferred, leased or encumbered.
3.17 Intangible Property. Except as set forth on Schedule 3.17 or as
------------------- -------------
would not, individually or in the aggregate, have a Prime Material Adverse
Effect, AMI owns or possesses adequate licenses or other valid rights to use
all patents, patent rights, trademarks, trademark rights, trade names, trade
dress, trade name rights, copyrights, service marks, trade secrets,
applications for trademarks and for service marks, know-how and other
proprietary rights and information used or held for use in connection with
its business as currently conducted or proposed to be conducted , and neither
Prime nor the General Partner is aware of any assertion or claim challenging
the validity of any of the foregoing. The conduct of the respective
businesses of Prime, the General Partner and AMI as currently conducted does
not conflict in any way with any patent, patent right, license, trademark,
trademark right, trade dress, trade name, trade name right, service mark or
copyright of any third party that, individually or in the aggregate, would
have a Prime Material Adverse Effect. To the knowledge of Prime, there are
no infringements of any proprietary rights owned by or licensed by or to AMI
that, individually or in the aggregate, would have a Prime Material Adverse
Effect.
3.18 Governmental Authorizations. Except as set forth on Schedule
---------------------------
3.18, Prime, the General Partner and AMI have in full force and effect all
authorizations, consents, approvals, franchises, certificates, operating
authorities, licenses and permits required under applicable Law (collectively
referred to as "Licenses") for the ownership of Prime's, the General
Partner's and AMI's properties and operation of their businesses as presently
operated, except where the failure to have any such Licenses could not
reasonably be expected to have a Prime Material Adverse Effect. Except as
set forth on Schedule 3.18, none of the transactions contemplated hereby
-------------
could reasonably be expected to have a material adverse effect on the status
of any such License or require Prime, the General Partner or AMI to obtain
any additional License to continue to operate their respective businesses as
presently conducted.
3.19 Insurance. Schedule 3.19 sets forth a list and description of all
--------- -------------
insurance policies existing as of the date hereof providing insurance
coverage of any nature to Prime, the General Partner or AMI. All such
policies are in full force and effect, are valid and enforceable in
accordance with their terms and are sufficient for compliance with all Laws
and all AMI Material Agreements.
3.20 Employment Matters.
------------------
(a) Labor Relations. Except as set forth on Schedule 3.20(a), the
--------------- ---------------
employees of Prime, the General Partner and AMI are not represented by any
labor union and are not subject to a collective bargaining agreement.
Neither Prime, the General Partner nor AMI have experienced any strike, work
stoppage or labor disturbance with any group of employees and to Prime's
knowledge, no set of facts exists which could reasonably be expected to lead
to any of the foregoing events.
(b) Employment Agreements. Except as set forth on Schedule
--------------------- --------
3.20(b), there are no employment, consulting, severance or indemnification
- -------
arrangements, agreements, or to the knowledge of Prime, material
understandings between Prime, the General Partner or AMI and any officer,
director, consultant or employee. Except as set forth on Schedule 3.20(b),
----------------
the terms of employment or engagement of all employees, agents, consultants
and professional advisors of Prime, the General Partner or AMI are such that
their employment or engagement may be terminated by not more than two weeks'
notice given at any time without liability for payment of compensation or
damages.
(c) Winegarden & Hammons Agreements. Set forth as Schedule
------------------------------- --------
3.20(c) are true and correct copies of the agreements with Winegarden &
- -------
Hammons, Inc. for the management of AMI's properties and the administration
of Prime.
(d) Employee Benefit Plans. Except as set forth on Schedule
---------------------- --------
3.20(d), there are no pension, retirement, stock or equity purchase, stock
- -------
or equity bonus, stock or equity ownership, stock or equity option, profit
sharing, savings, medical, disability, hospitalization, insurance, deferred
compensation, bonus, incentive, welfare or any other employee benefit plan,
policy, agreement, commitment or arrangement maintained by or binding upon
Prime, the General Partner or AMI for any of their partners, directors,
officers, consultants, employees or former employees (the "Prime Plans").
Schedule 3.20(d) also identifies each Prime Plan which constitutes an
- ----------------
"employee pension benefit plan" ("Prime Pension Plan") or an "employee
welfare benefit plan" ("Prime Welfare Plan"), as such terms are defined in
the Employee Retirement Income Security Act of 1974, as amended, and the
rules and regulations promulgated thereunder ("ERISA"). None of the Prime
Plans is a "multiemployer plan," as such term is defined in ERISA, or is
subject to Title IV of ERISA.
Each Prime Pension Plan has been determined to be qualified under
Section 401(a) of the Code, and each such Plan remains so qualified; and to
Prime's knowledge, no facts or circumstances exist which could result in the
revocation of such qualification. Each Prime Welfare Plan which is intended
to meet the requirements for tax-favored treatment under Subchapter B of
Chapter 1 of the Code meets such requirements. Each Prime Plan has been
administered in all material respects in accordance with its terms and the
Code, and each Prime Pension Plan and Prime Welfare Plan has been
administered in all material respects in accordance with ERISA. The assets
of each Prime Plan are at least equal in value to the present value of the
accrued benefits of participants of such Plan. No facts or circumstances
exist which could reasonably be expected to give rise to any liability of any
Prime Plan, Prime, AMI, the General Partner, Servico, SAC or to any other
person. Prime or AMI has paid all amounts required under applicable Law, any
Prime Pension Plan and any Prime Welfare Plan to be paid as a contribution to
each Prime Pension Plan and Prime Welfare Plan through the date hereof. To
the extent required by Law, Prime has set aside adequate reserves to meet
contributions which are not yet due under any Prime Pension Plan or Prime
Welfare Plan. Neither Prime, the General Partner, AMI nor any other person
acting for or on behalf of any of them has engaged in any transaction or
taken any other action with respect to any Prime Plan which would subject
Prime, AMI or the General Partner to: (i) any Tax, penalty or liability for
prohibited transactions under ERISA or the Code; (ii) any Tax under Code
Sections 4971, 4972, 4976, 4977 or 4979; or (iii) a penalty under ERISA
Sections 502(c) or 502(l). Neither Prime, the General Partner nor AMI, nor
any director, partner, officer or employee of Prime, the General Partner or
AMI, to the extent it or he is a fiduciary with respect to any Prime Pension
Plan or Prime Welfare Plan, has breached any of its or his responsibilities
or obligations imposed upon fiduciaries under ERISA or the Code or which
could result in any claim being made under, by or on behalf of any Prime
Pension Plan or Prime Welfare Plan or any participant or beneficiary thereof.
Each Prime Welfare Plan which is a group health plan within the meaning of
Code Section 5000(b)(1) complies in all material respects with and in each
and every case has complied in all material respects with the applicable
requirements of Code Section 4980B and Part 6 of Title I of ERISA and does
not benefit retirees, except as otherwise required by law. As of the date
thereof, there was no accrued vacation or sick leave payable to the directors
or employees of Prime, the General Partner or AMI which is not reflected in
the Prime Financial Statements.
(e) Personnel. Schedule 3.20(e) sets forth: (i) the names of all
--------- ----------------
officers of Prime, the General Partner and AMI; and (ii) the names and job
designations of all employees of Prime, the General Partner and AMI whose
cash compensation exceeds $75,000 per annum. Except as disclosed in the
Prime Financial Statements and except for unpaid base compensation accrued in
the ordinary course of business consistent with past practice since September
30, 1997, there are no material sums due to any employees of Prime, the
General Partner or AMI.
3.21 Material Agreements.
-------------------
(a) Schedule 3.21 sets forth a list of all written and oral
-------------
agreements, arrangements or commitments (collectively, the "AMI Material
Agreements") to which any of Prime, the General Partner or AMI is a party or
by which it or any of its respective assets are bound which are or could
reasonably be expected to be material to the financial position or results of
operations of Prime, the General Partner or AMI, including, but not limited
to, any: (i) contract, commitment, agreement or relationship resulting in a
commitment or potential commitment for expenditure or other obligation or
potential obligation, or which provides for the receipt or potential receipt,
involving in excess of $100,000, or a series or related contracts,
commitments, agreements or relationships that in the aggregate give rise to
rights or liabilities exceeding such amounts; (ii) indenture, mortgage,
promissory note, loan agreement, guarantee or other agreement or commitment
relating to the borrowing of money, encumbrance of assets or guaranty of any
obligation; (iii) licensing, franchise or royalty agreements or agreements
providing for other similar rights or agreements with third parties; (iv)
agreements which restrict Prime, the General Partner or AMI from engaging in
any line of business or from competing with any other person or entity
anywhere in the world; (v) agreements or arrangements for the sale of any of
the assets, property or rights owned or utilized by AMI in the operation of
its business or requiring the consent of any party to the transfer and
assignment of such assets, property and rights, except for agreements or
arrangements to sell products or services in the ordinary course of business
consistent with past practices; (vi) agreement, contract or arrangement with
any affiliate of Prime, the General Partner or AMI or any affiliate of any
partner, officer, director or employee of Prime, the General Partner or AMI;
(vii) lease of or agreement to purchase real property; (viii)
indemnification, contribution or similar agreement or arrangement pursuant to
which Prime, the General Partner or AMI may be required to make any
indemnification or contribution to any other person except to the extent
provided in the Certificate of Limited Partnership or Limited Partnership
Agreement of Prime or AMI or the Certificate of Incorporation or bylaws of
the General Partner, as in effect on the date hereof; or (ix) other material
contract, agreement or instrument which cannot be terminated without penalty
to Prime, the General Partner or AMI, upon the provision of not greater than
30 days notice.
(b) Except as set forth on Schedule 3.21, all AMI Material
-------------
Agreements have been entered into on an "arms-length" basis with parties who
are not affiliates of Prime, the General Partner or AMI. Except as set forth
on Schedule 3.21, the AMI Material Agreements are each in full force and
-------------
effect and are the valid and legally binding obligations of AMI, Prime or the
General Partner, as the case may be, and, to the best of Prime's knowledge
(without independent inquiry), have not been breached by any of the other
parties thereto and are valid and binding obligations of the other parties
thereto. Neither Prime, the General Partner nor AMI is in default under the
Certificate of Limited Partnership or Limited Partnership Agreement of Prime
or AMI or the Certificate of Incorporation or bylaws of the General Partner
or in default or alleged default under any AMI Material Agreement and no
event has occurred which with the giving of notice or lapse of time or both
would constitute such a default.
3.22 Related Party Transactions. Except as set forth on Schedule 3.22
-------------------------- -------------
or reflected in the Prime Financial Statements, neither Prime nor the General
Partner nor any director, officer, partner or shareholder of Prime, the
General Partner or AMI, nor to Prime's knowledge, any employee of Prime, AMI
or the General Partner (individually a "Prime Related Party" and collectively
the "Prime Related Parties") or any affiliate of any Prime Related Party: (i)
owns, directly or indirectly, in whole or in part, any material property,
asset (other than cash) or right, real, personal or mixed, tangible or
intangible, which is associated with or necessary in the operation of the
business of AMI, as presently conducted or (ii) has an interest in or is,
directly or indirectly, a party to any AMI Material Agreement or any other
contract, agreement, lease or arrangement to which AMI is bound or is a
party.
3.23 Tax Matters.
-----------
(a) All federal, state, local and foreign Tax returns and Tax
reports, if any, required to be filed with respect to the business or assets
of Prime, AMI or the General Partner have been filed with the appropriate
governmental agencies in all jurisdictions in which such returns and reports
are required to be filed; all of the foregoing as filed are true, correct and
complete in all material respects, and in all material respects reflect
accurately all liability for Taxes of Prime, AMI and the General Partner for
the periods for which such returns relate; and all amounts shown as owing
thereon have been paid. Except as set forth on Schedule 3.23, none of such
-------------
returns or reports have been audited by any Governmental Authority.
(b) Except as set forth in Section 3.23, none of Prime, AMI or the
------------
General Partner will have any liability with respect to Taxes, if any,
payable by them or relating to or chargeable against any of their assets,
revenues or income through September 30, 1997, including, but not limited to,
interest and/or penalties, in excess of the amounts paid through the date
hereof or provided for by adequate reserves on the books of Prime, AMI or the
General Partner, as the case may be; and none of Prime, AMI or the General
Partner will have any liability with respect to any such Taxes through the
Closing in excess of the amounts paid through the date thereof or then
provided for by adequate reserves on the books of Prime, AMI or the General
Partner, as the case may be.
(c) None of Prime, AMI nor the General Partner has waived any
restrictions on assessment or collection of Taxes or consented to the
extension of any statute of limitations relating to federal, state, local or
foreign taxation.
(d) Set forth on Schedule 3.23 is a summary of all disputes,
-------------
claims and appeals by Prime, AMI, the General Partner or any governmental
authority with respect to Taxes.
3.24 Disclosure. No representation or warranty of Prime or the General
----------
Partner herein (including the exhibits and schedules hereto), and no
certificate furnished or to be furnished by or on behalf of Prime or the
General Partner to Servico or its agents pursuant to this Agreement, contains
or will, at the time it is made, contain any untrue statement of a material
fact or omits or will, at the time it is made, omit to state a material fact
necessary in order to make the statements contained herein or therein, in
light of the circumstances under which they were made, not misleading.
ARTICLE IV
COVENANTS
---------
4.1 Interim Operations of AMI. Except as set forth on Schedule 4.1,
------------------------- ------------
during the period from the date of this Agreement to the Closing, the General
Partner shall use its best efforts to cause each of AMI and Prime to operate
its business only in the usual and ordinary course consistent with past
practices and (i) preserve intact its business organization and goodwill in
all respects, (ii) continuously maintain insurance coverage substantially
equivalent to the insurance coverage in existence on the date hereof, and
(iii) maintain its relationships with franchisors, licensors, distributors,
suppliers and others with which it has business relations. Additionally, the
General Partner shall cause any proceeds from the sales of any properties of
AMI to be used solely to (a) pay costs and expenses of or related to such
sales, (b) pay any prepayment penalties in connection with the repayment of
AMI's outstanding indebtedness to persons other than Prime Related Parties,
(c) repay such indebtedness, or (d) fund renovations to AMI's existing
properties. Except as otherwise expressly contemplated herein or set forth
on Schedule 4.1, without the written consent of Servico (which shall not be
------------
unreasonably withheld or delayed and shall be deemed to have been given if
not expressly denied within ten (10) days after written request therefor),
Prime shall not, nor shall it cause or permit AMI to, (i) amend or otherwise
change its Certificate of Limited Partnership or Limited Partnership
Agreement; (ii) issue, sell or authorize for issuance or sale, any
partnership interests or shares of any class of its securities or other
equity interests or any subscriptions, options, warrants, rights or
convertible securities or enter into any agreements or commitments of any
character obligating it to issue or sell any such partnership interests,
securities or other equity interests; (iii) redeem, purchase or otherwise
acquire, directly or indirectly, any of its partnership interests or other
equity interests or any option, warrant or other right to purchase or acquire
any such partnership interests or other equity interests or return all or any
portion of any capital contributions; (iv) enter into any commitment or
transaction (including, but not limited to, any capital expenditure or sale
of assets), other than in the ordinary course of business consistent with
past practices; provided, however, that, except as set forth on Schedule 4.1,
------------
no commitment or transaction involving the receipt or potential receipt of in
excess of One Hundred Thousand Dollars ($100,000) or payment or potential
payment of in excess of One Hundred Thousand Dollars ($100,000) shall be
entered into without the prior written consent of Servico; (v) create, incur,
assume, maintain or permit to exist any long-term indebtedness or short-term
indebtedness or indebtedness for borrowed money (including purchase money
financing), except in the ordinary course of business consistent with past
practices under an existing loan availability, or any lien, pledge, mortgage
or other encumbrance affecting any of its assets; (vi) pay, discharge or
satisfy claims, liabilities or obligations (absolute, accrued, contingent or
otherwise) which involve payments or commitments to make payments which
exceed normal business operating requirements, consistent with past practice;
(vii) cancel any debts or waive any claims or rights; (viii) make any loans,
advances or capital contributions to, or investments in financial instruments
of, any person or entity; (ix) assume, guarantee, endorse or otherwise become
liable or responsible (whether directly, contingently or otherwise) for the
obligations of any other person or entity; (x) grant any increase in the
compensation payable or to become payable to any of its partners, officers,
employees or consultants or establish, adopt or increase any bonus, insurance
or other employee benefit plan, payment or arrangement made to, for or with
any such persons or pay any bonus to any manager, partner, officer, director
or employee, except to persons other than officers, directors or consultants
of AMI or Prime pursuant to existing plans in amounts and at times in
conformity with such plans and consistent with past practices; (xi) enter
into any employment agreement or grant any severance or termination pay with
or to any partner, officer, director or employee, except to persons other
than officers, directors or consultants of AMI or Prime pursuant to existing
plans in amounts and at times in conformity with such plans and consistent
with past practices; (xii) declare or pay any distribution (whether in cash
or other property) with respect to its partnership interests; (xiii) alter in
any way the manner of keeping its books, accounts or records or its
accounting practices therein reflected; (xiv) enter into any agreement which
would be an AMI Material Agreement or amend, terminate, renew or modify any
existing AMI Material Agreement; (xv) enter into any indemnification,
contribution or similar agreement requiring it to indemnify any other person
or entity or make contributions to any other person or entity; (xvi) do any
act, or omit to do any act, or permit, to the extent within Prime's or AMI's
control, any act or omission to act which would cause a violation or breach
of any of the representations, warranties or covenants of Prime or the
General Partner set forth in this Agreement; (xvii) sell, transfer,
surrender, abandon or dispose of any of its assets or property rights
(tangible or intangible), other than in the ordinary course of business
consistent with past practices or, with respect to any hotel properties, only
pursuant to AMI Material Agreements currently in effect and disclosed on
Schedule 3.21 or as otherwise set forth on Schedule 4.1; (xviii)
- ------------- ------------
enter into any agreement or take any action which could have a Prime Material
Adverse Effect (financial or otherwise); or (xix) agree, whether in writing
or otherwise, to do any of the foregoing.
4.2 Access. Prime and the General Partner shall: (i) afford to
------
Servico and its agents and representatives full access to the properties,
books, records and other information of Prime, AMI and the General Partner,
provided that such access shall be granted upon reasonable notice and at
reasonable times during normal business hours in such a manner as to not
unreasonably interfere with normal business operations; (ii) use its
reasonable efforts to cause Prime's, the General Partner's and AMI's
personnel, without unreasonable disruption of normal business operations, to
assist Servico in its investigation of Prime, AMI and the General Partner
pursuant to this Section 4.2; and (iii) promptly make available to Servico
such information and documents concerning the business, assets, liabilities,
properties and personnel of Prime, AMI and the General Partner as Servico may
from time to time reasonably request and as can be provided without
unreasonable expense or disruption of normal business operations. Prime and
the General Partner shall use their best efforts to cause their advisors,
consultants, contractors and managers to cooperate with Servico and its
agents and representatives, and to make available to Servico and its agents
and representatives, information and documents, on terms and subject to
conditions similar to those provided in the preceding sentence and subject to
the reimbursement by Servico or its agents and representatives of the
reasonable out-of-pocket costs or expenses (but not fees) of such advisors,
consultants, contractors and managers associated with making available such
information and documents.
4.3 Schedules. Immediately following the execution and delivery of
---------
this Agreement, Prime, AMI and the General Partner, together with their
advisors, representatives, and counsel, shall commence, and proceed as
promptly as practicable with, the preparation of the Schedules hereto, which
Schedules shall be delivered to Servico not later than three (3) weeks after
the execution and delivery hereof. Servico or its advisors, representatives
and counsel may participate in such process (as part of their review
contemplated by Section 4.2 and not as the preparers of such Schedules).
4.4 Consents. Each of Prime, the General Partner and Servico agrees
--------
to cooperate with each other, file, submit or request promptly after the date
of this Agreement and to prosecute diligently any and all applications or
notices required to be filed or submitted to any Governmental Entity,
including those specified in Sections 2.4 and 3.7. Each of Prime, the
General Partner and Servico shall promptly make available to the other such
information as each of them may reasonably request relating to its business,
assets, liabilities, properties and personnel as may be required by each of
them to prepare and file or submit such applications and notices and any
additional information requested by any Governmental Entity, and shall update
by amendment or supplement any such information given in writing. Each of
Prime, the General Partner and Servico represents and warrants to the other
that such information, as amended or supplemented, shall be an accurate and
complete description of the information or data purported to be shown. Each
of Prime and Servico shall promptly provide the other with copies of all
filings made with Governmental Entities in connection with this Agreement.
4.5 Reasonable Efforts. Subject to the terms and conditions of this
------------------
Agreement, each of the parties shall use its reasonable efforts in good faith
to take or cause to be taken as promptly as practicable all reasonable
actions that are within its control to cause to be fulfilled those conditions
precedent to its obligations to consummate the transactions contemplated by
this Agreement. The parties shall use reasonable efforts to obtain all
consents and approvals required in connection with the consummation of the
transactions contemplated by this Agreement.
4.6 Notification. Each party to this Agreement shall promptly notify
------------
the other parties in writing of the occurrence, or threatened occurrence, of
(i) any event that, with the lapse of time or notice or both, would
constitute a violation or breach of this Agreement by such party, (ii) any
event that would cause any representation or warranty made by such party in
this Agreement to be false or misleading in any respect; and (iii) any other
matter which may occur from and after the date of this Agreement which, if
existing on the date of such Agreement, would have been required to be
disclosed herein. The updating of any schedule pursuant to this Section 4.6
shall not be deemed to release any party for the breach of any
representation, warranty or covenant hereunder or of any other liability
arising hereunder.
4.7 No Solicitation. Except for the transactions contemplated by this
---------------
Agreement, unless and until this Agreement shall have been terminated, Prime
and the General Partner shall not (nor shall they permit AMI or any of its or
their partners, shareholders, officers, directors, agents or affiliates to)
directly or indirectly (i) solicit, encourage (including by furnishing
information to any third party or group), initiate or, except as provided in
the proviso to this sentence, participate in any negotiations or discussions
with respect to any offer or proposal to acquire all or substantially all of
the business and assets or capital stock or partnership interests of Prime,
AMI or the General Partner, whether by merger, purchase of assets or
otherwise, or (ii) except as required by Law, disclose any nonpublic
information or any other information not customarily disclosed to any person
or entity concerning the business and assets of Prime, the General Partner
and AMI, afford to any person or entity (other than Servico and its
designees) access to the books or records of Prime, the General Partner or
AMI or otherwise assist or encourage any person or entity in connection with
any of the foregoing; provided, however, that Prime, AMI and/or the General
Partner may entertain, participate in negotiations or discussions with
respect to, and accept, any unsolicited offer or proposal that Prime, AMI
and/or the General Partner reasonably determines, considering all of the
terms and conditions of the transactions contemplated by this Agreement and
all of the terms and conditions of such offer or proposal, is more favorable
to the Limited Partners. In the event that Prime, AMI or the General Partner
shall receive or become aware of any offer or proposal of the type referred
to in clause (i) above or the proviso to the preceding sentence, Prime shall
promptly inform Servico of such offer or proposal and the terms and
provisions thereof.
4.8 Confidentiality. The parties acknowledge that all confidential
---------------
or proprietary information with respect to the business and operations of the
other party and their respective subsidiaries is valuable, special and
unique. The parties shall not disclose, directly or indirectly, to any
person or entity, or use or purport to authorize any person or entity to use
any confidential or proprietary information with respect to the other party
or any of their respective subsidiaries for any purpose other than the
evaluation of the transactions contemplated by this Agreement, without the
prior written consent of the other party, including without limitation,
information as to the financial condition, results of operations, customers,
suppliers, products, products under development, services, services under
development, inventions, sources, leads or methods of obtaining new business,
pricing methods or formulas, costs, marketing strategies or any other
information relating to Prime, the General Partner, AMI, SAC or Servico or
any of their respective subsidiaries, which could reasonably be regarded as
confidential or proprietary (whether such data is obtained from such party or
its affiliates, from advisors or consultants to, or managers for, or
representatives of such party or its affiliates, or from other parties in a
relationship of confidentiality with such party or its affiliates, and
without regard to the form or medium in which such information is embodied),
but not including information which (i) is or shall become generally
available to the public other than as a result of an unauthorized disclosure
by any of the parties or any of its affiliates, (ii) becomes available to the
other party on a nonconfidential basis from a source other than a party to
this Agreement, provided such source is not in violation of a confidentiality
agreement with the party providing such information or (iii) is required to
be disclosed by law or by the rules and regulations of the NYSE. The
covenants of the parties contained in this Section 4.8 shall survive any
termination of this Agreement. In the event that the transactions
contemplated by this Agreement are consummated, Servico's obligations under
this Section 4.8 with respect to Prime, the General Partner and AMI shall
terminate.
4.9 Publicity. The parties agree to reasonably cooperate in issuing
---------
any press release or other public announcement or making any governmental
filing concerning this Agreement or the transactions contemplated hereby.
Nothing contained herein shall prevent any party from at any time furnishing
any information to any Governmental Entity which it is by Law or pursuant to
the rules and regulations of the NYSE so obligated to disclose or from making
any disclosure which its independent outside counsel (which may be such
party's regularly engaged outside counsel) deems (in the case of non-
governmental filings, in writing) necessary in order to fulfill such party's
disclosure obligations under applicable law, or the rules and regulations of
the NYSE; provided, however, that such party shall afford the other parties
prompt notice of the proposed disclosure and the opportunity to seek a
protective order or other relief. If such order or other relief is denied,
or the provisions of the foregoing proviso are waived, the disclosing party
shall disclose only so much of any confidential or proprietary information as
is required under the circumstances to be disclosed.
4.10 Proxy Statement.
---------------
(a) As promptly as practicable after the execution of this
Agreement, Prime shall prepare and file with the SEC a proxy statement with
respect to the transactions contemplated by this Agreement relating to the
special meeting of Prime's Limited Partners (the "Prime Special Meeting") to
be held to consider the approval of this Agreement and the transactions
contemplated hereby (such document, together with any amendments thereto, the
"Proxy Statement"). Servico shall furnish all information concerning
Servico, its offer contemplated by this Agreement, and, to the extent
required by applicable Law, its analysis of and plans for AMI's properties,
as Prime may reasonably request in connection with the preparation of the
Proxy Statement. The Proxy Statement shall be mailed to the Limited
Partners of Prime as promptly as practicable. Prime shall cause the Proxy
Statement to comply as to form and substance in all material respects with
the applicable requirements of the Exchange Act and all other applicable Law
and shall ensure that none of the information included in the Proxy Statement
shall, at (i) the time the Proxy Statement (or any amendment thereof or
supplement thereto) is first mailed to the Limited Partners of Prime or
(ii) the time of the Prime Special Meeting, contain any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(b) The Proxy Statement shall include the recommendation of the
General Partner to Prime's Limited Partners that they vote in favor of
approval of this Agreement and the transactions contemplated hereby.
(c) No amendment or supplement to the proxy statement filed with
the SEC, shall be made without the approval of Servico, which approval shall
not be unreasonably withheld or delayed. Prime shall promptly advise Servico
of any request by the SEC for amendment of such proxy statement or comments
thereon and responses thereto or requests by the SEC for additional
information.
4.11 Special Meeting. Prime shall call and hold the Prime Special
---------------
Meeting as promptly as practicable for the purpose of voting upon the
approval of this Agreement pursuant to the Proxy Statement and the
transactions contemplated hereby. Prime shall use its best efforts to
solicit from its Limited Partners, proxies in favor of the approval of this
Agreement and the transactions contemplated hereby pursuant to the Proxy
Statement and shall take such other action as is reasonably necessary or
advisable to secure the vote or consent of Limited Partners required by
applicable Law.
4.12 Dissolution of Prime. Immediately after the Closing, Prime shall
--------------------
wind up its affairs, dissolve and distribute the Purchase Price to its
Limited Partners in accordance with the terms of its Limited Partnership
Agreement and the Delaware Revised Uniform Limited Partnership Act.
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 Survival of the Representations, Warranties, Covenants and
----------------------------------------------------------
Agreements. The representations and warranties of Prime, the General
- ----------
Partner and Servico contained in this Agreement shall terminate at the
Closing.
5.2 Investigation. The representations, warranties, covenants and
-------------
agreements of this Agreement shall not be affected or diminished in any way
by the receipt of any notice pursuant to Section 4.6 or by any investigation
(or failure to investigate) at any time by or on behalf of the party for
whose benefit such representations, warranties, covenants and agreements were
made. All statements contained herein or in any schedule, certificate,
exhibit, list or other document delivered pursuant hereto or in connection
with the transactions contemplated hereby shall be deemed to be
representations and warranties for purposes of this Agreement.
5.3 Indemnification.
---------------
(a) For a period of six years after the Closing, Servico shall,
subject to applicable Law, indemnify, defend and hold harmless the present
directors and officers of the General Partner (each a "Prime Indemnified
Party") against all losses, claims, demands, costs, damages, liabilities,
expenses, judgments, fines, settlements and other amounts arising out of
actions or omissions occurring at or prior to the Closing to the same extent
(including mandatory advancement of expenses) but without limitation as to
amount as provided under the Limited Partnership Agreements of Prime and AMI
and the Certificate of Incorporation and bylaws of the General Partner.
During such period, Servico shall obtain or maintain in effect a directors'
and officers' liability insurance policy or a noncancellable runoff policy
insuring the Prime Indemnified Parties, with coverage in amount and scope
substantially equivalent to the General Partner's existing coverage, for
events or occurrences prior to the Closing.
(b) For purposes of the foregoing, (i) any claim against S.
Leonard Okin in his capacity as a consultant to Prime, AMI or the General
Partner shall be deemed to be a claim against him as an officer of the
General Partner and (ii) any claim against Paul H. Rich or Siegel Rich Inc.
as a consultant to Prime, AMI or the General Partner shall be deemed to be a
claim against Seymour G. Siegel as a director of the General Partner.
(c) The indemnification provided for above shall (i) include any
claim against any Prime Indemnified Party arising directly or indirectly out
of this Agreement and (ii) if litigation is commenced against such Prime
Indemnified Party which has not finally concluded within six (6) years after
the Closing, continue until such litigation is finally concluded.
(d) If a claim under this Section 5.3 is not paid in full by
Servico within sixty (60) days after a written claim has been received by
Servico, the indemnified party may at any time thereafter bring suit against
Servico to recover the unpaid amount of the claim. If successful in whole or
in part in any such suit, or in a suit brought by Servico to recover an
advancement of expenses pursuant to an undertaking, such person shall be
entitled to be paid also the expenses of prosecuting or defending such suit.
(e) In any suit brought by an indemnified party to enforce a right
to indemnification or to an advancement of expenses pursuant to the terms of
an undertaking, the burden of providing that such person is not entitled to
be indemnified, or to such advancement of expenses, shall be on Servico.
(f) For a period of six (6) years after the Closing, Servico
shall, subject to applicable law, indemnify, defend and hold harmless Furman
Selz to the same extent, and on the same terms and subject to the same
conditions, that Prime and the General Partner had agreed to indemnify and
hold harmless Furman Selz. A complete and correct copy of such agreement
shall be provided to Servico with the Schedules contemplated in Section 4.3.
(g) During the term of this Agreement, Servico shall pay all
reasonable expenses (including reasonable attorneys' fees) incurred by any
Prime Indemnified Party in defending any proceeding brought by any of the
Limited Partners against such Prime Indemnified Party as a consequence of the
execution and delivery of this Agreement and the proposed sale of the Limited
Partnership Interest to SAC pursuant to this Agreement. Servico's
obligations under this paragraph 5.3(g) shall terminate upon termination of
this Agreement.
ARTICLE VI
CONDITIONS PRECEDENT
--------------------
6.1 Mutual Conditions Precedent. The respective obligations of the
---------------------------
parties to consummate the transactions contemplated by this Agreement are
subject to the satisfaction at or prior to the Closing of the following
conditions:
(a) Governmental Consents. All material consents and approvals
---------------------
required by Governmental Entities for the consummation of the transactions
contemplated by this Agreement shall have been obtained.
(b) No Litigation. No litigation, arbitration or other proceeding
-------------
shall be pending or, to the knowledge of the parties, threatened by or before
any court, arbitration panel or governmental authority, and no law or
regulation shall have been enacted after the date of this Agreement; and no
judicial or administrative decision shall have been rendered, which, in each
case, enjoins, prohibits or materially restricts, or seeks to enjoin,
prohibit or materially restrict, the consummation of the transactions
contemplated by this Agreement.
(c) Partnership Approvals. The Limited Partners of Prime shall
---------------------
have approved this Agreement and the transactions contemplated hereby in
accordance with its Certificate of Limited Partnership and Limited
Partnership Agreement.
(d) General Partner Purchase Agreement. Servico shall have
----------------------------------
entered into a binding agreement with the General Partner pursuant to which
Servico will acquire the GP Interest and Servico or its designee will be
substituted and admitted as the sole general partner of AMI.
6.2 Conditions Precedent to the Obligations of Servico. The
--------------------------------------------------
obligations of Servico to consummate the transactions contemplated by this
Agreement are subject to the satisfaction at or prior to the Closing of the
following conditions:
(a) Representations and Warranties True. Each of the
-----------------------------------
representations and warranties of Prime and the General Partner contained
herein or in any certificate or other document delivered pursuant to the
provisions hereof or in connection with the transactions contemplated hereby
shall be true and correct in all material respects (except for such
representations and warranties qualified by materiality which shall be true
and correct in all respects) as of the Closing with the same force and
effect as though made on and as of such date, except that representations as
to agreements, licenses, franchises, rights, conditions, facts or
relationships that will terminate or be altered at the Closing by virtue of
the Closing or changes in relationships caused by the Closing shall be
understood to have no force, or validity beyond the Closing.
(b) Performance. Prime and the General Partner shall have
-----------
performed and complied in all material respects with all of the agreements,
covenants and obligations required under this Agreement to be performed or
complied with by them prior to or at the Closing.
(c) No Material Adverse Effect. There shall not have occurred any
--------------------------
event or condition which has adversely affected or is reasonably likely to
adversely affect in any material respect the condition (financial or
otherwise) of AMI or its assets, liabilities (whether absolute, accrued,
contingent or otherwise), earnings, business, prospects or operations.
(d) Consents and Agreements. Prime and the General Partner shall
-----------------------
have obtained all material authorizations, consents, waivers and approvals
required in connection with the consummation of the transactions contemplated
hereby.
(e) Opinion of Counsel. Servico shall have received from Brown
------------------
& Wood LLP, legal counsel to Prime, an opinion letter, dated as of the
Closing, in form and substance reasonably satisfactory to Servico, with
respect to the matters set forth in Exhibit 6.2(e) to this Agreement.
--------------
(f) Certificates. Prime shall have delivered to Servico a
------------
certificate executed by the principal executive officer of the General
Partner, dated as of the Closing, certifying in such detail as Servico may
reasonably request, that (i) the conditions specified in Sections 6.2(a) and
(b) (insofar as they are to be performed by or Prime or the General Partner)
have been fulfilled and (ii) attached to such certificate is a true and
correct copy of the resolutions or consents of the Board of Directors of the
General Partner authorizing the execution, delivery and performance of this
Agreement by Prime and the General Partner. Servico shall also have received
(i) a certificate from the Secretary of the General Partner as to the
incumbency and signatures of the officers of Prime and the General Partner
executing this Agreement, and (ii) a certificate issued by the Secretary of
State of Delaware and of each state in which the General Partner or AMI is
qualified to do business, as of a date reasonably acceptable to Servico, as
to the good standing of the General Partner and AMI in those states.
(g) Consulting Agreement. Servico shall enter into a Consulting
--------------------
Agreement with Mr. Leonard Okin in the form attached as Exhibit 6.2(g)
--------------
hereto.
6.3 Conditions Precedent to the Obligations of Prime and the General
----------------------------------------------------------------
Partner. The obligations of Prime and the General Partner to consummate the
- -------
transactions contemplated by this Agreement are subject to the satisfaction
at or prior to the Closing of the following conditions:
(a) Representations and Warranties True. Each of the
-----------------------------------
representations and warranties of Servico contained herein or in any
certificate or document delivered pursuant to the provisions hereof or in
connection with the transactions contemplated hereby shall be true and
correct in all material respects (except for such representations and
warranties qualified by materiality which shall be true and correct in all
respects) on and as of the Closing with the same force and effect as though
made on and as of such date.
(b) Performance. Servico shall have performed and complied in all
-----------
material respects with all of the agreements, covenants and obligations
required under this Agreement to be performed or complied with by it prior to
or at the Closing.
(c) Consents and Agreements. Servico shall have obtained all
-----------------------
material authorizations, consents, waivers and approvals required in
connection with the consummation of the transactions contemplated hereby.
(d) Opinion of Counsel. Prime and the General Partner shall have
------------------
received from Stearns Weaver Miller Weissler Alhadeff & Sitterson, P.A.,
legal counsel to Servico, an opinion letter, dated as of the Closing, in form
and substance reasonably satisfactory to Prime and the General Partner, with
respect to the matters set forth in Exhibit 6.3(d) to this Agreement.
--------------
(e) Servico's Certificates. Servico shall have delivered to Prime
----------------------
a certificate executed by its Chairman and President, dated as of the
Closing, certifying in such detail as Prime may reasonably request, that:
(i) the conditions specified in Sections 6.3(a) and (b) (insofar as they are
to be performed by Servico) have been fulfilled; and (ii) attached to such
certificate is a true and correct copy of the resolutions of the Board of
Servico authorizing the execution, delivery and performance of this Agreement
by Servico. Prime and the General Partner shall also have received (i) a
certificate from the Secretary of Servico as to the incumbency and signatures
of the officers of Servico executing this Agreement and (ii) a certificate
issued by the Secretary of State of Florida as to the due formation, valid
existence and good standing of Servico in Florida.
6.4 Termination. This Agreement may be terminated at any time prior
-----------
to the date of Closing, as follows:
(a) by mutual written consent of Servico and Prime;
(b) by either Servico or Prime, if any Governmental Entity shall
have issued an order, decree or ruling or taken any other action permanently
enjoining, restraining or otherwise prohibiting the transactions contemplated
hereby, and such order, decree, ruling or other action shall have become
final and nonappealable;
(c) by either Servico or Prime, if the Closing has not occurred by
June 1, 1998 (such date or such later date mutually agreed to in writing by
the parties hereto referred to as the "End Date") (other than due to the
failure of the party seeking to terminate this Agreement to perform its
obligations under this Agreement required to be performed at or prior to the
Closing);
(d) by either Servico or Prime, if the Prime Special Meeting shall
have been held, and the Limited Partners shall have failed to approve this
Agreement;
(e) by Servico at any time in its sole discretion if any of the
representations or warranties of Prime or the General Partner in this
Agreement are not in all material respects true and correct, or if Prime or
the General Partner breach in any material respect any covenant contained in
this Agreement, provided that if such misrepresentation or breach is curable,
it is not cured within ten business days after notice thereof, but in any
event prior to the End Date;
(f) by Prime at any time in its sole discretion if any of the
representations or warranties of Servico or SAC in this Agreement are not in
all material respects true and correct, or if Servico or SAC breach in any
material respect any covenant contained in this Agreement, provided that if
such misrepresentation or breach is curable, it is not cured within ten
business days after notice thereof, but in any event prior to the End Date;
(g) by Servico, in Servico's sole discretion, at any time prior to
the passage of seven (7) days after delivery to Servico of the Schedules
contemplated in Section 4.3; or
(h) by Prime, if Prime has not obtained prior to seven (7) days
after execution and delivery of this Agreement, the required approval of the
holders of AMI's outstanding secured indebtedness to the application of AMI's
available funds to the payment of up to $700,000 of the fees and expenses of
this transaction, including the fees and expenses of Furman Selz, the fees
and expenses of Brown & Wood LLP, the costs of preparing, filing, printing
and distributing the Proxy Statement, and the cost of holding the Prime
Special Meeting.
If this Agreement is terminated pursuant to this Section 6.4, written
notice thereof shall promptly be given by the party electing such termination
to the other party and, subject to the expiration of the cure periods
provided in clauses (e) and (f) above, if any, this Agreement shall terminate
without further actions by the parties and no party shall have any further
obligations under this Agreement except to the extent provided in Section
7.8; provided that any termination of this Agreement pursuant to this Section
6.4 shall not relieve any party from any liability for the willful or
intentional breach of any of its representations or warranties or the willful
or intentional breach of any of its covenants or agreements contained in this
Agreement. Notwithstanding the termination of this Agreement, the respective
obligations of the parties under Sections 4.8 (Confidentiality), 4.9
(Publicity), 7.8 (Fees and Expenses), 7.12 (Litigation; Prevailing Party),
7.14 (Injunctive Relief) and 7.15 (Governing Law) shall survive the
termination of this Agreement. Subject to Section 4.7 hereof, upon
termination of this Agreement, each party shall return all documents and
other materials of any other party relating to the transactions contemplated
by this Agreement, whether so obtained before or after the execution of this
Agreement, to the party furnishing the same.
ARTICLE VII
MISCELLANEOUS
-------------
7.1 Further Assurances. The parties hereto shall deliver any and all
------------------
other instruments or documents required to be delivered pursuant to, or
necessary or proper in order to give effect to, all of the terms and
provisions of this Agreement including, without limitation, all necessary
bulk of sale, assignments and such other instruments of transfer as may be
necessary or desirable to transfer ownership.
7.2 Notices. Any notice or other communication under this Agreement
-------
shall be in writing and shall be delivered personally or sent by registered
mail, return receipt requested, postage prepaid, or sent by facsimile or
prepaid overnight courier to the parties at the addresses set forth below
their names on the signature pages of this Agreement (or at such other
addresses as shall be specified by the parties by like notice). Such
notices, demands, claims and other communications shall be deemed given when
actually received or (a) in the case of delivery by overnight service with
guaranteed next day delivery, the next day or the day designated for
delivery, (b) in the case of registered U.S. mail, five days after deposit in
the U.S. mail, or (c) in the case of facsimile, the date upon which the
transmitting party received confirmation of receipt by facsimile, telephone
or otherwise. A copy of any notices delivered to Servico or SAC shall also
be sent to Stearns Weaver Miller Weissler Alhadeff & Sitterson, P.A., 150
West Flagler Street, Suite 2200, Miami, Florida 33130, Attention: Alison W.
Miller, Esq. A copy of any notices delivered to Prime or the General Partner
shall also be sent to Brown & Wood LLP, One World Trade Center, New York, New
York 10048-0557, Attention: Michael G. Wolfson, Esq.
7.3 Entire Agreement. This Agreement, along with the Schedules and
----------------
Exhibit hereto, constitutes the entire agreement among the parties hereto and
supersedes all prior agreements, understandings, negotiations and
discussions, both written and oral, among the parties hereto with respect to
the subject matter hereof. This Agreement may not be amended or modified in
any way except by a written instrument executed by all of the parties hereto.
7.4 Assignment. Neither this Agreement nor any of the rights,
----------
interests or obligations hereunder may be assigned by any party without the
written consent of the other parties hereto (whether by operation of Law or
otherwise). Subject to the preceding sentence, this Agreement shall be
binding upon and inure to the benefit of the parties hereto and their
respective successors, heirs, personal representatives, legal
representatives, and assigns.
7.5 Waiver. At any time prior to the date of Closing, any
------
representation, warranty, covenant, term or condition of this Agreement which
may legally be waived, may be waived, or the time of performance thereof
extended, at any time by the party hereto entitled to the benefit thereof,
and any term, condition or covenant hereof may be amended by the parties
hereto at any time. Any such waiver, extension or amendment shall be
evidenced by an instrument in writing duly executed on behalf of the
appropriate party by a person who has been authorized by its Board of
Directors, in the case of Servico and the General Partner, or the General
Partner, on behalf of Prime, to execute waivers, extensions or amendments on
its behalf. No waiver by any party hereto, whether express or implied, of
its rights under any provision of this Agreement shall constitute a waiver of
such party's rights under such provisions at any other time or a waiver of
such party's rights under any other provision of this Agreement or any other
agreement. No failure by any party hereto to take any action against any
breach of this Agreement or default by another party shall constitute a
waiver of the former party's right to enforce any provision of this Agreement
or to take action against such breach or default or any subsequent breach or
default by such other party.
7.6 No Third Party Beneficiary. Nothing expressed or implied in this
--------------------------
Agreement is intended, or shall be construed, to confer upon or give any
person other than the parties hereto and their respective heirs, personal
representatives, legal representatives, successors and permitted assigns, any
rights or remedies under or by reason of this Agreement other than the
Limited Partners with respect to the provisions of Section 4.12 hereto.
7.7 Severability. In the event that any one or more of the provisions
------------
contained in this Agreement shall be declared invalid, void or unenforceable,
the remainder of the provisions of this Agreement shall remain in full force
and effect, and such invalid, void or unenforceable provision shall be
interpreted as closely as possible to the manner in which it was written.
7.8 Fees and Expenses.
-----------------
(a) Except as provided below, all fees and expenses incurred in
connection with this Agreement and the transactions contemplated by this
Agreement shall be paid by the party incurring such fees or expenses. In no
event shall the aggregate fees and expenses incurred by or on behalf of AMI
in connection with this Agreement and any of the transactions contemplated
herewith exceed $700,000 in the aggregate.
(b) If this Agreement shall be terminated pursuant to Section
6.4(e) as the result of an intentional or willful breach by Prime or the
General Partner of any representation, warranty or covenant contained herein,
then Prime shall pay Servico an amount equal to all costs and out-of-pocket
expenses (including reasonable attorneys' and advisors' fees) of up to
$300,000 incurred by Servico in connection with this Agreement and the
transactions contemplated by this Agreement.
(c) If this Agreement shall be terminated pursuant to Section 6.4
(f) as the result of an intentional or willful breach by Servico of any
representation, warranty or covenant contained herein, then Servico shall pay
Prime an amount equal to all costs and out-of-pocket expenses (including
reasonable attorneys' and advisors fees, including the fees and expenses of
Furman Selz) of up to $700,000 incurred by Prime in connection with this
Agreement and the transactions contemplated by this Agreement.
(d) If this Agreement shall be terminated by Prime for any reason
other than pursuant to Section 6.4(f) and, at the time of such termination,
there shall exist or be proposed a Competing Transaction then, promptly after
the execution of any agreement with respect to the Competing Transaction or,
if no agreement is executed, the consummation of the Competing Transaction,
Prime shall pay to Servico $1 million. A "Competing Transaction" means any
of the following involving Prime or AMI, as the case may be (other than the
transactions contemplated by this Agreement): (i) a merger, consolidation,
exchange, business combination or other similar transaction, (ii) any sale,
lease, exchange, transfer or other disposition of 15% or more of the assets
of such party other than sales of properties pursuant to AMI Material
Agreements currently in effect and disclosed on Schedule 3.21
-------------
or as agreed to in writing by Servico, or (iii) a tender offer or exchange
offer for 15% or more of the outstanding limited partnership interests of
Prime.
(e) If this Agreement is terminated other than pursuant to
Sections 6.4(e) and (g) (in which case no amounts will be payable by Servico
hereunder), Servico shall, within five (5) business days after such
termination, reimburse Prime and the General Partner for up to $100,000 of
the fees and reasonable expenses of Furman Selz.
(f) Each party agrees that the actual damages accruing from
termination of this Agreement pursuant to the termination provisions
referenced in Section 7.8(b), (c) or (d) are incapable of precise estimation
and would be difficult to prove, and that the damages stipulated herein bear
a reasonable relationship to the potential injury likely to be sustained in
the event of termination pursuant to such occurrence. The payments
stipulated in Section 7.8(b), (c) or (d) are intended by the parties to
provide just compensation in the event of termination pursuant to said
termination provision referenced in Section 7.8(b), (c) or (d), and are not
intended to compel performance or to constitute a penalty for nonperformance.
(g) Any payment required to be made pursuant to Section 7.8(b),
(c) or (d) shall be made not later than five business days after the
occurrence of the event for which a party is entitled to payment and delivery
by such party to the other party of a notice of demand for payment, provided
that such notice shall include an itemization setting forth in reasonable
detail all expenses of such party for which it is entitled to reimbursement
hereunder (which itemization may be supplemented and updated from time to
time by such party until the sixtieth day after such party delivers such
notice of demand for payment). All payments required to be made pursuant to
this Section 7.8 shall be made by wire transfer of immediately available
funds to an account designated by such party in the notice of demand for
payment delivered pursuant to this Section 7.8(g).
(h) In the event a party shall fail to make any payment required
pursuant to Section 7.8(b), (c), (d) or (e), the amount of any such required
payment shall be increased to include the costs and expenses actually
incurred or accrued by the other party (including, without limitation, fees
and expenses of counsel) in connection with the collection under and
enforcement of this Section 7.8, together with interest on such unpaid
amounts commencing on the date that such payment under Section 7.8(b),
(c),(d) or (e) became due, at a rate equal to the rate of interest publicly
announced by Citibank, N.A., from time to time, in The City of New York, from
time to time, as such bank's base rate plus 2.00%.
7.9 Headings. The section and other headings contained in this
--------
Agreement are for reference purposes only and shall not affect the meaning or
interpretation of any provisions of this Agreement.
7.10 Counterparts. This Agreement may be executed in any number of
------------
counterparts and by the several parties hereto in separate counterparts, each
of which shall be deemed to be one and the same instrument.
7.11 Time of Essence. Wherever time is specified for the doing or
---------------
performance of any act or the payment of any funds, time shall be considered
of the essence.
7.12 Litigation; Prevailing Party. In the event of any litigation with
----------------------------
regard to this Agreement, the prevailing party shall be entitled to receive
from the non-prevailing party and the non-prevailing party shall pay upon
demand all reasonable fees and expenses of counsel for the prevailing party.
7.13 Remedies Cumulative. No remedy made available by any of the
-------------------
provisions of this Agreement is intended to be exclusive of any other remedy,
and each and every remedy shall be cumulative and shall be in addition to
every other remedy given hereunder or now or hereafter existing at law or in
equity.
7.14 Injunctive Relief. It is possible that remedies at law may be
-----------------
inadequate and, therefore, the parties hereto shall be entitled to equitable
relief including, without limitation, injunctive relief, specific performance
or other equitable remedies in addition to all other remedies provided
hereunder or available to the parties hereto at law or in equity.
7.15 Governing Law. This Agreement has been entered into and shall be
-------------
construed and enforced in accordance with the laws of the State of New York
without reference to the choice of law principles thereof.
7.16 Certain Definitions. For purposes of this Agreement,
-------------------
the following terms have the following meanings:
(a) "affiliate" has the meaning specified in Rule 144 promulgated
---------
by the SEC under the Securities Act;
(b) "business day" means any day on which the principal offices
------------
of the SEC in Washington, D.C. are open to accept filings, or, in the case of
determining a date when any payment is due, any day on which banks are not
required or authorized by law or executive order to close in the City of New
York, USA;
(c) "knowledge" means, with respect to any matter in question,
---------
that such party (i) has actual knowledge of such matter or (ii) after due
investigation, should have known of such matter. Where reference is made to
the knowledge of Prime, such reference shall be deemed to include only the
directors and executive officers of the General Partner, all of whom shall
have been deemed to have conducted the investigation required by this
definition;
(d) "Law" means any federal, state or local statute, law,
----
ordinance, regulation, rule, code, order or other requirement or rule of law
of the United States or any other jurisdiction;
(e) "partnership interests" means all of the partners' rights in
---------------------
the subject partnership, including, but not limited to, the profits and
losses of the partnership and the right to receive distributions of the
partnership's assets;
(f) "person" means an individual, corporation, partnership,
------
limited partnership, limited liability company, syndicate, person (including,
without limitation, a "person" as defined in Section 13(d)(3) of the Exchange
------
Act), trust, association, entity or government or political subdivision,
agency or instrumentality of a government;
(g) "Prime Material Adverse Effect" means any change in or effect
-----------------------------
on the business of AMI that is, or is reasonably likely to be, materially
adverse to the business, assets (including intangible assets), liabilities
(contingent or otherwise), condition (financial or otherwise), results of
operations or prospects of AMI;
(h) "subsidiary" or "subsidiaries" of any person means any
---------- ------------
corporation, limited liability company, partnership, joint venture or other
legal entity of which such person (either alone or through or together with
any other subsidiary of such person) owns, directly or indirectly, more than
fifty percent of the stock or other equity interests, the holders of which
are generally entitled to vote for the election of the board of directors or
other governing body of such corporation, partnership or other legal entity;
and
(i) "Tax" means any federal, state, local or foreign income, gross
---
receipts, franchise, estimated, alternative minimum, add-on minimum, sales,
use, transfer, transportation, transportation excise, registration, value
added, documentary stamp, excise, natural resources, severance, stamp,
occupation, premium, windfall profit, environmental, customs, duties, real
property, personal property, capital stock, social security, unemployment,
disability, payroll, license, employee or other withholding, or other tax or
governmental charge, of any kind whatsoever, including any interest,
penalties or additions to tax or additional amounts in respect of the
foregoing; the foregoing shall include any transferee or secondary liability
for a Tax and any liability assumed by agreement or arising as a result of
being (or ceasing to be) a member of any affiliated group (or being included
(or required to be included) in any tax return relating thereto).
IN WITNESS WHEREOF, the parties hereto have each executed and
delivered this Agreement as of the day and year first above written.
SERVICO, INC., a Florida corporation
By:
---------------------------------
Name:
Title:
Address: 1601 Belvedere Road
West Palm Beach, Florida 33406
SERVICO ACQUISITION CORP.,
a Florida corporation
By:
--------------------------------
Name:
Title:
Address: 1601 Belvedere Road
West Beach, Florida 33406
PRIME MOTOR INNS LIMITED PARTNERSHIP,
a Delaware limited partnership
By: PRIME-AMERICAN REALTY CORP.,
a Delaware corporation,
its General Partner
By:
---------------------------------
Name:
Title:
Address:
PRIME-AMERICAN REALTY CORP.,
a Delaware corporation
By:
---------------------------------
Name:
Title:
Address:
FIRST AMENDMENT TO ACQUISITION AGREEMENT
________________________________________
First Amendment, dated as of March 12, 1998, to that certain Acquisition
Agreement dated as of November 7, 1997 (the "Acquisition Agreement") among
Servico, Inc., a Florida corporation ("Servico"), Servico Acquisition Corp.,
a Florida corporation and a wholly-owned subsidiary of Servico, Prime Motor
Inns Limited Partnership, a Delaware limited partnership ("Prime"), and
Prime-American Realty Corp., a Delaware corporation (the "General Partner").
WHEREAS, the parties hereto desire to amend the Acquisition Agreement on
the terms set forth herein;
NOW, THEREFORE, in consideration of the premises and the agreements
hereinafter set forth, the parties hereto hereby agree as follows:
1. The Acquisition Agreement shall remain in full force and effect
except as specifically amended hereby.
2. The Purchase Price, as defined in Section 1.1 of the
Acquisition Agreement, shall be increased from Eight Million Dollars
($8,000,000) to Twelve Million Dollars ($12,000,000).
3. Section 6.2(g), Consulting Agreement, of the Acquisition Agreement
--------------------
shall be deleted in its entirety.
4. Section 3.11, Brokers, of the Acquisition Agreement shall be amended
-------
to reflect a reduction in the fee payable to Furman Selz in connection with
this transaction to a fee of up to $200,000.
5. Upon the Closing, Servico shall assume the termination payment and
compensation obligations of Prime under that certain Consulting Services
Agreement, dated as of December 1, 1994, among Prime, the General Partner,
AMI Operating Partners, L.P., a Delaware limited partnership, and S. Leonard
Okin.
6. This First Amendment may be executed in any number of counterparts
and by the several parties hereto in separate counterparts, each of which
shall be deemed to be one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this First
Amendment to the Acquisition Agreement to be duly executed as of the day and
year first above written.
SERVICO, INC., a Florida corporation
By:
-------------------------
Name:
Title:
Address: 1601 Belvedere Road
West Palm Beach, Florida 33406
SERVICO ACQUISITION CORP.,
a Florida corporation
By:
--------------------------
Name:
Title:
Address: 1601 Belvedere Road
West Palm Beach, Florida 33406
PRIME MOTOR INNS LIMITED PARTNERSHIP,
a Delaware limited partnership
By: PRIME-AMERICAN REALTY CORP.,
a Delaware corporation,
its General Partner
By:
-------------------------
Name:
Title:
Address:
PRIME-AMERICAN REALTY CORP.,
a Delaware corporation
By:
---------------------------
Name:
Title:
Address:
APPENDIX B
PLAN AND AGREEMENT OF DISSOLUTION AND LIQUIDATION
PLAN AND AGREEMENT OF DISSOLUTION AND LIQUIDATION dated as of ________,
1998 of Prime Motor Inns Limited Partnership (the "Partnership"), a limited
partnership organized and existing under the Delaware Revised Uniform Limited
Partnership Act (the "Delaware Act").
WHEREAS, the Partnership has entered into an Acquisition Agreement dated
as of November 7, 1997, amended as of March 12, 1998 (as so amended, the
"Acquisition Agreement") with Servico, Inc., Servico Acquisition Corp., and
Prime-American Realty Corp. providing for the sale by the Partnership of its
99% limited partnership interest (the "Interest") in AMI Operating Partners,
L.P.,
WHEREAS, the Partnership has agreed, pursuant to Section 4.12 of
Acquisition Agreement, that, immediately after the closing of the sale of the
Interest by the Partnership pursuant to the Acquisition Agreement (the
"Closing"), the Partnership shall wind up its affairs, dissolve and
distribute the Purchase Price (as defined in the Acquisition Agreement) in
accordance with the Amended and Restated Agreement of Limited Partnership
dated as of December 23, 1986 of the Partnership (the "Partnership
Agreement") and the Delaware Act;
WHEREAS, the Interest constitutes substantially all of the Partnership's
assets, and Section 1301(c) of the Partnership Agreement provides that the
Partnership shall be dissolved upon the sale or other disposition of
substantially all of the Partnership's assets and the collection of the
proceeds therefrom;
WHEREAS, pursuant to Section 803(b)(ii) of the Partnership Agreement,
the General Partner does not have the authority to sell the Interest without
the Majority Vote of the Limited Partners (as defined in the Partnership
Agreement); and
WHEREAS, the General Partner has called a Special Meeting to consider
and vote on, and has distributed to the holders ("Unitholders") of units of
limited partnership interest ("Units") in the Partnership a proxy statement
soliciting their votes in favor of, the Partnership's sale of the Interest
and the dissolution of the Partnership and the making of a payment to Martin
W. Field or his designees of $500,000 (the "Field Payment"),
NOW, THEREFORE, Prime-American Realty Corp., in its personal capacity
and as General Partner of the Partnership, and the Limited Partners of the
Partnership, by the General Partner as attorney-in-fact for each Partner of
the Partnership, for $1.00 in hand paid and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
and intending to be legally bound do hereby declare and agree as follows:
1. Dissolution. Effective upon the Closing of the sale of the Interest
-----------
by the Partnership pursuant to the Acquisition Agreement and the receipt by
the Partnership of the Purchase Price provided for therein, in accordance
with the terms and provisions of the Acquisition Agreement, the Partnership
is and shall be dissolved, without any further action by or on behalf of the
Partnership or any of the Partners.
2. Winding Up. Upon the dissolution of the Partnership, the General
----------
Partner, as liquidator for the Partnership, shall liquidate any remaining
assets of the Partnership and shall apply the funds of the Partnership
(including funds paid to or on behalf of the Partnership by AMI, the Purchase
Price and the proceeds of the sale of any other assets of the Partnership) to
(a) the payment of the expenses (including all costs and all fees of third
parties) of the sale of the Interest, the liquidation of other assets of the
Partnership, and the winding up, liquidation and termination of the
Partnership, (b) the payment of all expenses and administration of the
Partnership (including fees and expenses of Winegardner & Hammons, Inc. under
the Administrative Services Agreement, the expenses of preparation, filing
and distribution of financial statements, tax returns, reports required under
the Securities Exchange Act of 1934 (the "Exchange Act") and reports to
Unitholders, including fees and expenses of accountants and lawyers), (c) the
payment of all income, sales, use, franchise, gross receipts, ad valorem,
personal property and other taxes, imposts, duties and governmental charges
payable by the Partnership with respect to its income or operations through
the time of its termination ("Taxes"), including Taxes with respect to its
sale of Interest, (d) the making of the Field Payment and (e) the creation of
reserves for any of the foregoing.
3. Liquidation. All assets and funds of the Partnership remaining after
-----------
the payments and provision provided for by Paragraph 2, and any amounts
reserved by the General Partner pursuant to clause (e) of Paragraph 2 and
determined by the General Partner to be in excess of the amounts required
therefor, shall be distributed by the General Partner to the Unitholders in
accordance with Section 706 of the Partnership Agreement; provided, however,
-------- -------
that the General Partner hereby waives any and all right that it may have
with respect to such liquidating distribution or distributions and,
accordingly, notwithstanding the provisions of Sections 706 and 704 of the
Partnership Agreement, no liquidating distribution or distributions shall be
made to or for the benefit of the General Partner.
4. Reports and Filings. In connection with and as part of the winding
-------------------
up and liquidation of the Partnership, the General Partner shall (a) prepare
and file in the name and on behalf of the Partnership all Federal, state or
local returns with respect to applicable Taxes; (b) prepare and file in the
name of and on behalf of the Partnership all reports required under the
Exchange Act; (c) cause the preparation and distribution of the reports and
statements required by Section 1302(c) of the Partnership Agreement; (d) in
the name and on behalf of the Partnership file a Form 15 terminating the
registration of the Partnership under the Exchange Act; and (e) in the name
of and on behalf of the Partnership file a Certificate of Cancellation with
the Secretary of State of the State of Delaware, canceling the Partnership's
Certificate of Limited Partnership.
5. Other Acts. The General Partner shall take, or cause the Partnership
----------
to take, such other acts and deeds and shall do, or cause the Partnership
to do, such other things, as are necessary or appropriate in connection with
the dissolution, winding up and liquidation of the Partnership, the
termination of the responsibilities and liabilities of the Partnership under
applicable law, and the termination of the existence of the Partnership.
6. Effectiveness. This Plan and Agreement shall not be effective, and
-------------
the General Partner shall not take, and shall not cause the Partnership to
take, any of the actions and shall not do, or cause the Partnership to do,
any of the things, provided in this Agreement unless the holders of more than
50% of all of the Units shall have consented to the Partnership's sale of the
Interest and the making of the Field Payment; and the Closing shall have
occurred in accordance with the terms of the Acquisition Agreement.
IN WITNESS WHEREOF, the parties hereto have made and executed this Plan
and Agreement of Dissolution and Liquidation.
PRIME-AMERICAN REALTY CORP.,
For itself and as General Partner of
the Partnership
By:
-------------------------------
S. Leonard Okin, Vice President
Each Limited Partner of the Partnership
By: Prime-American Realty Corp.,
Attorney-in-fact
By:
-------------------------------
S. Leonard Okin, Vice President
APPENDIX C
FAIRNESS OPINION OF FURMAN SELZ LLC
May 5, 1998
Board of Directors
Prime Motors Inns Limited Partnership
21-00 Route 208 S
2nd Floor
Fairlawn, NJ 07410
Gentlemen:
We understand that Prime Motors Inn Limited Partnership and Servico,
Inc. ("Servico") among others, have entered into an Acquisition Agreement
dated as of November 7, 1997, as amended as of March 12, 1998 (as so amended,
the "Agreement"), whereby the Partnership will sell to Servico Acquisition
Corp. ("SAC"), a subsidiary of Servico, and SAC will purchase from the
Partnership, for a payment of $12 million in cash (the "Consideration") the
99% limited partnership interest (the "Interest") of Prime in AMI Operating
Partners, L.P. ("AMI"). SAC will acquire the interest subject to all
outstanding obligations and indebtedness of AMI. The terms and conditions of
the Proposed Transaction are set forth in the Agreement and will be described
in detail in the Partnerships Proxy Statement to be dated the date hereof
(the "Proxy Statement"). We understand that since the Agreement was
originally executed, Servico has acquired in excess of 2,000,000 units of
limited partnership interest ("Units") in the Partnership.
You have requested our opinion, as of the date of the Proxy Statement,
as to the fairness of the Consideration to the Unitholders of the Partnership
other than Servico, from a financial point of view, under the circumstances
that exist today.
In conducting our analysis and arriving at the opinion expressed herein,
we among other things: (i) reviewed the Agreement as executed and delivered
by the parties; (ii) reviewed the Partnership's Annual Reports on Form 10-K
for the fiscal years ended December 31, 1996, and December 31, 1997 and the
Proxy Statement; (iii) reviewed certain operating and financial information,
including forecasts and projections (the "Projections"), provided to us by
senior management of the Partnership relating to the Partnership's business
and prospects (the "Projections"); (iv) reviewed the financial terms of the
Priming and Mortgage Loans; (v) met with certain members of senior
management of the Partnership to discuss the operations, historical financial
statements and future prospects of AMI and the Inns; (vi) spoke with certain
employees of Winegardner & Hammonds, Inc. familiar with the operations and
prospects of the Inns; (vii) reviewed the historical prices and trading
volumes of the Units; (viii) reviewed publicly available financial data and
stock market valuations of companies that we deemed generally comparable to
the Partnership; (ix) reviewed the terms of recent acquisitions of companies
that we deemed generally comparable to the Partnership; and (x) conducted
other such studies, analyses, inquiries, and investigations, reviewed such
other materials and considered such other financial and other factors as we
deemed appropriate. We have also assumed that the amount per unit to be
distributed to the Unitholders, net of all expenses, including the "DMC
Payment" (as defined in the Proxy Statement) and taxes at the Partnership
level, will range from approximately $2.65 to $2.75.
We have met with senior officers of the Partnership to discuss their
judgments with respect to the prospects for AMI's business generally as well
as their estimates of future financial performance and such other matters as
we believed relevant to our inquiry. We also have taken into account our
assessment of general economic, market and financial conditions, as well as
our experience in connection with similar transactions and securities
valuation in general. Our opinion is necessarily based upon conditions as
they exist and can be evaluated on the date hereof.
In arriving at our opinion, we have not visited or conducted a physical
inspection of the properties and facilities of the Partnership or Servico ,
nor have we made, obtained or assumed any responsibility for any independent
evaluation or appraisal of the properties and facilities or of the assets and
liabilities (contingent or otherwise) of the Partnership. We have assumed
and relied upon the accuracy and completeness of the financial and other
information supplied to or otherwise used by us in arriving at our opinion
and have not attempted independently to verify, or undertaken any obligation
to verify, such information. We have further relied upon the assurances of
the management of the Partnership that they were not aware of any facts that
would make such information inaccurate or misleading. In addition, we have
assumed that the Projections provided to us by the Partnership represent the
best currently available estimates and judgment of the Partnership's
management as to the future financial condition and results of operations of
AMI and the Partnership, and have assumed that such Projections have been
reasonably prepared based on such currently available estimates and
judgments. We assume no responsibility for and express no view as to such
Projections or the assumptions on which they are based.
This letter is for the benefit and use of the Board of Directors of the
Partnership in its consideration of the Sale. It does not constitute a
recommendation of the Agreement or the Sale over any other alternative
transactions which may be available to the Partnership and does not address
the underlying business decision of the Board of Directors of the Partnership
to proceed with or effect the Sale.
As you are aware, an affiliate of Furman Selz holds a portion of the
Primary Loans and a portion of the Mortgage Loans. Prime has agreed to
indemnify us for certain liabilities that may arise out of the rendering of
this opinion.
Based upon and subject to the foregoing, it is our opinion as investment
bankers that, as of the date hereof, the Consideration to be received in the
Sale pursuant to the Agreement is fair, from a financial point of view, to
the Unitholders of Prime other than Servico.
Very truly yours,
FURMAN SELZ LLC
BROWN & WOOD LLP
ONE WORLD TRADE CENTER
NEW YORK, NEW YORK 10048-0557
TELEPHONE: 212-839-5300
FACSIMILE: 212-839-5599
May 6, 1998
United States Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Attention: Harry S. Pangas,
Division of Corporate Finance
Re: Preliminary Proxy Statement (File No. 1-09311)
Prime Motor Inns Limited Partnership
----------------------------------------------
Dear Ladies and Gentlemen:
On behalf of Prime Motor Inns Limited Partnership (the "Partnership")
there is filed herewith the form of Definitive Proxy Statement, revised to
reflect and incorporate responses to the telephonic comments of the Staff
received May 5, 1998, including the Appendices to such Definitive Proxy
Statement. Herewith also, supplementally, in response to the telephonic
request of the Staff received May 5, 1998, is a letter of Stearns Weaver Miller
Weissler Alhadeff & Sitterson, P.A. with respect to certain purchases of
Units by Servico, Inc.
Very truly yours,
Michael G. Wolfson
Enclosures
