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:
(X) Preliminary Proxy Statement ( ) Confidential, for use of
Commission only
( ) Definitive Proxy Statement (as permitted by Rule 14a-
6(e)(2))
( ) Definitive Additional Materials
( ) 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.
CALCULATION OF FILING FEE
<TABLE>
<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
Partnership Interest 4,000,000 Units $12,000,000 $12,000,000 $2,400
</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
March __, 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 April 30, 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 (i)
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 DMC Payment referred to
below), is expected to result in a liquidating distribution to Unitholders of
between $2.65 and $2.75 per Unit; and (ii) the payment of $500,000 to
Davenport Management Corp. or its designees as payment for its costs and
expenses in connection with its proxy solicitation (the "DMC Payment"). 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. The Proposal is subject to, among other
things, the consent of the holders of a majority of the units of limited
partnership interest ("Units").
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 DMC PAYMENT. THE BOARD BELIEVES THAT THE TERMS
OF THE PROPOSAL AND THE DMC PAYMENT ARE FAIR TO THE PARTNERSHIP AND IN THE
BEST INTERESTS OF THE OWNERS OF UNITS WHO ARE NOT INTERESTED PARTIES, AND THE
BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE IN FAVOR OF THE PROPOSAL AND THE
DMC PAYMENT.
The Proposal and the DMC 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.
YOUR VOTE IS IMPORTANT TO THE PARTNERSHIP, WHETHER YOU OWN FEW OR MANY
UNITS. Failure to return your proxy card or vote would have the same effect
as a vote against the Proposal. 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.
Sincerely,
PRIME-AMERICAN REALTY CORP.
By: _______________________________
S. Leonard Okin, Vice President
QUESTIONS AND REQUESTS FOR ASSISTANCE IN VOTING YOUR UNITS CAN BE DIRECTED TO
TODD A. WILLING, OF WINEGARDNER & HAMMONS, INC., AT 513-891-2920.
PRIME MOTOR INNS LIMITED PARTNERSHIP
c/o Winegardner & Hammons, Inc.
4243 Hunt Road
Cincinnati, Ohio 45242
_____________________________
NOTICE OF SPECIAL MEETING TO BE HELD ON
APRIL 30, 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 April 30,
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 (i) 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., 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"); and (ii) the payment of $500,000 to Davenport
Management Corp. or its designees as payment for its costs and expenses in
connection with its proxy solicitation (the "DMC Payment"). 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 and the DMC Payment each requires the
consent of the holders of a majority of all units of limited partnership
interest ("Units").
The Proposal and the DMC Payment referred to above are 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
March __, 1998
YOUR VOTE IS IMPORTANT. TO VOTE, PLEASE SIGN, DATE AND COMPLETE THE ENCLOSED
PROXY AND MAIL IT IN THE ENCLOSED RETURN ENVELOPE.
PRIME MOTOR INNS LIMITED PARTNERSHIP
c/o Winegardner & Hammons, Inc.
4243 Hunt Road
Cincinnati, Ohio 45242
SPECIAL MEETING OF LIMITED PARTNERS
APRIL 30, 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 April 30, 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 (i) 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 DMC Payment referred to below), is expected to result in a liquidating
distribution to Unitholders of between $2.65 and $2.75 per Unit; and (ii) the
payment of $500,000 to Davenport Management Corp. or its designees as payment
for its costs and expenses in connection with its proxy solicitation (the
"DMC Payment"). 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 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 March __, 1998, the last reported bid price on
the OTCBB for the Depositary Receipts was $__ per Depositary Receipt.
AMI owns and operates 15 full service motor hotels (the "Inns"), eight
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.
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. 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.
_____________________________________
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 MARCH
__, 1998.
_____________________________________
THE DATE OF THIS PROXY STATEMENT IS MARCH __, 1998.
TABLE OF CONTENTS
Page
----
SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
STRUCTURE OF TRANSACTION . . . . . . . . . . . . . . . . . . . . . . . . 5
THE SPECIAL MEETING . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
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 . . . . . . . . . . . . . . . . . . . . . . . 7
Proxies; Proxy Solicitation . . . . . . . . . . . . . . . . . . . . 7
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
Opinion of the Financial Advisor to the Board of Directors . . . 15
Regulatory Matters . . . . . . . . . . . . . . . . . . . . . . . 18
The DMC Payment . . . . . . . . . . . . . . . . . . . . . . . . . . 18
The Liquidation . . . . . . . . . . . . . . . . . . . . . . . . . . 18
THE ACQUISITION AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . 19
Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Closing Date of the Sale . . . . . . . . . . . . . . . . . . . . . . 19
Representations and Warranties . . . . . . . . . . . . . . . . . . . 19
Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Conditions to Consummation of the Sale . . . . . . . . . . . . . . . 20
Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Survival of Representations and Warranties . . . . . . . . . . . . . 21
Expenses and Fees . . . . . . . . . . . . . . . . . . . . . . . . . 21
Other Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . 21
THE PLAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
EXPECTED CONSEQUENCES OF SALE AND LIQUIDATION . . . . . . . . . . . . . . 23
THE PARTNERSHIPS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Competition . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Administration . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
PROPERTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
MARKET PRICE OF, AND DISTRIBUTIONS ON, THE DEPOSITARY RECEIPTS . . . . . 31
SELECTED FINANCIAL DATA . . . . . . . . . . . . . . . . . . . . . . . . . 32
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION . . . . . . . . . . . . . . . . . . . . . . 33
Financial Condition . . . . . . . . . . . . . . . . . . . . . . . . 33
Results of Operations . . . . . . . . . . . . . . . . . . . . . . . 33
Liquidity and Capital Resources . . . . . . . . . . . . . . . . . . 35
CERTAIN U.S. FEDERAL INCOME TAX MATTERS . . . . . . . . . . . . . . . . . 37
Gross Income Tax Imposed on the Partnership . . . . . . . . . . . . 37
Sale of Limited Partnership Interest . . . . . . . . . . . . . . . . 37
Liquidation of the Partnership . . . . . . . . . . . . . . . . . . . 38
Passive Activity Rule Consequences . . . . . . . . . . . . . . . . . 38
Responsibility for Final Partnership Return and Future Tax Issues . 38
State and Local Income Tax Matters . . . . . . . . . . . . . . . . . 38
INDEPENDENT ACCOUNTANTS . . . . . . . . . . . . . . . . . . . . . . . . . 39
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.
THE ANNUAL 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
April 30, 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 (i) 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 $65.6 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 DMC Payment), is
expected to result in a liquidating distribution to
Unitholders of between $2.65 and $2.75 per Unit;
and (ii) the payment of $500,000 to Davenport
Management Corp. or its designees as expense
reimbursement and compensation (the "DMC Payment").
The Sale and the Liquidation comprise a single
integrated proposal (the "Proposal") and proxies in
favor of the Proposal constitute consent to each of
the Sale and the Liquidation. See "The Special
Meeting -- Matters to be Considered."
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. The General Partner
and Davenport Management Corp. ("DMC") have agreed
that approval of the DMC Payment will also be
subject to the approval of the holders of a
majority of all Units. See "Right to Vote" and
"Vote Required" under the "The Special Meeting."
The Partnership has been advised that, as of the
Record Date, Servico owns and has the right to vote
in excess of 2,000,000 Units and that Servico
intends to vote its Units to approve the Proposal
and the DMC Payment. As a result, the Proposal and
the DMC Payment will receive the required favorable
vote of the Unitholders without regard to the votes
cast by any other Unitholders.
No Appraisal Rights . If the owners of more than 50% of the outstanding
Units consent to the Proposal and/or the DMC
Payment, 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 and the DMC
Payment will be consented to by Servico, the holder
of more than 50% of the Units.
THE PROPOSAL
Background. . . . . . AMI owns and operates 15 full service motor hotels
("Inns") operated as part of the "Holiday Inn"
system. The "Holiday Inn" franchises for nine 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 May 9, 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 May 9, 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 $65.6 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 DMC
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 $2.65 and $2.75 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
and 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, has unanimously approved the Proposal,
the Acquisition Agreement, the Plan and the DMC
Payment, and recommends that the Unitholders
consent to the Proposal and the DMC Payment. 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 March __, 1998, 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 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 April 30, 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 $481,000. If 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 the Purchase Price will not
exceed an additional $315,000. 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 $___ 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 DMC 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. While DMC has withdrawn its
proposals, in recognition that DMC's efforts
resulted in an increase in value to all Unitholders
and that DMC incurred various expenses in
conducting its proxy solicitation, the Partnership
has agreed to make the DMC Payment.
The DMC Payment will be made only if the Sale
closes and only from the Purchase Price. The
effect of the DMC Payment is to reduce the amount
distributable with respect to each Unit by
12-1/2(cent(s)).
SPECIAL CONSIDERATIONS;
OTHER MATTERS
Special See "Special Considerations" for factors which
Considerations . . . 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 11 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 prior to 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 April 30, 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 March __, 1998.
MATTERS TO BE CONSIDERED
At the Special Meeting, the Limited Partners will consider and vote on
(i) the Sale of the Interest to Servico and the Liquidation of the
Partnership following the Sale, and (ii) the DMC Payment. 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 DMC
Payment, having concluded that the Sale, the Acquisition Agreement and the
DMC Payment are fair to the Partnership and in the best interests of the
Unitholders who are not interested parties. THE BOARD OF DIRECTORS
UNANIMOUSLY RECOMMENDS THAT UNITHOLDERS VOTE FOR APPROVAL OF THE PROPOSAL AND
FOR THE DMC PAYMENT.
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 beneficially by
approximately (_______) Unitholders. 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. The Partnership and DMC have agreed that approval of
the DMC Payment will also be subject to receipt of the consent of the
beneficial owners of more than 50% of all outstanding Units.
The partnership has been advised that, as of the Record Date, Servico
owns and has the right to vote in excess of 2,000,000 Units and that Servico
intends to vote its Units to approve the Proposal and the DMC Payment. As a
result, the Proposal and the DMC Payment 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 and the DMC Payment
at the Special Meeting, abstentions will have the same legal effect as a vote
"against" the Proposal.
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, and FOR the DMC Payment, 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 and the DMC Payment. 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
eleven 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 will remain in the "Holiday Inn" system until May 9, 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 May 9, 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, has
contracted to sell a second 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
$65,627,000. 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 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 $796,000. 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. Benefits to Others. Prime Hospitality, Inc., which owns all of the
capital stock of the General Partner, has 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 $____ 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 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 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 $65.6 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 DMC Payment, pay the expenses of
dissolution and liquidation of the Partnership, and distribute the balance
(expected to be approximately $2.65 to $2.75 per Unit) to the Unitholders.
See "Expected Consequences of Sale and Liquidation."
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. 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 Inn 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 out-
standing 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) ("D&P"), a law firm
purporting to represent five Unitholders. In that correspondence, D&P
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, D&P 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 D&P. 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, 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 (let alone a commitment of any party
to complete) a transaction.
On June 20, 1997, the General Partner received a communication from D&P
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 D&P 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 the DMC "Plan of Action"; 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. At the meeting on January 29, DMC reported that the
holders of approximately 71% of the Units had voted to remove PARC as General
Partner and that holders of approximately 63% of the Units had voted 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 were not adopted
at that time. The Meeting was adjourned without action to February 24, 1998
to permit DMC to solicit further votes and to supplement its proxy materials.
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 will remain in the "Holiday Inn"
system until May 9, 1998.
The General Partner has been advised that 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
Partnership, rather than entering into a separate Consulting Agreement with
Mr. Okin. Subsequently, in connection with Servico's agreement to purchase
the Units held by Jerome Sanzo, Martin Fields and their associates, the
Partnership agreed to make the DMC Payment, all parties agreed to exchange
mutual releases, and Servico agreed to vote its Units in favor of the DMC
Payment.
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 and their assessment of the DMC
"Plan of Action" 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 market price of the Units, which for a substantial period of
time had been above--and for some periods substantially above--the per
Unit value of the $8,000,000 purchase price for the Interest, coupled
with the declines in the market price and trading volume following
Servico's open market purchases, which the Directors concluded reflected
(x) market anticipation that either there would be a competing
transaction or that the DMC proxy solicitation would prompt an increase
in Servico's offer and (y) profit taking by investors who had purchased
at prices below the then trading range;
(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 the price paid by Servico for a substantial number of
Units purchased by it is in excess of the per Unit value of the Purchase
Price, which the Directors felt could appropriately be treated as a
control premium;
(d) 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 Inns (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;
(e) the written opinion of Furman Selz that, at the dates and subject
to the assumptions, qualifications and limitations stated therein, the
Purchase Price is fair, from a financial point of view, to the
Unitholders other than Servico, Inc., which led the Directors to believe
that the Purchase Price and the Sale were fair to and in the best
interests of the Unitholders; and
(f) 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.
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 if DMC's costs and
expenses were reimbursed and its 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 who are not interested parties. 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.
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. On March __, 1998, 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 $796,000 and that
expenses (other than the DMC 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 DMC Payment and
other expenses should not exceed 35(cent(s)). 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 seven 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 rate 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 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
capitalization ratios of 10%, 12% and 14% to EBITDA, and discounting
terminal values and cash flows at rates of 10%, 12% and 14%, Furman Selz
estimated that based on discounted cash flow analysis of the
Projections, the total value of the Partnership ranged from $43.7
million to $50.4 million and the value of the Units ranged from $0.00 to
$5.0 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.; Perkins Family
Restaurants, L.P.; and Red Lion Inns Limited Partnership. Such data and
ratios included the ratio of market capitalization of the common stock
plus the principal amount of total debt outstanding less cash on hand
(the "enterprise value") to EBITDA (such ratio being the "EBITDA
multiple") and the ratio of the enterprise value to funds from
operations ("FFO") (such ratio being the "FFO multiple"). The EBITDA
multiples for the selected companies ranged from 5.8 to 11.3, and the
FFO multiples for the selected companies ranged from 4.8 to 13.9.
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 $58.8 million to $62.0 million and
implied value of the Units that ranges from $5.4 million to $6.7
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 $49.6 to $50.6 million and an implied
value of the Units that ranges from $4.3 million to $5.4 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. 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 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
(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 transaction value 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 6.8 to 9.1, and the FFO ratios for the
selected companies ranged from 6.5 to 7.4. 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 $48.7 million to $49.5 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.
4. Stock Trading History. Furman Selz examined the history of the trading
prices and volume for the Units. Although the Units have traded on the
New York Stock Exchange and the Over-the-Counter Bulletin Board, there
has been limited float in the Units.
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 DMC PAYMENT
Immediately after the Closing, the Partnership will make the DMC Payment
from the Purchase Price. The DMC Payment is not subject to documentation or
verification of, or upward or downward adjustment based on the actual amount
of, fees or expenses of DMC.
The Board of Directors unanimously determined, in light of the factors
that it considered, that the DMC Payment is fair to, and in the best interest
of, the Unitholders. THE BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE DMC
PAYMENT AND RECOMMENDS THAT THE UNITHOLDERS VOTE "FOR" APPROVAL OF THE DMC
PAYMENT.
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 DMC 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 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.
Servico's principal executive offices are located at 1601 Belvedere
Road, West Palm Beach, Florida 33406 (telephone: (561) 689-9970).
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. 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
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 Company in
exchange for a five year warrant to acquire 100,000 shares of Servico common
stock at a price of $18.00 per share. On November 6, 1997, the business day
immediately preceding such agreement, the reported closing sale price of
Servico common stock on the New York Stock Exchange was $16.00 per share and
on March __, 1998, the reported closing sale price of Servico common stock on
the New York Stock Exchange was $____). As part of that transaction, the
General Partner and Prime will waive any rights that they may have to receive
any distribution bythe Partnership of the proceedsof the sale ofthe 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 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 DMC 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 $2.65 to $2.75 per Unit.
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 DMC 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 April 30, 1998, 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 $481,000.
As described under "Certain U.S. Federal Income Tax Matters," there is
some uncertainty as to whether the gain recognized by the Partnership on the
Sale of Interest will be deemed to constitute gross income 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 April
30, 1998 and if federal income tax were payable by the Partnership on the
gain on the Sale, such tax should not exceed approximately $315,000.
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 making of the DMC Payment is approved (and the Partnership has
been advised that Servico, the holder of more than a majority of the Units,
has agreed to vote to approve the DMC Payment) and the Closing occurs, the
DMC 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 $10,604,000
(that is, $12,000,000 less (i) $481,000 of entity level taxes from
operations, (ii) $315,000 of entity level taxes on the gain from the Sale,
(iii) $100,000 of expenses payable from the Purchase Price and (iv) the DMC
Payment), which is equivalent to approximately $2.65 per Unit. Also based on
the foregoing (and subject to the foregoing assumptions), the Liquidation
Distribution could be approximately $11,019,000) (that is, $12,000,000 less
(i) $481,000 of entity level taxes from operations and (ii) the DMC Payment),
which is equivalent to approximately $2.75 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."
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 DMC
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.
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 11/2% 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 and 1997, and expects to
borrow during the first quarter of 1998, and has repaid such 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. 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 Inn 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 out-
standing 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 will remain
in the "Holiday Inn" system until May 9,1998.
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 March 1, 1998, there are approximately 910 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.
ADMINISTRATION
Certain administrative functions are performed for the Partnership by
W&H. Therefore, the mailing address of the Partnership is c/o Winegardner &
Hammons, Inc., 4243 Hunt Road, Cincinnati, Ohio 45242 (Telephone: (513)
891-2920). The operation of the Inns is supervised from W&H's regional
office at 301 West Lombard Street, Baltimore, MD 21201.
The Transfer Agent for the Partnership is First Chicago Trust Company of
New York. The address of the Transfer Agent is P.O. Box 2500, Jersey City,
New Jersey 07303-2500.
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
International Airport 1973(2) 259 June 30, 1997(1) Land and building lease
Frederick 1963(3) 157 June 30, 1997(1) Fee
Baltimore-Cromwell
Bridge Rd. 1972 139 Dec. 31, 1997(1) Fee
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
Baltimore-Pikesville(4)(5) 1963 108 June 30, 1997(1) Fee
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 2,406
Baltimore-Glen Burnie So. 1965 100 June 30, 1997 Sold July 29, 1997
--------
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
(5) Subject to contract of 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.
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
------------------------------ -----------------------------
Occup. Occup.
Location: % ADR REVPAR % ADR REVPAR
- ----------------------- ------ ------- ------- ------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
MARYLAND
Baltimore Inner Harbor 67.9% $103.25 $70.11 66.3% $95.02 $63.01
Balt. Washington 73.5% $83.20 $61.13 72.4% $78.08 $56.50
Int'l Airport
Frederick 61.6% $54.05 $33.31 60.4% $54.52 $32.96
Balt.-Cromwell Bridge 63.9% $72.70 $46.43 61.1% $69.89 $42.71
Road
Balt.-Moravia Road 50.8% $50.01 $25.39 43.8% $47.99 $21.02
Balt.-Belmont Blvd. 51.2% $61.21 $31.33 53.6% $57.73 $30.92
Balt.-Glen Burnie North 63.1% $66.40 $41.92 65.3% $59.24 $38.68
Balt.-Glen Burnie S.
(Sold 7/29/97) 69.3% $56.68 $39.98 75.4% $53.28 $40.18
Balt.-Pikesville 57.9% $64.50 $37.31 58.4% $59.10 $34.51
PENNSYLVANIA
Lancaster-Route 30 53.7% $70.35 $37.80 59.6% $67.20 $40.06
Lancaster-Route 501 55.2% $60.25 $33.27 58.1% $59.86 $34.75
York-Market Street 50.7% $54.15 $27.43 43.1% $56.50 $24.37
York-Arsenal Road 54.6% $56.98 $31.11 50.9% $57.67 $29.34
Hazleton 56.8% $56.36 $32.03 53.8% $56.36 $30.31
CONNECTICUT
New Haven 69.6% $76.73 $53.43 65.2% $70.78 $46.17
East Hartford 71.1% $69.36 $49.33 64.2% $68.37 $43.89
</TABLE>
(table continued)
<TABLE>
<CAPTION>
1995
--------------------------
Occup.
Location: % ADR REVPAR
- --------------------------- ------ ------ ------
<S> <C> <C> <C>
MARYLAND
Baltimore Inner Harbor 67.5% $87.52 $59.06
Balt. Washington 68.5% $73.23 $50.20
Int'l Airport
Frederick 59.6% $54.61 $32.53
Balt.-Cromwell Bridge 58.4% $65.65 $38.31
Road
Balt.-Moravia Road 49.9% $41.89 $20.89
Balt.-Belmont Blvd. 56.9% $52.32 $29.78
Balt.-Glen Burnie North 56.5% $58.25 $32.94
Balt.-Glen Burnie S.
(Sold 7/29/97) 77.2% $48.32 $37.29
Balt.-Pikesville 57.8% $51.28 $29.63
PENNSYLVANIA
Lancaster-Route 30 60.8% $63.45 $38.60
Lancaster-Route 501 60.7% $56.94 $34.56
York-Market Street 45.9% $56.86 $26.12
York-Arsenal Road 55.3% $57.51 $31.79
Hazleton 56.6% $53.07 $30.04
CONNECTICUT
New Haven 70.3% $65.76 $46.21
East Hartford 64.7% $62.79 $40.65
</TABLE>
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.
MARKET PRICE OF, AND DISTRIBUTIONS ON, THE DEPOSITARY RECEIPTS
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.
<TABLE>
<CAPTION>
HIGH LOW
---------- -----------
<S> <C> <C>
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 (through March __) 3-1/2 1-15/16
</TABLE>
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 March __, 1998, the last reported bid price
per Depositary Receipt on the OTCBB was __________.
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.
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
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,
net of current
maturities $ 63,544 $ 65,691 $ 65,645 $ 66,627 $ 65,912
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
----------------------------------- ----------------------------------
AVERAGE DAILY ROOM OCCUPANCY AVERAGE DAILY ROOM OCCUPANCY
RATE PERCENTAGE RATE PERCENTAGE
------------------ ---------- ------------------ ----------
<S> <C> <C> <C> <C>
1st Quarter $66.94 48.9% $63.76 45.3%
2nd Quarter $73.95 70.0% $69.50 68.7%
3rd Quarter $75.01 72.8% $71.44 72.4%
4th Quarter $72.64 55.6% $67.54 57.2%
Full Year $72.56 61.8% $68.53 60.8%
</TABLE>
(table continued)
<TABLE>
<CAPTION>
1995 1994
----------------------------------- ----------------------------------
AVERAGE DAILY ROOM OCCUPANCY AVERAGE DAILY ROOM OCCUPANCY
RATE PERCENTAGE RATE PERCENTAGE
------------------ ---------- ------------------ ----------
<S> <C> <C> <C> <C>
1st Quarter $59.84 47.8% $56.33 48.0%
2nd Quarter $64.74 69.4% $61.79 69.4%
3rd Quarter $67.06 72.2% $61.10 72.7%
4th Quarter $62.51 56.8% $58.72 57.5%
Full Year $63.95 61.6% $59.82 61.9%
</TABLE>
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 Operating
Partners, whose income is generated from the operations of the Inns.
Operating Partners receives all lodging and other revenues derived from, and
is responsible for the payment of all expenses directly attributable to, the
operation of the Inns. Set forth below is information as to lodging and food
and beverage revenues and expenses generated from the operations of the Inns
(in thousands):
<TABLE>
<CAPTION>
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.
The following table compares the room revenues, occupancy percentage
levels and ADR for the years indicated:
1997 1996 1995
----------- ----------- ----------
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
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.
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.
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 Proposal Background; 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 1989 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.
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).
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 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.
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 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 gain recognized as a result of
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, and the Partnership's trade or
business is not selling partnership interests, the gain on 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, 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 the gain realized by the Partnership on
the Sale.
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 DMC 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 DMC Payment. It is not entirely clear whether
all or a portion of the DMC 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 DMC Payment is not treated as a deductible
expense, it is possible that all or a portion of the DMC Payment will be
deemed to originate pursuant to the Sale. Under this characterization, the
DMC 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 DMC 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 DMC 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 DMC 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.
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 DMC 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.
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.
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
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
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 (54,950) (54,188)
amortization -------- -------
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>
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.
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 $ (.82) $ (.54) $(.56)
per unit ======== ======= =======
The accompanying notes are an integral part
of the consolidated financial statements.
PRIME MOTOR INNS LIMITED PARTNERSHIP
AND SUBSIDIARY LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF PARTNERS' DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(dollars in thousands)
</TABLE>
<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.
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.
<TABLE>
<CAPTION>
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)
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) (2,45)
------- --------- -------
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.
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).
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.
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.
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:
Long-term debt consists of:
<TABLE>
<CAPTION> 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
1.1 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
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
3.1 Organization, Standing and Power . . . . . . . . . . . . . . . . 3
3.2 Legal, Valid and Binding Agreement . . . . . . . . . . . . . . . 3
3.3 Authority to do Business . . . . . . . . . . . . . . . . . . . . 3
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 . . . . . . . . . . . . . . . . . . . . . . 4
3.8 Exchange Act Reports; Financial Statements . . . . . . . . . . . 5
3.9 Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . 5
3.10 Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . 6
3.11 Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.12 Absence of Material Adverse Changes . . . . . . . . . . . . . . . 6
3.13 Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . 7
3.14 Rights, Warrants, Options . . . . . . . . . . . . . . . . . . . . 7
3.15 Title to Personal Property and Condition of Assets . . . . . . . 7
3.16 Real Property . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3.17 Intangible Property . . . . . . . . . . . . . . . . . . . . . . . 8
3.18 Governmental Authorizations . . . . . . . . . . . . . . . . . . . 9
3.19 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.20 Employment Matters . . . . . . . . . . . . . . . . . . . . . . . 9
3.21 Material Agreements . . . . . . . . . . . . . . . . . . . . . . 10
3.22 Related Party Transactions . . . . . . . . . . . . . . . . . . 11
3.23 Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.24 Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . 12
ARTICLE IV - COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . 12
4.1 Interim Operations of AMI . . . . . . . . . . . . . . . . . . . 12
4.2 Access . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.3 Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
4.4 Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
4.5 Reasonable Efforts . . . . . . . . . . . . . . . . . . . . . . 14
4.6 Notification . . . . . . . . . . . . . . . . . . . . . . . . . 14
4.7 No Solicitation . . . . . . . . . . . . . . . . . . . . . . . . 15
4.8 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . 15
4.9 Publicity . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
4.10 Proxy Statement . . . . . . . . . . . . . . . . . . . . . . . . 16
4.11 Special Meeting . . . . . . . . . . . . . . . . . . . . . . . . 16
4.12 Dissolution of Prime . . . . . . . . . . . . . . . . . . . . . 16
ARTICLE V- ADDITIONAL AGREEMENTS . . . . . . . . . . . . . . . . . . . . 17
5.1 Survival of the Representations, Warranties, Covenants and
Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . 17
5.2 Investigation . . . . . . . . . . . . . . . . . . . . . . . . . 17
5.3 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . 17
ARTICLE VI - CONDITIONS PRECEDENT . . . . . . . . . . . . . . . . . . . . 18
6.1 Mutual Conditions Precedent . . . . . . . . . . . . . . . . . . 18
6.2 Conditions Precedent to the Obligations of Servico . . . . . . 18
6.3 Conditions Precedent to the Obligations of Prime . . . . . . . 19
6.4 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . 20
ARTICLE VII - MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . 21
7.1 Further Assurances . . . . . . . . . . . . . . . . . . . . . . 21
7.2 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
7.3 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . 21
7.4 Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . 22
7.5 Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
7.6 No Third Party Beneficiary . . . . . . . . . . . . . . . . . . 22
7.7 Severability . . . . . . . . . . . . . . . . . . . . . . . . . 22
7.8 Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . . 22
7.9 Section Headings . . . . . . . . . . . . . . . . . . . . . . . 23
7.10 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . 24
7.11 Time of Essence . . . . . . . . . . . . . . . . . . . . . . . . 24
7.12 Litigation; Prevailing Party . . . . . . . . . . . . . . . . . 24
7.13 Remedies Cumulative . . . . . . . . . . . . . . . . . . . . . . 24
7.14 Injunctive Relief . . . . . . . . . . . . . . . . . . . . . . . 24
7.15 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . 24
7.16 Certain Definitions . . . . . . . . . . . . . . . . . . . . . . 24
GLOSSARY OF DEFINED TERMS
-------------------------
Defined Term Section
- ------------ -------
affiliate . . . . . . . . . . . . . . . . . . . . . . . . . . Section 7.17(a)
Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Preamble
AMI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Preamble
AMI Material Agreements . . . . . . . . . . . . . . . . . . . . Section 3.21
business day . . . . . . . . . . . . . . . . . . . . . . . . Section 7.17(b)
Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 1.3
Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 4.20
Competing Transaction . . . . . . . . . . . . . . . . . . . . Section 7.8(d)
employee pension benefit plan . . . . . . . . . . . . . . . . Section 3.20(d)
employee welfare benefit plan . . . . . . . . . . . . . . . . Section 3.20(d)
End Date . . . . . . . . . . . . . . . . . . . . . . . . . . Section 6.4(c)
Environmental Law . . . . . . . . . . . . . . . . . . . . . . Section 3.9(b)
Environmental Permit . . . . . . . . . . . . . . . . . . . . Section 3.9(b)
ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 4.20(d)
Exchange Act . . . . . . . . . . . . . . . . . . . . . . . . . . Section 2.4
Furman Selz . . . . . . . . . . . . . . . . . . . . . . . . . . Section 3.11
Governmental Entity . . . . . . . . . . . . . . . . . . . . . . . Section 2.4
General Partner . . . . . . . . . . . . . . . . . . . . . . . . . . Preamble
General Partner
Purchase Agreement . . . . . . . . . . . . . . . . . . . . . Section 6.1(d)
GP Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . Preamble
group health plan . . . . . . . . . . . . . . . . . . . . . . . Section 3.20
Improvements . . . . . . . . . . . . . . . . . . . . . . . . . Section 3.16
knowledge . . . . . . . . . . . . . . . . . . . . . . . . . . Section 7.17(c)
Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 7.17(d)
Licenses . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 3.18
Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 1.1
Limited Partners . . . . . . . . . . . . . . . . . . . . . . . . . Preamble
Limited Partnership Agreement . . . . . . . . . . . . . . . . . . Section 3.4
Limited Partnership Interests . . . . . . . . . . . . . . . . . . . Preamble
multiemployer plan . . . . . . . . . . . . . . . . . . . . . Section 3.20(d)
NYSE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 2.4
partnership interests . . . . . . . . . . . . . . . . . . . . Section 7.17(e)
Permitted Exceptions . . . . . . . . . . . . . . . . . . . . . Section 3.16
Personal Property . . . . . . . . . . . . . . . . . . . . . . . Section 3.15
person . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 7.17(f)
Prime . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Preamble
Prime Financial Statements . . . . . . . . . . . . . . . . . Section 3.8(b)
Prime Hospitality . . . . . . . . . . . . . . . . . . . . . . . Section 3.14
Prime Indemnified Party . . . . . . . . . . . . . . . . . . . Section 5.3(a)
Prime Material Adverse Effect . . . . . . . . . . . . . . . . Section 7.17(g)
Prime Pension Plan . . . . . . . . . . . . . . . . . . . . . Section 4.20(d)
Prime Plans . . . . . . . . . . . . . . . . . . . . . . . . . Section 3.20(d)
Prime Related Parties . . . . . . . . . . . . . . . . . . . . . Section 3.22
Prime Related Party . . . . . . . . . . . . . . . . . . . . . . Section 3.22
Prime SEC Reports . . . . . . . . . . . . . . . . . . . . . . Section 3.8(a)
Prime Special Meeting . . . . . . . . . . . . . . . . . . . . Section 4.10(a)
Prime Welfare Plan . . . . . . . . . . . . . . . . . . . . . Section 3.20(d)
Proxy Statement . . . . . . . . . . . . . . . . . . . . . . . Section 4.10(a)
Real Property . . . . . . . . . . . . . . . . . . . . . . . . . Section 3.16
SAC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Preamble
SEC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 3.8
Securities Act . . . . . . . . . . . . . . . . . . . . . . . . Section 3.13
Servico . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Preamble
subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . Section 7.17(h)
subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . Section 7.17(h)
Tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 7.17(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) indemnifica-
tion, 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 Section 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 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:
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 it 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:
PRELIMINARY PROXY MATERIALS
APPENDIX B
PLAN OF DISSOLUTION AND LIQUIDATION
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
Davenport Management Corp. or its designees of $500,000 (the "DMC 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 DMC 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 DMC 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, as Vice President
Each Limited Partner of the Partnership
By: Prime-American Realty Corp.,
Attorney-in-fact
By:________________________________________
S. Leonard Okin, as Vice President
PRELIMINARY PROXY MATERIALS
APPENDIX C
FAIRNESS OPINION OF FURMAN SELZ LLC
PRELIMINARY PROXY MATERIALS
[To come]
