UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark one)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1997
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from ................ to
...............
Commission File No. 1-9311
PRIME MOTOR INNS LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
Delaware 22-2754689
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
C/O WHI, 4243 Hunt Road
Cincinnati, Ohio 45242
(Registrant's Mailing Address)
Registrant's telephone number, including area code: (513) 891-2920
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Exchange on which registered
Units of Limited Partnership Over the Counter Bulletin Board
Interest Evidenced by Depository
Receipts
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No __.
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. (X)
On March 10, 1998 there were 4,000,000 of registrant's units
of limited partnership interest outstanding. The aggregate
market value of such units held by non-affiliates on that date
based on the reported closing price on the Over the Counter
Bulletin Board on that date, was approximately $11,125,000. The
Exhibit Index is located on page 24.
Page 1 of 48
PART I
Item 1. Business
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 each of the Partnerships. The business
of the Partnerships is to operate and maintain full-service
hotels (the "Inns"), which are presently franchised as part of
the "Holiday Inn" system.
The Inns were purchased from subsidiaries of Prime in
December, 1986, with the proceeds of the public offering of
4,000,000 units of limited partnership interest (the "Units") in
the Partnership and of the issuance and sale of $61,470,000 of
mortgage notes (the "Mortgage Notes") of AMI. 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 (the "Prime Bankruptcy") and, effective November
30, 1990, AMI Management rejected the Lease. At that time, AMI,
through Winegardner & Hammons, Inc. ("W&H"), a prominent hotel
management company with operational experience with "Holiday Inn"
franchises, took control of the Inns and commenced operation of
the Inns for the account of the Partnerships.
In the opinion of the Board of the General Partner,
occupancies and cash flows at the Inns during 1991 and 1990 were
adversely affected by, among other things, international tensions
in the Middle East and the economic recession that began in 1990,
and the resulting slowdown in travel, and AMI Management's
operation of the Inns, primarily in the period immediately prior
to and during its bankruptcy.
In 1991 the Partnership and AMI asserted claims against Prime
and AMI Management in the Prime Bankruptcy with respect to
defaults under the Lease and Prime's guaranty (the "Guaranty") of
certain obligations under the Lease, the operation and
maintenance of the Inns prior to and following the commencement
of the Prime Bankruptcy, and the rejection of the Lease and the
Guaranty. AMI entered into an agreement with the holders of the
Mortgage Notes (the "Mortgage Lenders") under which, among other
things, AMI assigned to the Mortgage Lenders its claims
(including claims in connection with such disputes) 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
Bankruptcy Court administering the Prime Bankruptcy approved a
settlement (the "Prime Settlement") among the Mortgage Lenders,
Prime and AMI Management under which various claims of the
holders of the Mortgage Notes against Prime and AMI Management
were allowed; AMI did not make any payments to or for the benefit
of any other party; and Prime, AMI Management and AMI exchanged
mutual releases.
Since 1992, AMI and the Mortgage Lenders received total
proceeds as a result of the Prime 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.
To conserve cash to provide funds to maintain and improve the
Inns and pay suppliers, AMI suspended the monthly payments of the
principal and interest on the Mortgage Notes beginning with the
payments due on February 28, 1991, which constituted an event of
default under, and resulted in acceleration and demand for
payment of the entire outstanding balance of, the Mortgage Notes.
After detailed and extended negotiations among AMI and its
advisors and representatives of 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. Holiday Hospitality Corporation, formerly Holiday
Inns, Inc., and its affiliates engaged in administering the
"Holiday Inn" system (collectively, "HHC") issued a new ten-year
franchise agreement for Baltimore Inner Harbor Inn to December
2005, and extended to June 30, 1997 the term of the franchise
agreements that previously expired prior to June 30, 1997.
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 improvements (the "FF&E Reserve") which amounted to 1
1/2% of gross revenues in 1993, 4% of gross revenues in 1994 and
5% of gross revenues in 1995 and thereafter), income taxes (if
the Partnerships are taxable as corporations) and amounts
necessary to enable AMI to maintain a working capital reserve of
$2 million, must be applied by AMI to the repayment of the
Tranche B Loan, then deposited into an escrow account held on
behalf of the Priming 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 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 "Restated Loan
Agreement"), under which $3,467,000 of accrued and unpaid
interest at December 31, 1991 (the "Deferred Amount") was added
to the principal amount of the Mortgage Notes, but bore interest
only from and after January 1, 1995; the Mortgage Notes (not
including the Deferred Amount) bore interest at the rate of 7%
per annum in 1992 and 1993 and 8% in 1994; the principal amount
of the Mortgage Notes (including the Deferred Amount) bore
interest at a rate of 10% per annum after 1994; and the maturity
of the Mortgage Notes (including the Deferred Amount) was
extended to December 31, 1999. In addition, the Restated Loan
Agreement includes a shared appreciation feature, pursuant to
which, upon the sale of any of the Inns 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 restructured
Mortgage Notes, 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 not to be cured for 90 days. Such defaults
would include, among others, (a) non-payment when due, of any
principal, interest or other charges under the Priming Loan or
the Mortgage Notes, (b) failure to pay rent on any ground leases,
(c) failure to pay real and personal property taxes on the Inns,
(d) failure to pay or provide for premiums for insurance
required under the Priming Loan or the Mortgage Notes or the
mortgages securing them, and (e) failure to pay operating
expenses for the Inns (subject to certain rights to contest
amounts claimed to be due). In the escrow agreement, 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 Restated Loan Agreement.
Following its reorganization, AMI made the capital
improvements, refurbishments and repairs necessary to render the
condition of the Inns 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 were 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 addition 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 is making borrowings
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.
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 Loan and Mortgage Notes to
utilize FF&E Reserves to fund HHC Product Improvement Plans
("PIPs") and seeking to refinance the Priming Loan and Mortgage
Notes 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 Loan and Mortgage Notes. 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 Hazleton Inns, and subsequently entered into a
contract for sale of the Baltimore Pikesville Inn. Those Inns
were 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 2% prepayment
penalty on, and to reduce the outstanding principal balance of,
the Priming Loan and, after repayment of the Priming Loan, to
reduce the outstanding principal balance of, and to pay the
shared appreciation, if any, under the Mortgage Notes. None of
such proceeds will be available to finance the PIPs or franchise
renewal fees (and the holders of the Priming Loan and Mortgage
Notes 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 the
General Partner with breaches of fiduciary duty and gross
negligence by reason of an alleged failure to oversee W&H, as
manager of the Inns, and to make adequate provision for the 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.
Effective January 4, 1997, the initial term of the W&H
Management Agreement was extended for four years, through 2000.
However, in order to facilitate financing of the PIPs, a
provision was added to the W&H Management Agreement which grants
to either the Partnership or W&H the right to terminate the
agreement, without penalty, at any time without cause, upon at
least 90 days prior written notification to the other party.
However, under the Priming Loan and Restated Loan Agreements,
approval by the Lenders will be required for the Partnership to
elect to terminate the W&H Management Agreement.
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 Loan
and Mortgage Notes (collectively the "Lenders") 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 Loan and Mortgage
Notes. 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 Acceptance 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 Loan and Mortgage
Notes and did not provide any financing for the PIPs. In
addition, most of the proposals received were contingent upon
the Priming Loan and Mortgage Notes being purchased or refinanced
at a discount and required that the new lenders receive a
substantial equity interest in the Partnership or AMI. The
General Partner believed that such proposals were disadvantageous
to the Unitholders. The General Partner also received a number
of proposals to assist or advise the Partnership in proposals for
the sale of interests in, or assets or operations of, AMI and/or
to restructure AMI and the Partnership. However, none of those
proposals provided any evidence of the terms or sources of any
financing or any indication of interest by any party in
proceeding with (much less a commitment of any party to complete)
a transaction.
On June 20, 1997, the General Partner received a communication
from D&P stating it had been authorized by Unitholders holding
25% of the Units to request a Special Meeting (the "Special
Meeting") to remove Prime-American Realty Corp. ("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 removal of PARC, as General
Partner and the election of Davenport Management Corp. ("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 therefore 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 then to 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
are 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 and Resorts, H.I. Development Corp., InterGroup
Corporation, GIAC and Prime. On September 26, 1997 Servico, Inc.
made, and on September 29, 1997 publicly announced, an offer to
acquire the Partnership's 99% limited partnership interest in AMI
(the "Interest") for $8 million in cash. No other complete
offers or proposals were submitted (nor 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 LLC ("Furman Selz") as financial advisor.
After extensive analysis of the alternatives (including the
possible operation of the Inns under different franchise or
without a franchise affiliation; the feasibility of DMC's
proposals for the operation of the Partnerships and the Inns; 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 Loan and the Mortgage
Notes), 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, Inc. 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 10, 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, 1998, 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
the 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 the "Holiday Inn" 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 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 1998, Servico, Inc. made open market and privately
negotiated purchases of Units at prices ranging from $2.4375 to
$3.50 per Unit and, as of March 16, 1998, 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, among
other things, that the cash purchase price payable to the
Partnership for the Interest be increased from $8,000,000 to
$12,000,000. Subsequently, in connection with Servico's
agreement to purchase the Units held by Jerome Sanzo, Martin
Fields and their associates and reimburse expenses, the
Partnership agreed to make a payment of $500,000 to DMC or its
designees as payment for its costs and expenses in connection
with its proxy solicitation (the "DMC Payment"), all parties
agreed to exchange mutual releases, and Servico agreed to vote
its Units in favor of the DMC Payment.
The Partnership has called a Special Meeting of the
Partnership to which the beneficial owners of Units (the
"Unitholders") will be asked to (i) consider and vote upon the
proposed sale (the "Sale") of the Interest to Servico Acquisition
Corp. ("SAC"), a wholly-owned subsidiary of Servico, Inc., and
the dissolution and liquidation of the Partnership following the
Sale (the "Liquidation"); and (ii) the making of the DMC Payment.
The Sale and the Liquidation comprise a single integrated
proposal (the "Proposal"), which is subject to, among other
things, the consent of the holders of a majority of the Units.
The Meeting will be held on April 30, 1998 and persons who are
Unitholders at the close of business on March 16, 1998, will be
entitled to vote on the matters to be acted on at that Meeting.
If the Sale is approved by the Unitholders and consummated, any
Interest of the Unitholders in the Inns will be entirely
extinguished and any future appreciation in the value of hotel
properties in general, and the Inns in particular, will be
enjoyed solely by Servico, Inc. and its affiliates. The
Partnership has been advised that Servico, which owns and has the
right to vote in excess of 2 million Units, intends to vote its
Units to approve the Proposal and the DMC Payment.
The terms of the sale are embodied in an Acquisition Agreement
dated as of November 7, 1997, and amended as of March 12, 1998
(as amended, the "Acquisition Agreement") among Servico, Inc.,
the Partnership, the General Partner and SAC (unless the context
otherwise requires, Servico, Inc. and SAC are collectively
referred to as "Servico") and the Liquidation will be governed by
the Partnership Agreement, the Delaware Revised Uniform Limited
Partnership Act and a Plan of Dissolution and Liquidation (the
"Plan"). The material terms of the Acquisition Agreement and the
Plan are described below, but such descriptions do not purport to
be complete and are qualified in their entirety, by, and subject
to the more complete and detailed information set forth in, the
Acquisition Agreement and the Plan.
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 a purchase price of $12,000,000 in cash (the
"Purchase Price"). Servico will purchase the Interest subject to
AMI's outstanding indebtedness and other obligations.
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.
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:
(a) 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.
(b) 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.
(c) 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 Precedent to Consummation of the Sale. The
respective obligations of 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.
The respective obligations of each party to consummate the
transactions contemplated by the Acquisition Agreement are subject
to customary conditions precedent (such as the truth and accuracy
at the time of Closing of the representations and warranties of
the other party and the performance by the other party of actions
required to be performed by it at or prior to Closing).
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 either party under certain circumstances, including
if any of the representations or warranties of the other party
are not in all material respects true and correct, or if the
other party breaches 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
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.
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 Company, 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 27, 1998, the reported closing sale
price of Servico common stock on the New York Stock Exchange was
$21.25. As part of that transaction, the General Partner and Prime
will waive any rights that they may have to receive any
distribution by the Partnership of the proceeds of the sale of
the Interest.
Pursuant to a consulting contract with the Partnership
originally entered into in 1994, S. Leonard Okin, a Vice
President and Director of the General Partner, has performed for
the Partnerships functions comparable to those that would
customarily be performed by a chief executive officer of a
corporation. Mr. Okin's consulting contract runs from year to
year, is renewed each year for the next year if not terminated by
either party, and unless extended will expire on December 31,
1998. During 1998, Mr. Okin's compensation is $140,232 plus
reimbursement of certain expenses (which, in 1997, amounted to
$36,100) and, if the contract is not renewed at December 31,
1998, Mr. Okin is entitled to a severance payment of $35,058.
Under the Acquisition Agreement, Servico (rather than the
Partnership) will pay the amounts due under Mr. Okin's consulting
contract.
The Plan. 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 Revised Uniform Limited Partnership
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.
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 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.
Certain administrative functions are performed for the
Partnership by W&H. Therefore, the mailing address of the
Partnership is c/o WHI, 4243 Hunt Road, Cincinnati, Ohio 45242
(Telephone: (513) 891-2920). The operation of the Inns is
supervised from W&H's regional office at 301 West Lombard Street,
Baltimore, MD 21201.
The Transfer Agent for the Partnership is First Chicago Trust
Company of New York. Their address is P.O. Box 2536, Jersey
City, New Jersey 07303-2536.
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, meeting
room 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.
ITEM 2. PROPERTIES
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 summarized in the following table. Each of the Inns is
located near an interstate highway or major traffic artery, or in
a city's business district, providing both visibility and
accessibility to travelers. All of the Inns contain meeting
rooms with sound equipment and banquet facilities. Each of the
Inns has on-site parking and a swimming pool. Also, each of the
Inns contains a full service restaurant and lounge which offer
food and beverages throughout the day. The following table
presents certain information concerning the Inns:
<TABLE>
<CAPTION>
Year Number Franchise Status of
Location Opened of Rooms Expiration Date Ownership 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 North 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
(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 for sale
</TABLE>
The terms of the leases (including options exercised) expire
at various dates ranging from 2000 through 2024. Some of the
leases contain purchase options to acquire title, with options to
extend the leases for terms varying from ten to forty years.
Five of the leases are subject to rental adjustments based upon
inflation indexes. The leases generally require 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 Notes. Each Mortgage Note is
cross-collateralized and secured by all of the Inns. In
addition, the land and building under lease in the Baltimore
Washington International Airport Inn is subject to an additional
mortgage held by the Ground Lessor.
The following table represents the occupancy percentage,
average daily rate (ADR), and revenue per available room (REVPAR)
achieved by each Inn for the years indicated:
<TABLE>
<CAPTION>
1997 1996 1995
Occup. Occup. Occup.
Location: % ADR REVPAR % ADR REVPAR % ADR REVPAR
Maryland
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Baltimore Inner Harbor 67.9% $103.25 $70.11 66.3% $95.02 $63.01 67.5 $87.52 $59.06
Balt. Washington
Int'l Airport 73.5% $ 83.20 $61.13 72.4% $78.08 $56.50 68.5% $73.23 $50.20
Frederick 61.6% $ 54.05 $33.31 60.4% $54.52 $32.96 59.6% $54.61 $32.53
Balt.-Cromwell Bridge Road 63.9% $ 72.70 $46.43 61.1% $69.89 $42.71 58.4% $65.65 $38.31
Balt.-Moravia Road 50.8% $ 50.01 $25.39 43.8% $47.99 $21.02 49.9% $41.89 $20.89
Balt.-Belmont Blvd. 51.2% $ 61.21 $31.33 53.6% $57.73 $30.92 56.9% $52.32 $29.78
Balt.-Glen Burnie N. 63.1% $ 66.40 $41.92 65.3% $59.24 $38.68 56.5% $58.25 $32.94
Balt. Glen Burnie S.
(Sold 7/29/97) 69.3% $ 56.68 $39.98 75.4% $53.28 $40.18 77.2% $48.32 $37.29
Balt.-Pikesville 57.9% $ 64.50 $37.31 58.4% $59.10 $34.51 57.8% $51.28 $29.63
Pennsylvania
Lancaster-Route 30 53.7% $ 70.35 $37.80 59.6% $67.20 $40.06 60.8% $63.45 $38.60
Lancaster-Route 501 55.2% $ 60.25 $33.27 58.1% $59.86 $34.75 60.7% $56.94 $34.56
York-Market 50.7% $ 54.15 $27.43 43.1% $56.50 $24.37 45.9% $56.86 $26.12
York-Arsenal 54.6% $ 56.98 $31.11 50.9% $57.67 $29.34 55.3% $57.51 $31.79
Hazleton 56.8% $ 56.36 $32.03 53.8% $56.36 $30.31 56.6% $53.07 $30.04
Connecticut
New Haven 69.6% $ 76.73 $53.43 65.2% $70.78 $46.17 70.3% $65.76 $46.21
East Hartford 71.1% $ 69.36 $49.33 64.2% $68.37 $43.89 64.7% $62.79 $40.65
</TABLE>
Item 3. 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.
Item 4. Submission of Matters to a Vote of Unitholders
No matter was submitted during 1997 to a vote of the
Unitholders of the Partnership. During 1997, a Special Meeting
was called and a proxy solicitation was mailed by DMC on behalf
of certain dissident Unitholders. During 1998, a Special Meeting
has been called for April 30, 1998 to consider the Proposal and
the DMC Payment. Please see Item 1 above.
PART II
Item 5. Market for Registrant's Units and Related Unitholder
Matters
(a) From the time of the initial public offering through June
19, 1997, Depository Receipts evidencing the Units ("Depository
Receipts") were traded on the New York Stock Exchange (the
"NYSE"). Effective before the opening of the market on June 20,
1997, the Depository 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 NYSEs
continued listing criteria. From June 20, 1997 through July 8,
1997, the Units were traded by brokers who made a market in the
Depository Receipts and since July 9, 1997, the Depository
Receipts have been traded on the Over the Counter Bulletin Board
(the "OTCBB") under the ticker symbol "PMPI". Set forth below
for each quarter since January 1, 1996 are the high and low
reported sale price per Depository Receipt on the NYSE (as
reported in The Wall Street Journal) through June 19, 1997, the
high and low reported 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 Informational Services, Tradeline)
since July 9, 1997.
<TABLE>
<CAPTION>
1996 High Ask Low Bid
<S> <C> <C>
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
</TABLE>
(b) On February 27, 1998, there were 533 holders of record of
the Partnership's Units.
(c) No dividends have been declared or distributed 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 been insufficient to
maintain quarterly distributions. In addition, the Partnership
cannot make any distributions to Unitholders until the Priming
Loan is repaid, and then only so long as Mortgage Note payments
are maintained and proper reserves are funded as required.
Item 6. Selected Financial Data
<TABLE>
<CAPTION>
1997(a) 1996(a) 1995(a) 1994(a) 1993(a)
(in thousands except per Unit amounts)
Operating Data:
<S> <C> <C> <C> <C> <C>
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 (.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 (1992 through 1995 were 52 week years, 1996 was a 53 week
year and 1997 is 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
Partnerships against Prime and AMI Management in the Prime
bankruptcy.
The Inns' room statistics are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
Average Average Average
Occupancy Daily Room Occupancy Daily Room Occupancy Daily Room
Percentage Rate Percentage Rate Percentage Rate
<S> <C> <C> <C> <C> <C> <C>
1st Quarter 48.9% $66.94 45.3% $63.76 47.8% $59.84
2nd Quarter 70.0% $73.95 68.7% $69.50 69.4% $64.74
3rd Quarter 72.8% $75.01 72.4% $71.44 72.2% $67.06
4th Quarter 55.6% $72.64 57.2% $67.54 56.8% $62.51
Full Year 61.8% $72.56 60.8% $68.53 61.6% $63.95
</TABLE>
Item 7. Management's Discussion and Analysis of Financial
Condition and
Results of Operations
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.
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 PlPs 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 Loan and Mortgage Note, as
required by the Priming Loan and Mortgage Note 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 PlPs and the renewal of the "Holiday Inn" franchise
agreements), the availability of suitable franchise affiliations,
changes in real estate tax rates and other operating expenses,
adverse changes in governmental rules and fiscal policies, acts
of God (which may result in uninsured losses), condemnation and
other factors that are beyond the control of the General Partner,
the Partnership, AMI or W&H.
Results of Operations
The Partnership derives its income from its 99% interest in
AMI, whose income is generated from the operations of the Inns.
AMI 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 8,112 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:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Lodging revenues (in thousands) 40,852 39,488 36,668
Occupancy percentage 61.8% 60.8% 61.6%
ADR 72.56 68.53 63.95
</TABLE>
The continued increase in the ADRs at the Inns has been
accomplished by attracting and maintaining the higher ADR market
segments (hotel guests categorized as individual business,
leisure and government guests, etc. and groups such as corporate,
association, tours, crews, etc.). Attracting and maintaining the
higher ADR segments has been accomplished by increased marketing
and sales promotions and the attractiveness of the Inns as a
result of the capital improvement program completed in 1994 and
the continuation of capital improvements during 1995, 1996 and
1997. In attracting the market segments with higher ADR, the
Inns have had to remove most of their lower ADR market segments (such
as airline crews and tour groups). The repositioning of market
segment business contributed to the slight declines in
occupancies over 1995 and 1996. However, in 1997, the Inns were
able to increase their occupancy 1.0% to 61.8%, 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 in 1997 decreased to $9,138,000
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 in 1997 were $39,580,000, 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 negotiations 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 1996. 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 Restated Loan Agreement
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 $2,116,000) 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.
The Partnerships borrowed $1,600,000 under the Tranche B Loan
to supplement operating cash flow deficiencies during the first
quarter of 1996. The entire Tranche B Loan was repaid from
excess working capital prior to the end of the third quarter of
1996.
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 such distributions to Unitholders.
As indicated under Item 1, "Business," 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 beleives 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 Loan and Mortgage
Notes (which the General Partner beleives 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, Inc. and anticipates closing the
Sale during early 1998 and liquidating.
Under the Internal Revenue Code, a publicly traded
partnership, such as the Partnership, is taxable as a corporation
unless it satisfies certain conditions. However, subject to
various limitations, publicly traded partnerships in existence on
December 17, 1987 were generally exempt from taxation as a
corporation until after 1997. If the Partnerships' operations
continue as described herein, the Partnership should not be taxed
as a corporation until after 1997. However, a publicly traded
partnership which adds a substantial new line of business is not
eligible for such exemption and it is possible that the Internal
Revenue Service could contend that the Partnership should be
taxed as a corporation after November 29, 1990, the date of the
termination of the Lease. If the Partnership were taxable as a
corporation, its operating losses should eliminate any tax
liability for some time.
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.
Item 8. Financial Statements and Supplementary Data
See Index to Financial Statements and Financial Schedules
included in Item 14(a).
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
None
PART III
Item 10. Directors and Executive Officers of the Registrant
Certain information is set forth below concerning the
directors and officers of the General Partner, each of whom has
been elected or appointed to serve until his successor is duly
elected and qualified. The Unitholders of the Partnership do not
have voting rights with respect to the election of directors of
the General Partner.
Present Position with the General Partner
Name Age and Business Experience for Past Five Years
S. Leonard Okin 64 Vice President and Director of
the General Partner since inception;
Managing Director of the General Partner
since January 1, 1994; Vice President and
Director of First American Realty
Associates, Inc., (mortgage brokers) from
prior to 1989 to December 31, 1993 (1).
Robert A. Familant 46 Director of the General Partner
since August 19, 1994; Treasurer/CEO of
Progressive Credit Union (credit union)
since prior to 1989 (2).
Seymour G. Siegel 55 Director of the General Partner
since November 21, 1994; President of
Siegel Rich, Inc. (consulting firm) since
January 1, 1994; Senior Partner of M.R.
Weiser & Co. (accounting firm) from prior
to 1989 (3).
(1) In 1994, with the approval of the Lenders, Mr. Okin entered
into a Consulting Services Agreement (the "Consulting Services
Agreement") with the Partnerships and the General Partner, giving
him authority to make day to day operating decisions for the
Inns, and for the purposes hereof will be referred to as Managing
Director of the General Partner. First American Realty
Associates, Inc. had performed mortgage brokerage services for
Prime.
(2) Mr. Familant was elected and approved as an outside Director
of the General Partner effective August 19, 1994.
(3) Mr. Siegel was elected and approved as an outside Director
of the General Partner effective November 21, 1994.
Under the Consulting Services Agreement, Mr. Okin, as an
independent contractor, performs on behalf of the Partnership,
AMI and the General Partner, the services normally performed by,
and exercises the authority normally assumed or undertaken by,
the chief executive officer of a corporation. The Consulting
Services Agreement was effective December 1, 1994 through
December 31, 1995, and has been extended on a yearly basis for a
current term ending December 31, 1998. Unless the parties or the
Lenders exercise their rights to terminate the Consulting
Services Agreement, it will be extended automatically for
successive twelve-month periods. The Consulting Services
Agreement is terminable, among other things, by 30 days prior
written notice from the Partnership, AMI, or the General Partner
to Mr. Okin of their election not to renew the agreement at the
expiration of the initial or any renewal term; for cause; by 60
days prior written notice from Mr. Okin to the General Partner of
Mr. Okin's election at any time to terminate the agreement; at
any time by Mr. Okin if the Partnership, AMI and the General
Partner for any reason are not able to maintain in place
specified liability insurance coverage for Mr. Okin; and upon
foreclosure by the Lenders on substantially all of the assets of
the Partnerships, by notice from the Lenders to Mr. Okin given
within ten days of such foreclosure.
Item 11. Executive Compensation
As the only person performing services to the Partnerships
comparable to the services of an officer, Mr. Okin is required to
devote substantial time and effort to manage the Partnerships.
The following table sets forth Mr. Okin's compensation paid in
respect of the fiscal years ended December 31, 1997, 1996 and
1995.
<TABLE>
Summary Compensation Table:
<CAPTION>
Name and Other Annual Long Term All Other
Principle Position Year Salary ($) Bonus ($) Compensation Compensation Compensation
<S> <C> <C> <C> <C> <C> <C>
S. Leonard Okin 1997 $133,560 $ - $ - $ - $ -
1996 $126,000 $ - $ - $ - $ -
1995 $120,000 $ - $ - $ - $ -
</TABLE>
Mr. Okin receives compensation as Managing Director of the
corporate General Partner. In addition, Mr. Okin received
reimbursement for out-of-pocket expenses in 1997, 1996 and 1995
totaling approximately $36,100, $27,300 and $27,500, respectively
(for office rent, secretarial services, utilities, airfare,
postage, office supplies, etc.) and $19,000, $18,500 and $6,250,
respectively, for attendance at board meetings.
Directors are currently paid a fee of $1,000 for each Board
meeting attended in New York and $1,500 for each meeting out of
town, plus out of pocket expenses incurred for attending
meetings.
Beginning in 1996, the Partnerships have retained the services
of Siegel Rich, Inc., a consulting firm in which Seymour G.
Siegel is a shareholder. In 1996 and 1997, the Partnerships paid
Siegel Rich, Inc., approximately $16,000 and $44,000,
respectively.
Item 12. Securities Ownership of Certain Beneficial Owners and
Management
The following table sets forth, as of December 31, 1997, the
number of Units owned by the officers and directors of the
General Partner and by all persons owning of record or, to the
knowledge of the Partnership, beneficially more than 5% of the
outstanding Units. The General Partner does not own any Units.
<TABLE>
<CAPTION>
Ownership of Units
Number Total Percentage
of Units of Units of Units
Name & Address of Owner Held Held Outstanding
<S> <C> <C> <C>
S. Leonard Okin
c/o Prime-American
Realty Corp.
P.O. Box 230
Hawthorne, NJ 07507-0230 1,000 1,000 0.025%
Jerome & Marcella Yunger,
as Trustees
5039 Mesa View Drive
Las Vegas, NV 89120 174,800
Roxanne Rose Yunger
5039 Mesa View Drive
Las Vegas, NV 89120 129,400 304,200 (1) 7.605% (1)
Martin W. Field
251 West Dekalb Pike
King of Prussia, PA 19406 50,000
Martin W. &
Kathleen P. Field
251 West Dekalb Pike
King of Prussia, PA 19406 151,500 201,500 (2) 5.0375% (2)
Jerome S. Sanzo
1127 High Ridge Road
Stamford, CT 06905 5,000 206,500 (3) 5.1625% (3)
</TABLE>
(1)Includes 174,800 Units held of record by Mr. & Mrs. Yunger as
Trustees of the Jerome J. and Marcella M. Yunger Family Trust
and 129,400 Units held of record by Roxanne Rose Yunger. The
Partnership has no knowledge as to the beneficial ownership
of such Units.
(2)Includes 50,000 Units held of record by Martin W. Field and
151,500 Units held of record by Martin W. Field and Kathleen
P. Field.
(3)Includes 50,000 Units held of record by Martin W. Field,
151,500 Units held of record by Martin W. Field and Kathleen
P. Field and 5,000 Units held of record by Jerome S. Sanzo as
a "Group" (within the meaning of Rule 13d-5(b) (1)).
Item 13. Certain Relationships and Related Transactions
During 1997, 1996 and 1995, Mr. Okin as Managing Director and
Officer of the General Partner, received $190,160, $171,800 and
$153,750, respectively, as cash compensation for his services and
reimbursement of expenses. During 1996 and 1997, Siegel Rich,
Inc., a consulting firm in which Seymour G. Siegel is a
shareholder, was paid approximately $16,000 and $44,000,
receptively, for services to the Partnerships. See Item 10 and
11 above.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K
(a) 1. Financial Statements
2. Financial Statement Schedules
The Financial Statements listed in the
accompanying index on page 30 to financial
statements are filed as part of this Form 10-K.
3. Exhibits
(2) (b) Agreed order of the Florida Bankruptcy
Court approving rejection of the Lease,
the Guarantee and a related agreement included as
Exhibit (2) (b) to the Partnership's 1990 Annual
Report on Form 10-K is incorporated herein by reference.
(3) (a) Amended and Restated Agreement of Limited
Partnership of the Partnership included
as Exhibit 3.1 to the Partnership's Registration
Statement on Form S-1 (No. 33-9595) (The "Registration
Statement") is incorporated herein by reference.
(3) (b) Certificate of Limited Partnership of the
Partnership included as Exhibit 3.2 to
the Registration Statement is incorporated herein by
reference.
(3) (c) Amended and Restated Agreement of Limited
Partnership of Operating Partners,
included as Exhibit 3.3 to the Registration
Statement is incorporated herein by reference.
(3) (d) Certificate of Limited Partnership of
Operating Partners included as Exhibit
3.6 to the Registration Statement is incorporated
herein by reference.
(4) (a) Form of Deposit Agreement included as
Exhibit 10.8 to the Registration
Statement is incorporated herein by reference.
(10) (a) Form of Lease included as Exhibit 10.1
to the Registration Statement is
incorporated herein by reference.
(10) (b) Form of Management Agreement included as
Exhibit 10.2 to the Registration
Statement is incorporated herein by reference.
(10) (c) Form of Purchase and Sale Agreement
included as Exhibit 10.3 to the
Registration Statement is incorporated
herein by reference.
(10) (d) Form of Note Purchase and Loan Agreement
included as Exhibit 10.4 to the
Registration Statement is incorporated herein by
reference.
(10) (e) Form of Service Contract
included as Exhibit 10.5 to the Registration
Statement is incorporated herein by reference.
(10) (f) Form of Undertaking included as Exhibit
10.6 to the Registration Statement is
incorporated herein by reference.
(10) (g) Form of Guaranty included as Exhibit
10.7 to the Registration Statement is
incorporated herein by reference.
(10) (h) Management Agreement among AMI Operating
Partners, L.P. ("Operating Partners"),
Sixteen Hotels, Inc. ("Sixteen Hotels"), and
Winegardner & Hammons, Inc. ("W&H"), as Manager, dated
January 4, 1990, included as Exhibit (10) (h) to the
Partnership's 1990 Annual Report on
Form 10-K is incorporated herein by reference.
(10) (i) Sixth Amendment to the Replacement
Management Agreement among Operating
Partners Sixteen Hotels, Inc. and W&H, as
Manager, to be effective January 4, 1997.
(10) (j) Loan Agreement among Massachusetts
Mutual Life Insurance Company, Century
Life of America and Jackson National Life
Insurance Company (collectively, the "Priming Lenders"),
as lenders, Operating Partners, as borrower and Norwest
Bank Minnesota, N.A., Agent (the "Agent") dated as of
February 28, 1992 included as Exhibit (10) (i)
to the Partnership's 1992 Annual Report on Form 10-K
is incorporated herein by reference.
(10) (k) Amended and Restated Loan Agreement
among Massachusetts Mutual Life
Insurance Company, Century Life of America and
Jackson National Life Insurance Company, (collectively, the
"Priming Lenders"), as lenders, AMI Operating Partners, as
borrower and Norwest Bank Minnesota, N.A., Agent (the
"Agent"), dated as of June 12, 1992, as amended by letters
of consent agreements dated February 1993, and March 17,
1993, included as Exhibit (10) (j) to the Partnership's
1992 Annual Report on Form 10-K, and a letter of
consent agreement dated January 31, 1994,
included as Exhibit (10) (j) to the Partnership's 1994
Annual Report on Form 10-K, are incorporated
herein by reference.
(10) (l) Amended and Restated Loan Agreement
among Operating Partners, the
Holders named in Exhibit A thereto (collectively,
the "Existing Lenders") and IBJ Schroeder Bank and Trust
Company, Servicer, dated June 12, 1992, as amended by letters
of consent agreements dated February 1993, included as
Exhibit (10) (k) to the Partnership's 1992 Annual Report on
Form 10-K, and a letter of consent agreement dated
January 31, 1994, included as Exhibit (10)(k)
to the Partnership's 1994 Annual Report on
Form 10-K, are incorporated herein by reference.
(10) (m) Escrow Agreement among Operating Partners,
the Existing Lenders and Chicago
Title Insurance Company, as escrow
agent and as title insurer dated June 12, 1992, included as
Exhibit (10) (l) to the Partnership's 1992 Annual Report on
Form 10-K.
(10) (n) Consulting Services Agreement among the
Partnerships, the General Partner
and Mr. S. Leonard Okin dated December 1,
1994, included as Exhibit (10) (m) to the Partnership's
1994 Annual Report on Form 10-K.
(10) (o) Fourth Consent Agreement among Operating
Partners, the Priming Loan Lenders
named in Exhibit A thereto, and the
Lenders named in Exhibit B thereto, dated March 17, 1995,
included as Exhibit (10) (n) to the Partnership's 1994
Annual Report on Form 10-K.
(10) (p) Consulting Agreement among Operating
Partners and Siegel
Rich, Inc., dated March 11, 1997, formalizing
the previously agreed
upon terms and conditions.
(10) (q) Acquisition Agreement dated as of
November 7, 1997 among Servico, Inc., Prime
Motor Inns Limited Partnership, Prime-American Realty
Corp. and Servico Acquisition Corp., included
as the Exhibit to the Partnership's Periodic Report on
Form 8-K dated November 21, 1997.
(10) (r) First Amendment dated March 12, 1998, to
Acquisition Agreement, included as Appendix A to Proxy
Statement of the Partnership for Special Meeting to
be held April 30, 1998.
(10) (s) Plan of Dissolution and Liquidation of
the Partnership, included as Appendix B
to Proxy Statement of the Partnership for Special Meeting
to be held April 30, 1998.
(21) Subsidiaries of Prime Motor Inns Limited
Partnership are as follows:
Name Jurisdiction ofIncorporation
AMI Operating Partners, L.P. Delaware
(27) Financial Data Schedules
(b) Reports on Form 8-K
Report on Form 8-K filed on June 2, 1997
relating to the New York Stock Exchanges
press release announcing the delisting of the
Partnership's Depository Receipts.
Report on Form 8-K dated on November 21, 1997
relating to the Acquisition Agreement by
Servico Aquisition Corp.
Report on Form 8-K dated on February 8, 1998
relating to HHC withdrawing their offer to
renew the "Holiday Inn" franchises for the
twelve Inns whose franchises were to expire
in 1997.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned, there-
unto duly authorized.
PRIME MOTOR INNS LIMITED PARTNERSHIP
(Registrant)
By: Prime-American Realty Corp. General Partner
Date: March 19, 1998 By: /s/ S. Leonard Okin
S. Leonard Okin
Vice President & Director
Date: March 19, 1998 By: /s/ Robert A. Familant
Robert A. Familant
Director
Date: March 19, 1998 By: /s/ Seymour G. Siegel
Seymour G. Siegel
Director
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following
persons on behalf of the Registrant and in the capacities and on
the dates indicated.
BOARD OF DIRECTORS OF THE GENERAL PARTNER
Signature Title Date
By: /s/ S. Leonard Okin Director and Vice President March 19, 1998
S. Leonard Okin of the General Partner;
Consultant under the
Consulting Services Agreement
By: /s/ Robert A. Familant Director of the March 19, 1998
Robert A. Familant General Partner
By: /s/ Seymour G. Siegel Director of the March 19, 1998
Seymour G. Siegel General Partner
INDEX
Pages
Report of Independent Accountants 1
Financial Statements:
Consolidated Balance Sheets as of December 31, 1997 and 1996 2-3
Consolidated Statements of Operations for the years ended
December 31, 1997, 1996 and 1995 4
Consolidated Statements of Partners' Deficit for the
years ended December 31, 1997, 1996 and 1995 5
Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1996 and 1995 6
Notes to Consolidated Financial Statements 7-18
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 accumulated depreciation
and amortization (54,950) (54,188)
45,563 48,825
Cash and cash equivalents restricted for:
Acquisition of property and equipment 2,165 1,195
Interest and taxes 728 522
Other assets, net 425 542
Total assets $ 51,707 $ 53,972
</TABLE>
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
expenses 887 701 587
Depreciation and amortization 3,838 5,423 5,473
Interest expense 5,888 6,069 6,057
Shared appreciation expense 4,500 - -
Net gain on sale of Inn (1,011) - -
53,682 51,772 49,749
Net loss (3,330) (2,188) (2,280)
Net loss allocable to general partner (33) (22) (23)
Net loss allocable to limited partners $ (3,297) $ (2,166) $ (2,257)
Number of limited partner units
outstanding 4,000 4,000 4,000
Net loss allocable to limited
partners per unit $ (.82) $ (.54) $ (.56)
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
Prime Motor Inns Limited Partnership
and Subsidiary Limited Partnership
Consolidated Statements of Partners' Deficit
for the years ended December 31, 1997, 1996 and 1995
(dollars in thousands)
<TABLE>
<CAPTION>
General Limited
Partner Partner 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
Cash flows from investing activities:
Net proceeds from sale of Inn 2,239 - -
Additions to property and equipment (1,519) (1,880) (2,423)
Increase in restricted cash (1,176) (395) (245)
Net cash used in investing activities (456) (2,275) (2,668)
Cash flows 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.
1. Organization, Operations and Bankruptcy, Continued:
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
proposed 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 of the "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.<PAGE>
<Spacing>
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 Service 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 in to
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.<PAGE>
<Note Number>
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:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Food $ 130,000 $ 131,000
Beverage 64,000 70,000
Linen 11,000 21,000
$ 205,000 $ 222,000
</TABLE>
d. Property and Equipment: Property and equipment
are stated at the lower of cost or fair market value. The net
carrying value of property and equipment as of December 31, 1991
was reduced to estimated fair market value, through a charge to
expenses in the amount of $46,354,000. Expenditures for
improvements and major renewals are capitalized. Expenditures
for maintenance and repairs, which do not extend the useful life
of the asset, are expensed as incurred. For financial statement
purposes, provision is made for depreciation and amortization
using the straight-line method over the lesser of the estimated
useful lives of the assets, 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
assets 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 or 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. Reclassifications: 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 exchanged mutual releases.
a. Lease and Guaranty: 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
part of the "Holiday Inn" system which is administrated 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
Partnerships' results of operations.
c. W&H Management Agreement: Winegardner & Hammons,
Inc. ("W&H") continues to manage the operations of the Inns
pursuant to its management agreement with 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.<PAGE>
<Note Alpha>
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 $813,000, $1,364,000 and
$1,295,000, related to this Inn were included in the
Consolidated Statement of Operations of 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.
The components of other assets are as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
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
</TABLE>
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.<PAGE>
<Spacing>
6. Debt:
<TABLE>
<CAPTION>
Long-term debt consists of:
1997 1996
<S> <C> <C>
Mortgage notes, net of unamortized discount
of $109,000 in 1997 and $158,000 in 1996 $ 54,240,000 $ 54,191,000
Priming loan, interest at 11% 9,304,000 11,500,000
$ 63,544,000 $ 65,691,000
</TABLE>
In confirming the bankruptcy Plan of Reorganization on May 28,
1992, the New York Bankruptcy Court approved the Restated Loan
Agreement which called for the following provisions: $3,467,127
of accrued and unpaid interest at December 31, 1991 (the
"Deferred Amount") to be added to the principal amount of the
Mortgage Notes, but to bear interest only from and after January
1, 1995; the Mortgage Notes (not including the Deferred Amount)
to bear interest payable at a rate of 8% per annum in 1994; the
principal amount of the Mortgage Notes (including the Deferred
Amount) to bear interest at the rate of 10% per annum from
January 1, 1995 until maturity; and maturity of the Mortgage
Notes (including the Deferred Amount) to be extended to December
31, 1999. In addition, the Restated Loan Agreement provides for
the deeds to the Inns and assignments of other assets of AMI to
be held in escrow until maturity of the Mortgage Notes. Under
the terms of the Restated Loan Agreement, the Mortgage Notes are
repayable at any time without penalty.
The Restated Loan Agreement was accounted for as a
modification of terms in accordance with Statement of Financial
Accounting Standards No. 15 "Accounting by Debtors and Creditors
for Troubled Debt Restructurings". Accordingly, the carrying
value of the Mortgage Notes and Deferred Amount was not adjusted
to reflect the terms of the Restated Loan Agreement. The effect
of the changes in the terms of the Mortgage Notes will be
recognized prospectively over the life of the Mortgage Notes,
through an adjustment of the effective interest rate on the
Mortgage Notes and Deferred Amount to approximately 8.5% per
annum (the "Effective Rate"). The amount by which interest
payable at the Effective Rate exceeded the amount of interest
paid at the stated rate, has been accrued and is included in
deferred interest payable at December 31, 1997 and 1996. The
amount by which interest paid at the stated rate exceeds the
amount of interest payable at the Effective Rate will reduce the
deferred interest balance in future periods.<PAGE>
<Note Text>
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.<PAGE>
<Spacing>
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 date 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 date
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:
<TABLE>
<CAPTION>
Year Amount
<S> <C>
1998 $ 1,324,000
1999 1,324,000
2000 1,332,000
2001 1,308,000
2002 1,308,000
2003 and thereafter 15,209,000
$ 21,805,000
</TABLE>
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.<PAGE>
<Spacing>
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.<PAGE>
<Spacing>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1000
<CASH> 989
<SECURITIES> 0
<RECEIVABLES> 845
<ALLOWANCES> (22)
<INVENTORY> 205
<CURRENT-ASSETS> 809
<PP&E> 100513
<DEPRECIATION> (54950)
<TOTAL-ASSETS> 51707
<CURRENT-LIABILITIES> 2375
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 51707
<SALES> 49990
<TOTAL-REVENUES> 50352
<CGS> 17449
<TOTAL-COSTS> 39580
<OTHER-EXPENSES> 8214
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5888
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3330)
<EPS-PRIMARY> (.82)
<EPS-DILUTED> (.82)
</TABLE>
