<PAGE>
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[X] Preliminary Proxy Statement [_] Confidential, For Use of the
[_] Definitive Proxy Statement Commission Only (as permitted
[_] Definitive Additional Materials by Rule 14a-6(e) (2))
[_] Soliciting Material Under Rule 14a-12
Courtyard by Marriott Limited Partnership
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(Name of Registrant as Specified in Its Charter)
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(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[_] No fee required.
Fee computed on table below per Exchange Act Rules 14a-6(i) (1)
and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[X] Fee paid previously with preliminary materials: $30,448.
[_] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11 (a) (2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
(1) Amount previously paid:
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(2) Form, Schedule or Registration Statement No.:
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(4) Date Filed:
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<PAGE>
COURTYARD BY MARRIOTT LIMITED PARTNERSHIP
10400 Fernwood Road
Bethesda, Maryland 20817
To the Limited Partners of Courtyard by Marriott Limited Partnership:
A Purchase Offer and Consent Solicitation is being made pursuant to the
terms of a settlement (the "Settlement") relating to a class action lawsuit
brought against the predecessor-in-interest to CBM One LLC, a Delaware limited
liability company and the general partner (the "General Partner") of Courtyard
by Marriott Limited Partnership (the "Partnership"), Marriott International,
Inc., a Delaware corporation ("Marriott International"), Host Marriott
Corporation, a Delaware corporation, as the predecessor-in-interest to a
Maryland corporation of the same name ("Host Marriott"), various related
entities and others, in the 285th Judicial District Court (the "Court") of Bexar
County, Texas (the "Haas Litigation"). The Settlement also relates to lawsuits
filed with respect to six other limited partnerships (such suits, together with
the Haas Litigation, the "Litigation").
On March 9, 2000, the defendants and counsel to the class action
plaintiffs in the Litigation entered into a settlement agreement (the
"Settlement Agreement") providing for the settlement of all the Litigation. The
Settlement with respect to the Partnership consists of:
o an offer by CBM I Holdings LLC, a Delaware limited liability company (the
"Purchaser"), to purchase all outstanding units of limited partnership
interest in the Partnership (other than units held by the General Partner)
pursuant to a purchase offer (the "Purchase Offer"); and
o a merger of a subsidiary of the Purchaser into the Partnership immediately
following the consummation of the Purchase Offer (the "Merger"), pursuant
to which (1) all units held by holders who have not tendered their units in
the Purchase Offer and who have not opted-out of the Settlement will be
cashed out for the same amount of consideration paid in the Purchase Offer,
and (2) all units held by unitholders who have opted-out of the Settlement
will be converted into the right to receive an amount in cash equal to the
appraised value of such units.
The consummation of the Purchase Offer and the Merger is subject to the
final approval by the Court of the Settlement. Following the expiration of the
Purchase Offer there will be a hearing before the Court to determine the
fairness of the Settlement. Assuming all the other conditions to the Purchase
Offer have been satisfied (or waived, if waivable), the Purchase Offer will be
consummated as soon as practicable after the Settlement is approved by the Court
and all appeal periods have expired or, if the approval of the Settlement is
appealed, after the Settlement is determined finally to be approved. Immediately
following the consummation of the Purchase Offer, the Merger will be
consummated.
The Purchase Offer. Pursuant to the terms of the Settlement Agreement,
the Purchaser has agreed to offer to purchase all of the issued and outstanding
units of limited partnership interest in the Partnership (other than units owned
by the General Partner) at a price of $134,130 per unit (or a pro rata portion
thereof) in cash, upon the terms and subject to the conditions set forth in the
Purchase Offer and Consent Solicitation attached hereto. This amount represents
not only the value of your units, but also the value of the settlement of the
claims asserted in the Haas litigation. If the Court approves legal fees and
expenses of approximately $18,000 per unit to counsel to the class action
plaintiffs in the Haas Litigation, the net amount that each holder that is a
class member will receive is approximately $116,000 per unit (or a pro rata
portion thereof) (the "Net Settlement Amount"). The amount a holder will receive
in the Purchase Offer will be reduced by any amount owed by such holder on the
original purchase price of his or her units. If you wish to receive the Net
Settlement Amount for your units in the Purchase Offer, you should consent to
the Merger and the amendments to the partnership agreement as described below.
The approval of the Merger and the amendments to the partnership agreement by
the holders of a majority of the outstanding units is one of the conditions to
the Purchase Offer and the Merger.
<PAGE>
The Purchaser is an indirect wholly owned subsidiary of CBM Joint
Venture LLC (the "Joint Venture"), a Delaware limited liability company that is
a joint venture between MI CBM Investor LLC ("MI Investor"), a Delaware limited
liability company and a wholly owned indirect subsidiary of Marriott
International, and Rockledge Hotel Properties, Inc., a Delaware corporation
("Rockledge") (through wholly owned subsidiaries). Rockledge currently owns a
99% non-managing interest in the General Partner. Host Marriott, L.P. ("Host
LP"), which owns the 1% managing interest in the General Partner, also owns a
95% non-voting interest in Rockledge. Host Marriott owns approximately 78% of
the equity interests in Host LP. Marriott International currently does not own
an interest in either Host Marriott, Rockledge or the General Partner, but one
of Marriott International's subsidiaries is the manager of the hotels owned by
the Partnership. Two individuals who serve on the board of directors of Host
Marriott also serve on the board of directors of Marriott International. Two
individuals who serve as officers and directors of Rockledge, and one individual
who is an officer of Rockledge, are also employees of Host Marriott. In
addition, all the members of the General Partner's board of managers are also
employees of Host LP and Host Marriott. As a result, these entities have a
conflict of interest with respect to the Purchase Offer and the Merger. See
"Special Factors--Certain Transactions with the Partnership" for a more detailed
description of these conflicts of interest.
The Merger. The terms of the Settlement Agreement provide for the
Merger of a subsidiary of the Purchaser into the Partnership pursuant to an
agreement and plan of merger (the "Merger Agreement") immediately following the
consummation of the Purchase Offer. In the Merger, each outstanding unit of
limited partnership interest in the Partnership that has not been tendered in
the Purchase Offer (other than units held by the General Partner, the Purchaser
or holders who have elected to opt-out of the Settlement) will be converted into
the right to receive $134,130 per unit (or a pro rata portion thereof) in cash.
If the Court approves legal fees and expenses of approximately $18,000 per unit
to counsel to the class action plaintiffs in the Haas Litigation, the net amount
that each holder that is a class member will receive is approximately $116,000
per unit (or a pro rata portion thereof). In addition, each outstanding unit
held by a holder who has elected to opt-out of the Settlement will be converted
in the Merger into the right to receive a cash amount equal to the appraised
value of such unit (or a pro rata portion thereof), as determined in accordance
with the appraisal provisions of the Merger Agreement and the Settlement
Agreement. The appraised value of units will not include any amount representing
the value of the settlement of the claims asserted in the Haas Litigation. The
amount to be received by any unitholder in the Merger will be reduced by any
amount owed by such holder on the original purchase price of his or her units.
If you wish to opt-out of the Settlement, you must follow the procedures
described in the attached Purchase Offer and Consent Solicitation.
Written Consents. The Purchase Offer and Merger will not be
consummated unless holders of a majority of the units submit their written
consent to:
(1) the Merger, and
(2) all four of the amendments to the Partnership's partnership
agreement as more fully described in the Purchase Offer and
Consent Solicitation (the "Amendments"), that facilitate the
consummation of the Purchase Offer and the Merger. The Amendments
would:
o eliminate the provision that prohibits the transfer of 50% or
more of the outstanding units within a 12-month period, so that
the Purchaser may acquire more than 50% of the outstanding
units in the Purchase Offer;
<PAGE>
o revise the provision that permits unit transfers only on the
first day of an accounting period, so that the transfer of
units to the Purchaser pursuant to the Purchase Offer can occur
on the designated closing date, rather than on the first day of
an accounting period;
o add a provision to permit distributions of cash available for
distribution in accordance with the Settlement Agreement and
revise the provisions relating to allocations of profits and
losses and distributions that conflict with such provision;
and
o add a provision that would expressly permit the General Partner
to authorize one or more third parties to appraise the market
value of the hotels owned by the Partnership and the value of
the units, to remove any doubt that the value of units held by
limited partners who elect to opt-out of the Settlement can be
established in accordance with the terms of the Settlement
Agreement and the Merger Agreement.
Accordingly, the General Partner is soliciting the limited partners'
consents to the Merger and the Amendments. The only holders of units who will be
entitled to consent to the Merger and the Amendments will be holders of record
of units at the close of business on July 10, 2000 who have been admitted to the
Partnership as limited partners. The terms of the Settlement are described in
detail under the heading "Special Factors -- The Settlement Agreement" in the
Purchase Offer and Consent Solicitation.
In addition to holders of a majority of the outstanding units (other
than units held by the General Partner and other affiliates) having submitted
valid written consents to the Merger and to the Amendments, consummations of the
Purchase Offer and the Merger is conditioned upon, among other things, (1) not
more than ten percent of the units in the Partnership and not more than ten
percent of the units of limited partnership interests in any one of the other
six partnerships involved in the Settlement (other than units held by the
persons named as insiders in the Settlement Agreement) being held by holders who
have elected to opt-out of the Settlement (which condition may be waived by the
Purchaser), and (2) the Court approving the fairness of the Settlement
(including the terms and conditions of the Purchase Offer, the Merger and the
Amendments) at a hearing at which unitholders who have not opted-out of the
Settlement and who have timely filed the proper documents with the Court have
the right to appear. See the "Notice of Pendency and Settlement of Claim and
Derivative Action Related to Courtyard by Marriott LP and Final Approval
Hearing," which is being distributed by counsel to the class action plaintiffs
with the Purchase Offer and Consent Solicitation, for a description of the
procedures that must be followed in order to appear at the hearing.
The Purchaser is offering to pay all unitholders the same gross amount
of $134,130 per unit. Payment for the units will be made by deposit of the
purchase offer price for the units with Chase Bank of Texas, N.A., which has
been retained by counsel to the class action plaintiffs as escrow agent (the
"Escrow Agent"). Upon deposit of the purchase offer price for the units with the
Escrow Agent, unitholders must look solely to counsel to the class action
plaintiffs and the escrow agent for the determination and payment of the amounts
owed to them. The defendants in the Litigation have no responsibility for or
liability whatsoever with respect to the investment or distribution of the
settlement funds, the determination, administration, calculation or payment of
claims, or any losses incurred in connection therewith, or with the formulation
or implementation of the plan of allocation of the settlement funds, or the
giving of any notice with respect to same.
A Purchase Offer and Consent Solicitation, including a BLUE Proof of
Claim, Assignment and Release and a GREEN consent form, are enclosed with this
notice. The attached Purchase Offer and Consent Solicitation contains
instructions on how to tender your units in the Purchase Offer and to consent to
the Merger and the Amendments.
<PAGE>
A Special Litigation Committee appointed by the General Partner has
determined that the terms of the Settlement (1) are fair and reasonable to the
Partnership (which the Special Litigation Committee considers, as a practical
matter, to have an identity of interest with the limited partners with respect
to the derivative claims in the Haas Litigation) and (2) include a fair and
reasonable settlement of any and all derivative claims, express or implied, made
on behalf of the Partnership in the Haas Litigation. Counsel for the class
action plaintiffs recommends that the class action plaintiffs approve the
Settlement by tendering their units and consenting to the Merger and the
Amendments. See "Special Factors--Determination of the Special Litigation
Committee and Recommendation of Counsel to the Class Action Plaintiffs."
The General Partner is not making a recommendation to you as to whether
to tender or refrain from tendering your units or whether or not to consent to
the Merger or the Amendments. You must make your own decisions as to these
matters.
The Partnership has filed with the Securities and Exchange Commission a
Solicitation/Recommendation Statement on Schedule 14D-9 (the "Schedule 14D-9"),
which is being mailed to limited partners concurrently herewith.
CBM One LLC
General Partner
------------------------------------
Secretary
Date: July ___, 2000
Bethesda, Maryland
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C>
SUMMARY TERM SHEET.......................................................................................1
RISK FACTORS.............................................................................................8
SPECIAL FACTORS
Background of the Settlement......................................................................11
The Settlement Agreement..........................................................................14
Position of Marriott International, MI Investor and Rockledge Regarding Fairness..................16
Position of the General Partner, the Purchaser, the Joint Venture, Marriott International,
MI Investor and Rockledge Regarding the Purchase Offer...................................17
Determination of the Special Litigation Committee and Recommendation of
Counsel to the Class Action Plaintiffs...................................................17
Purpose and Structure of the Purchase Offer; Merger and Amendments................................19
Conditions of the Purchase Offer and the Merger...................................................19
Plans for the Partnership; Certain Effects of the Purchase Offer..................................20
Certain Information Concerning the Partnership....................................................21
Certain Information Concerning the Purchaser, the Joint Venture, Marriott International,
MI Investor and Rockledge................................................................28
Source and Amount of Funds........................................................................30
Certain Transactions with the Partnership.........................................................31
Security Ownership of Certain Beneficial Owners and Management....................................34
Regulatory Matters................................................................................35
Final Court Hearing and Right to Appear...........................................................35
Procedures for Opting-Out of the Settlement.......................................................36
The Merger........................................................................................37
The Amendments....................................................................................39
Federal Income Tax Considerations.................................................................45
THE PURCHASE OFFER......................................................................................53
Terms of the Purchase Offer.......................................................................53
Settlement Fund; Acceptance for Payment; Payment for Units........................................56
Procedures for Accepting the Purchase Offer and Tendering Units...................................57
Withdrawal Rights.................................................................................58
Market for the Partnership's Limited Partnership Units and Related Security Holder Matters........58
Transfer Fees and Taxes...........................................................................59
THE WRITTEN CONSENTS....................................................................................60
Record Date and Outstanding Units.................................................................60
Majority Vote Required; Voting Rights.............................................................60
Solicitation Period...............................................................................60
Voting and Revocation of Consents.................................................................60
Effective Time of Amendments......................................................................61
Effective Time of the Merger......................................................................61
No Special Meeting................................................................................61
Rights of Appraisal...............................................................................62
Interests of Certain Persons in the Matters to be Acted Upon......................................62
OTHER MATTERS...........................................................................................63
Fees and Expenses.................................................................................63
Miscellaneous.....................................................................................63
WHERE YOU CAN FIND MORE INFORMATION.....................................................................65
Schedule I - Directors and Executive Officers of Marriott International, Inc., MI CBM Investor
LLC, Rockledge Hotel Properties, Inc., CBM Joint Venture LLC and CBM I Holdings
LLC
Schedule II - Directors and Executive Officers of CBM One LLC
</TABLE>
<PAGE>
SUMMARY TERM SHEET
We urge you to read carefully this purchase offer and consent
solicitation, particularly the matters discussed under the heading "The
Settlement," before deciding whether to tender or refrain from tendering your
units of limited partnership interest in Courtyard by Marriott Limited
Partnership and whether to vote for or against the merger and the amendments to
the partnership agreement described below. The following is a summary of
information contained in this purchase offer and consent solicitation. The
summary is not intended to be complete, and you should read carefully this
entire purchase offer and consent solicitation and the related proof of claim,
assignment and release, consent form and the other documents to which we have
referred you. In particular, you should read the information contained under the
heading "Risk Factors." The purchase offer and consent solicitation, together
with the proof of claim, assignment and release, are referred to herein as the
"Purchase Offer and Consent Solicitation."
The term the "general partner" as used in this purchase offer and
consent solicitation refers to CBM One LLC, the general partner of Courtyard by
Marriott Limited Partnership. The terms "we", "our" and the "purchaser" as used
in this purchase offer and consent solicitation refer to CBM I Holdings LLC, a
wholly owned indirect subsidiary of CBM Joint Venture LLC, or the "joint
venture," which is a joint venture between MI CBM Investor LLC, or "MI
Investor," a wholly owned indirect subsidiary of Marriott International, Inc.,
or "Marriott International," and Rockledge Hotel Properties, Inc., or
"Rockledge" (through wholly owned subsidiaries).
WHY ARE YOU MAKING THIS PURCHASE OFFER AND CONSENT SOLICITATION?
This purchase offer and consent solicitation is being made pursuant to
the terms of a settlement agreement relating to a class action lawsuit brought
against the general partner, Marriott International, Host Marriott, various
related entities and others. The settlement relates to litigation involving
Courtyard by Marriott Limited Partnership and six other limited partnerships,
including Courtyard by Marriott II Limited Partnership. The settlement provides
for a purchase offer, followed by a merger, and amendments to the partnership
agreement as described in this purchase offer and consent solicitation. See
"Special Factors -- Background of the Settlement," pages 12 through 15.
WHO IS OFFERING TO BUY MY UNITS?
Our name is CBM I Holdings LLC. We are a wholly owned indirect
subsidiary of the joint venture and were organized for the sole purpose of
making the purchase offer. The joint venture is a joint venture between MI
Investor, a subsidiary of Marriott International, and Rockledge (through wholly
owned subsidiaries). See "Special Factors -- Certain Information Concerning the
Purchaser, the Joint Venture, Marriott International, MI Investor and
Rockledge," pages 21 through 23.
WHAT CLASSES AND AMOUNTS OF SECURITIES ARE YOU SEEKING IN THE OFFER?
We are offering to purchase all outstanding units of limited
partnership interest in Courtyard by Marriott Limited Partnership other than
units owned by the general partner.
HOW MUCH ARE YOU OFFERING TO PAY FOR MY SECURITIES AND WHAT IS THE FORM OF
PAYMENT?
We are offering to pay all unitholders the same gross amount of
$134,130 per unit (or a pro rata portion thereof) in cash to purchase each unit,
settle the Haas litigation and obtain a release of all claims in the Haas
litigation. The net amount that unitholders will receive after payment of their
share of litigation expenses will vary. If the court approves legal fees and
expenses of approximately $18,000 per unit to counsel to the class action
plaintiffs in the Haas litigation, the net amount that each holder that is a
class member will receive is approximately $116,000 per unit (or a pro rata
portion thereof). This amount will be reduced by any amount owed by the holder
on the original purchase price of such unit. The aggregate amount we are
offering to pay for all outstanding units (other
1
<PAGE>
than the 15 units held by the general partner) is $152,237,550. Payment for the
units will be made by deposit of the purchase offer price for the units with
Chase Bank of Texas, N.A., the escrow agent. Upon deposit of such funds with the
escrow agent unitholders must look solely to counsel to the class action
plaintiffs and the escrow agent for the determination and payment of the amounts
owed to them. See "Special Factors -- The Settlement Agreement," pages 15
through 17.
WHAT WILL I RECEIVE IF I PURCHASED A UNIT FROM A CLASS MEMBER, BUT DID NOT
OBTAIN AN ASSIGNMENT OF LITIGATION CLAIMS FROM THAT CLASS MEMBER?
If you purchased a unit from a class member without obtaining an
assignment of that class member's litigation claims, the purchase offer price
will have to be divided between you and the class member from whom you purchased
the unit. See "The Purchase Offer -- Terms of the Purchase Offer -- Rights of
Class Members Who Sold Units But Did Not Assign Their Litigation Claims" on page
57.
DO YOU HAVE THE FINANCIAL RESOURCES TO MAKE PAYMENT?
We will need approximately $_____ million to purchase all of the units
pursuant to the purchase offer, to consummate the merger and to pay related fees
and expenses. We will obtain the funds indirectly from Marriott International
and Host Marriott. See "Special Factors -- Source and Amount of Funds," page 23.
IS YOUR FINANCIAL CONDITION RELEVANT TO MY DECISION TO TENDER IN THE OFFER?
Because the form of payment consists solely of cash and the purchase
offer is not conditioned on our ability to obtain financing, we do not think our
financial condition is relevant to your decision as to whether to tender in the
purchase offer or consent to the merger. Our obligations in connection with the
purchase offer and the merger are guaranteed by Marriott International and Host
Marriott. See Special Factors -- Source and Amount of Funds," page 23.
HOW LONG DO I HAVE TO DECIDE WHETHER TO TENDER IN THE PURCHASE OFFER?
You will have at least until 12:00 midnight, New York City time, on
August 21, 2000 to decide whether to tender your units in the purchase offer.
See "The Purchase Offer -- Terms of the Purchase Offer," pages 48 and 49.
CAN THE PURCHASE OFFER BE EXTENDED?
Yes. We can elect to extend the purchase offer at any time. See "The
Purchase Offer -- Terms of the Purchase Offer," pages 48 and 49.
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<PAGE>
HOW WILL I BE NOTIFIED IF THE PURCHASE OFFER IS EXTENDED?
If the purchase offer is extended we will issue a press release
announcing the extension no later than 9:00 a.m., New York City time, on the
next business day after the day the purchase offer was scheduled to expire. See
"The Purchase Offer -- Terms of the Purchase Offer," pages 48 and 49.
HOW DO I TENDER MY UNITS?
To tender all or any portion of your units, you must either (1)
complete and sign the BLUE proof of claim, assignment and release (or a
facsimile thereof) and mail or deliver it and any other required documents to
GEMISYS Corporation, at the address set forth on the back cover of this purchase
offer and consent solicitation, or (2) if your units are registered in the name
of a broker, dealer, commercial bank, trust company or other nominee, you must
contact such nominee and instruct it to tender your units. See "The Purchase
Offer -- Procedures for Accepting the Purchase Offer and Tendering Units," pages
66 and 67. However, tendering your units does not in itself constitute your
consent to the merger and the amendments to the partnership agreement. You can
only consent to the merger and the amendments by completing and timely returning
the enclosed GREEN consent form.
WHAT ARE THE SIGNIFICANT CONDITIONS TO THE PURCHASE OFFER AND THE MERGER?
The consummation of the purchase offer and the merger is subject to a
number of conditions, which are described on page 19 under the heading "Special
Factors--Conditions."
WHEN WILL I RECEIVE PAYMENT FOR MY UNITS IF I TENDER?
The court will hold a hearing for approval of the settlement once all
conditions to consummating the purchase offer and the merger, other than
condition (1) above, have been satisfied. Within seven business days after the
judgment order approving the terms of the settlement and the dismissal of the
litigation becomes final, the escrow agent will distribute to each unitholder
who has submitted a valid proof of claim prior to such date the funds to which
such holder is entitled. See "The Purchase Offer -- Settlement Fund; Acceptance
for Payment; Payment for Units," pages 49 and 50.
MUST I SUBMIT A PROOF OF CLAIM TO RECEIVE FUNDS IN THE SETTLEMENT?
Yes. No unitholder will be entitled to receive any funds from the
settlement until a valid proof of claim is submitted, whether before or after
the judgment order becomes final. However, if you have not submitted a valid
proof of claim within 90 days of the date a judgment order approving the
settlement becomes final and you have not opted-out of the settlement, then the
counsel to the class action plaintiffs will execute a proof of claim on your
behalf. See "The Purchase Offer -- Procedures for Accepting the Purchase Offer
and Tendering Units," pages 50 through 52.
HOW DO I WITHDRAW PREVIOUSLY TENDERED UNITS?
3
<PAGE>
You may withdraw units that you have tendered at any time prior to the
expiration date. To withdraw units, you must deliver a written notice to the
claims administrator prior to the expiration of the purchase offer at the
address set forth on the back cover of this purchase offer and consent
solicitation. For more information on your withdrawal rights, see "The Purchase
Offer--Withdrawal Rights," page 55.
WHO HAS DETERMINED THAT THE TERMS OF THE SETTLEMENT ARE FAIR?
Counsel to the class action plaintiffs recommends that the class action
plaintiffs approve the settlement by tendering their units in the purchase offer
and consenting to the merger and the amendments. In addition, the special
litigation committee appointed for Courtyard by Marriott Limited Partnership by
the general partner has determined that the terms of the settlement are fair
and reasonable to the partnership See "Special Factors -- Determination of the
Special Litigation Committee and Recommendation of Counsel to the Class
Action."
HOW DO I OPT-OUT OF THE SETTLEMENT?
If you do not wish to participate in the settlement, you may exclude
yourself from the settlement class by submitting an opt-out notice, no later
than the expiration date, to the claims administrator. The opt-out notice must
contain the information described under the heading "Special Factors --
Procedures for Opting-Out of the Settlement" page 36. In addition, if you wish
to opt-out you should include with your opt-out notice the certificate of non-
foreign status included in the proof of claim to avoid backup withholding. If
you do not timely and validly submit an opt-out notice, you will be bound by all
orders and judgments entered in the litigation, whether favorable or unfavorable
to you.
DO I HAVE THE RIGHT TO APPEAR AT THE FINAL COURT HEARING?
Unitholders who have not opted-out of the settlement have the right to
appear at the final court hearing to be held on August 28, 2000, if they follow
the procedures described under the heading "Special Factors -- Final Court
Hearing and Right to Appear" on pages 25 through 27. The settlement will not be
consummated unless the court approves the fairness of the settlement (including
the terms and conditions of the purchase offer, the merger and the amendments)
at the final hearing.
WHY IS THE GENERAL PARTNER SOLICITING CONSENTS?
The general partner is soliciting the consents of the limited partners
pursuant to the terms of the settlement agreement. If the merger and the
amendments to the partnership agreement are not approved by limited partners
holding a majority of the outstanding units (excluding units held by the general
partner and its affiliates), the settlement agreement will not be consummated
and the purchaser will not be obligated to purchase the units. See "Special
Factors -- Conditions of the Purchase Offer and the Merger," page 19.
WHAT WILL HAPPEN IN THE MERGER?
The terms of the settlement agreement provide for the merger of CBM
I Acquisition, L.P., a subsidiary of the purchaser, with and into Courtyard by
Marriott Limited Partnership immediately after the consummation of the purchase
offer. Courtyard by Marriott Limited Partnership will be the surviving entity in
the merger.
In the merger:
. each outstanding unit that has not been tendered in the purchase
offer (other than units held by the general partner, the purchaser
and holders who have elected to opt-out of the settlement) will be
converted into the right to receive $134,130 per unit (or a pro
rata portion
4
<PAGE>
thereof) in cash. If the court approves legal fees and expenses of
approximately $18,000 per unit to counsel to the class action
plaintiffs in the Haas litigation, the net amount that each holder
that is a class member will receive is approximately $116,000 per
unit (or a pro rata portion thereof); and
. each outstanding unit held by a unitholder who has elected to
opt-out of the settlement will be converted into the right to
receive a cash amount equal to the appraised value of such unit
(or a pro rata portion thereof). The appraised value will not
include any amount representing the value of the settlement of the
claims asserted in the Haas litigation.
Any amount to be received by any holder in the merger will be reduced
by any amount owed by the holder on the original purchase price of his or her
units. See "Special Factors -- The Merger," pages 27 through 29.
WHAT ARE THE PROPOSED AMENDMENTS TO THE PARTNERSHIP AGREEMENT?
The proposed amendments to the partnership agreement are intended to
clarify that the terms of the settlement agreement (including the purchase offer
and the merger) are consistent with the provisions of the partnership agreement
and to facilitate the consummation of the purchase offer and the merger. The
amendments to the partnership agreement will not be implemented if, for any
reason, the purchase offer is merger will not be consummated, even if the
amendments receive the requisite approval. The proposed amendments are described
in detail under the heading "Special Factors -- The Amendments," pages 29
through 34.
WHO IS ENTITLED TO VOTE ON THE MERGER AND THE PROPOSED AMENDMENTS TO THE
PARTNERSHIP AGREEMENT?
You are entitled to vote on the merger and the proposed amendments to
the partnership agreement if you owned units on July 10, 2000 and have been
admitted as a limited partner, except that if you are in default with respect to
the original purchase price of your units, you are not entitled to vote with
respect to such units. See "The Written Consents -- Record Date and Outstanding
Units," page 54.
HOW DO I CONSENT TO THE MERGER AND THE PROPOSED AMENDMENTS?
If you wish to consent to the merger and the amendments, you should
complete, sign, date and return the GREEN consent form to the claims
administrator in the enclosed envelope with pre-paid postage. Your vote on these
matters is very important. Your failure to return the enclosed consent form will
have the same effect as not consenting to the merger and the amendments and,
therefore, will constitute a vote against the settlement. Tendering your units
by submitting a proof of claim does not in itself constitute your consent to the
merger and the amendments. See "The Written Consents -- Voting and Revocation of
Consents," pages 54 and 55.
HOW DO I REVOKE MY CONSENT?
You may revoke your executed and returned consent form at any time
prior to the expiration date by delivering to the claims administrator a signed
and dated written notice stating that your consent is revoked. After the
expiration date, all consents previously executed and delivered and not revoked
will become irrevocable. See "The Written Consents -- Voting and Revocation
of Consents," pages 54 and 55.
HOW LONG DO I HAVE TO CONSENT?
You may submit your signed consent form now. In order for your consent
form to be accepted, it must be received by the claims administrator no later
than 12:00 midnight, New York City time, on August 21, 2000, unless the
expiration date of the purchase offer is extended, in which case the new
expiration date will be the last date on which your consent form will be
accepted. See "The Written Consents -- Solicitation Period," page 54.
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WHAT HAPPENS IF I DON'T TENDER MY UNITS IN THE PURCHASE OFFER AND I VOTE AGAINST
THE MERGER AND THE AMENDMENTS, BUT THE MERGER AND AMENDMENTS NEVERTHELESS
RECEIVE THE REQUIRED UNITHOLDER APPROVAL?
Whether or not you tender your units in the purchase offer or vote
against the merger and the amendments, if the merger and amendments receive the
approval of unitholders holding a majority of the outstanding units, and the
other conditions to the purchase offer and the merger are satisfied, (or waived,
if waivable) the purchase offer and merger will be consummated. If you did not
consent to the merger and the amendments, and you did not tender your units in
the purchase offer, you will be cashed out in the merger at the purchase offer
price less attorneys' fees and expenses, unless you have opted-out of the
settlement by following the procedures described under "Special Factors --
Procedures for Opting-Out of the Settlement" on page 27, in which case you will
receive the appraised value of your units.
WHAT MATERIAL FEDERAL INCOME TAX CONSIDERATIONS SHOULD I CONSIDER IN CONNECTION
WITH THE SETTLEMENT, THE PURCHASE OFFER AND THE MERGER?
The transactions contemplated by the settlement agreement may have
adverse tax consequences for you. See "Federal Income Tax Considerations," on
page 34, for a detailed description
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of the material federal income tax considerations relevant to you as a result of
the settlement, the purchase offer and the merger.
WHAT WILL BE THE CONSEQUENCES TO THE PARTNERSHIP OF THE PURCHASE OFFER AND THE
MERGER?
The joint venture, through its subsidiaries and, therefore, its equity
owners would own 100% of the equity interests in Courtyard by Marriott Limited
Partnership and would solely have the benefit or detriment of any change in the
partnership's value and would receive all distributions, if any, with respect to
the partnership's operations. Although the partnership would become privately
held and would no longer be subject to the reporting requirements of the
Securities Exchange Act of 1934, it will be required to continue filing periodic
reports with the SEC under the terms of its senior notes. See "Special Factors
-- Plans for the Partnership; Certain Effects of the Purchase Offer," pages 19
and 20.
TO WHOM MAY I SPEAK IF I HAVE QUESTIONS ABOUT THE PURCHASE OFFER OR THE CONSENT
SOLICITATION?
Counsel to the class action plaintiffs has retained GEMISYS Corporation
as the claims administrator to answer your questions regarding completion of the
proof of claim and consent form and to provide you with additional copies of
this purchase offer and consent solicitation, the proof of claim, the consent
form, and other related materials. The telephone number of GEMISYS is (800)
326-8222. Because we or our affiliates are defendants in the lawsuit, the
Purchaser, the joint venture, MI Investor, Marriott International and the
general partner and its affiliates are prohibited from discussing the settlement
with you. You are encouraged to call David Berg or Jim Moriarty, counsel to the
class action plaintiffs, if you have questions regarding the terms of the
settlement. Mr. Berg's telephone number is (713) 529-5622 and Mr. Moriarty's
telephone number is (713) 528-0700.
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RISK FACTORS
Unitholders should carefully consider the following risk factors
before deciding whether or not to tender any of their Units in the Purchase
Offer or whether to consent to the Merger or the Amendment.
. Determination of the Purchase Offer Price; No Fairness Opinion from a
Third Party
The purchase offer price was determined in extensive arms-length
negotiations among the defendants in the Litigation, the class action
plaintiffs, Palm Investors, LLC, several Equity Resource Funds, and the special
litigation committee appointed for the Partnership by the General Partner (the
"Special Litigation Committee"). See "Special Factors -- Background of the
Settlement." The Partnership did not request or obtain an opinion from a third
party regarding the fairness of the purchase offer price from a financial point
of view and the General Partner, as a result of a conflict of interest, makes no
recommendation to Unitholders as to whether to tender their Units or consent to
the Merger and the Amendments. However, the Special Litigation Committee has
determined that the terms of the Settlement (1) are fair and reasonable to the
Partnership (which the Special Litigation Committee considers, as a practical
matter, to have an identity of interest with the limited partners with respect
to the derivative claims in the Haas Litigation) and (2) include a fair and
reasonable settlement of any and all derivative claims, expressed or implied,
made on behalf of the Partnership in the Haas Litigation. In addition, counsel
to the class action plaintiffs in the Haas Litigation ("Class Counsel")
recommends that the class action plaintiffs approve the Settlement by tendering
their Units in the Purchase Offer and consenting to the Merger and the
Amendments. It should be noted that Class Counsel represents the class action
plaintiffs on a contingency fee basis and has advised the Partnership that it
intends to request the Court for an award of attorneys' fees and reimbursement
of expenses of approximately $18,000 per Unit. If the Court approves this
request, Class Counsel will receive approximately $18,000 for each Unit that is
tendered in the Purchase Offer or converted in the Merger. However, Class
Counsel will not be awarded any attorneys' fees or reimbursement of expenses
with respect to Units held by limited partners who have elected to opt-out of
the Settlement. Finally, it is a condition of consummation of the Purchase Offer
and the Merger that the Court approve the fairness of the settlement for class
members.
. Lack of Trading Market; The Purchase Offer Price may Differ from the
Market Value of the Units
There is currently no established public trading market for the Units,
nor is there another reliable standard for determining the fair market value of
the Units. The Purchase Offer and the Merger afford Unitholders an opportunity
to dispose of their Units for cash, which alternative otherwise might not be
available to them currently or in the foreseeable future. However, the purchase
offer price may be higher or lower than the price that could be obtained in the
open market. Although the purchase offer price includes an amount representing
the value of the settlement of the claims asserted in the Haas Litigation, any
amounts awarded by the Court to Class Counsel as attorneys' fees and expenses
(not to exceed approximately $18,000 per Unit), will be subtracted from the
total amount that Unitholders (other than Unitholders who have opted-out of the
Settlement) will receive in the Purchase Offer or the Merger.
. The Appraised Value of Units may be Higher or Lower than the Net
Settlement Amount
Unitholders who elect to opt-out of the Settlement will receive the
appraised value of their Units in the Merger. The appraised value of Units may
be lower or higher than the Net Settlement Amount that Unitholders who do not
opt-out of the settlement will receive in the Purchase Offer or the Merger
(assuming all conditions to the Purchase Offer and the Merger are satisfied or
waived, if waivable). If you opt-out of the Settlement, the amount you will
receive in the Merger will not include any amount representing the value of the
settlement of the claims asserted against the Defendants in the Haas Litigation
and will include no deductions for attorneys' fees and expenses.
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. Purchase Offer Price May Not Represent Liquidation Value of the Units.
Accordingly, Opting-Out of the Settlement Class and not Consenting to
the Merger and Amendments May Result in Greater Future Value
The purchase offer price may be more or less than the net proceeds that
would be realized if the Partnership were liquidated. Neither the General
Partner, the Purchaser, the Joint Venture, Marriott International, MI Investor
nor Rockledge has made or will make an assessment of the liquidation value of
the Units in connection with the negotiation of the Settlement or the
determination of the fairness of the terms of the Purchase Offer and the Merger.
If the purchase offer price per Unit is lower than the final per Unit
liquidation value, the Purchaser and General Partner would benefit upon any
liquidation of the Partnership from the spread between the purchase offer price
for the tendered Units that are acquired in the Purchase Offer and the Merger
and the amount the Purchaser and General Partner would receive in such
liquidation. Accordingly, Unitholders may ultimately receive a greater return on
their investment if the Settlement (including the Purchase Offer and the Merger)
is not consummated and Unitholders will continue holding their Units. If less
than a majority of the outstanding Units consent to the Merger and the
Amendments, the Settlement will not be consummated.
. Conflicts of Interest with Respect to the Purchase Offer; No General
Partner Recommendation
The General Partner is a defendant in the Haas Litigation and,
therefore, has a conflict of interest with respect to the Purchase Offer, the
Merger and the Amendments. The General Partner makes no recommendation to any
Unitholder as to whether to tender or refrain from tendering Units or as to
whether to vote for or against the Merger or the Amendments. You must make your
own decision whether or not to opt-out of the Settlement, based upon a number of
factors, including several factors that may be personal to you, such as your
financial position, your need or desire for liquidity, your preferences
regarding the timing of when you might wish to sell your Units, other financial
opportunities available to you, and your tax position and the tax consequences
to you of selling your Units.
In addition, the Purchaser is an indirect wholly owned subsidiary of
the Joint Venture, a joint venture between MI Investor, a wholly owned indirect
subsidiary of Marriott International, and Rockledge (through wholly owned
subsidiaries). Rockledge currently owns a 99% non-managing interest in the
General Partner. Host LP, which owns the 1% managing interest in the General
Partner, also owns a 95% non-voting interest in Rockledge. Host Marriott owns
approximately 78% of the equity interests in Host LP. Marriott International
currently does not own an interest in either Host Marriott, Rockledge or the
General Partner, but one of Marriott International's subsidiaries is the manager
of the hotels owned by the Partnership. Two individuals who serve on the board
of directors of Host Marriott also serve on the board of directors of Marriott
International. Two individuals who serve as officers and directors of Rockledge,
and one individual who is an officer of Rockledge, are also employees of Host
Marriott. In addition, all the members of the General Partners' board of
managers are also employees of Host LP and Host Marriott. As a result, these
entities have a substantial conflict of interest with respect to the Purchase
Offer and the Merger. See "Special Factors--Certain Transactions with the
Partnership" for a more detailed description of these conflicts of interest.
. Material Federal Income Tax Considerations in Connection with the
Purchase Offer and the Merger
If the Purchase Offer and the Merger occur, the receipt of cash by you
under the terms of the Settlement Agreement will constitute a taxable
transaction. You will recognize taxable gain to the extent that the amount that
you are deemed to receive exceeds your tax basis in your Units. The amount that
you will be deemed to receive will be the sum of the cash amount received by you
(which will be deemed to include any amount owed by you on the original purchase
price of your Units plus your share of the Partnership's nonrecourse liabilities
(and, if you do not affirmatively "opt-out" of the settlement) may also include
all or a part of your portion of the legal fees paid to Class Counsel). If you
do not affirmatively "opt-out" of the Settlement, a portion of the amount that
you are deemed to receive in the Settlement very
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likely will be considered to be attributable to the settlement of the claims
asserted in the Litigation, all or a portion of which may be taxed at the
ordinary income tax rate applicable to you. The remaining portion of your
taxable gain will be taxed at applicable capital gain tax rates (including the
25% rate applicable to your share of the "unrecaptured Section 1250 gain" of the
Partnership).
. Loss of Future Distributions from the Partnership
After consummation of the Purchase Offer and the Merger (assuming all
conditions to the Purchase Offer and the Merger are satisfied or waived, if
waivable), the Joint Venture will hold all right, title and interest in and to
all of the limited partnership interests in the Partnership, as well as the
right to receive any cash dividends, distributions, rights, and other securities
issued or issuable in respect thereof. You will not receive any future
distributions from operating cash flow of the Partnership or upon a sale or
refinancing of properties owned by the Partnership (including any shares of STSN
stock that the Partnership may hereafter acquire (see "Special Factors--Certain
Transactions with the Partnership--Management Agreement")) for any Units that
the Purchaser acquires from you in the Purchase Offer or the Merger. We cannot
predict what the future performance of the Partnership will be. Therefore,
retaining the ownership of your Units may be more beneficial to you.
. Proxies become Irrevocable after Expiration Date; Potential Delay in
Payment
Units tendered pursuant to the Purchase Offer may be withdrawn at any
time on or prior to the Expiration Date and, unless accepted for payment by the
Purchaser pursuant to the Purchaser Offer, may also be withdrawn at any time
after August 21, 2000. The Purchaser reserves the right to extend the period of
time during which the Purchase Offer is open and thereby delay acceptance for
payment of any tendered Units. Units will be returned promptly at such time as
it is finally determined that the conditions for consummation of the Purchase
Offer and the Merger will not be satisfied or waived (if waivable). Written
Consent Forms submitted to the Claims Administrator prior to the Expiration Date
may be revoked until the Expiration Date. However, properly executed and timely
received Consent Forms that were not properly withdrawn will become binding and
irrevocable after the Expiration Date and will not expire until the conditions
for consummation of the Purchase Offer and the Merger are satisfied (or waived,
if waivable) or until such time as it is finally determined that such conditions
will not be satisfied or waived. However, until the Court order approving the
Settlement has become final, the Purchase Offer and the Merger will not be
consummated. If there is an appeal of the Court's order approving the
Settlement, there may be a lengthy delay before you receive any payment for your
Units but your consent to the Merger and the Amendments will remain valid.
. Alternatives to Tendering Units
If you wish to retain your Units because you believe that the
Settlement is not in your best interests, you should not consent to the Merger
and the Amendments. If the conditions to the Purchase Offer and the Merger are
not satisfied (or waived, if waivable), you will retain your Units and may seek
a private sale of your Units now or later.
However, even if you do not consent to the Merger and the Amendments,
the Purchase Offer and the Merger will be consummated if they receive the
approval of a majority of the outstanding Units and the other conditions to the
Purchase Offer and the Merger are satisfied (or waived, if waivable). In that
case, you will receive the purchase offer price less attorneys' fees and
expenses for your Units in the Merger, unless you have opted-out of the
Settlement, in which case you will receive the appraised value of your Units.
See "Special Factors -- The Merger."
EACH UNITHOLDER MUST MAKE HIS OR HER OWN DECISION REGARDING THE OFFER,
THE MERGER AND THE AMENDMENTS BASED ON HIS OR HER PARTICULAR CIRCUMSTANCES.
UNITHOLDERS SHOULD CONSULT WITH THEIR RESPECTIVE ADVISORS ABOUT THE FINANCIAL,
TAX, LEGAL AND OTHER IMPLICATIONS TO THEM OF ACCEPTING THE OFFER AND CONSENTING
TO THE MERGER AND THE AMENDMENTS.
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SPECIAL FACTORS
Background of the Settlement
Organization and Business of the Partnership. The Partnership is a
Delaware limited partnership formed on July 15, 1986 to acquire and own 50
Courtyard by Marriott hotels (the "Hotels") and the land on which certain of the
Hotels are located. The sole general partner of the Partnership, with a 5%
general partner interest, is CBM One LLC, which is jointly owned by Host
Marriott, L.P. ("Host LP"), which holds the sole managing interest, and
Rockledge, which holds a non-managing interest.
On August 20, 1986, the General Partner made a capital contribution of
$1.2 million in cash and land valued at $4.8 million for its 5% general partner
interest. On that same date, 1,150 Units, representing a 95% interest in the
Partnership, were sold in a private placement at an offering price per Unit of
$100,000. A portion of the Units were purchased on an installment basis, with
the limited partners' obligations to make the installment payments evidenced by
promissory notes payable to the Partnership and secured by their Units. The
General Partner currently owns a total of 15 Units, which were purchased from
defaulting investors, representing a 1.24% limited partnership interest in the
Partnership.
On August 20, 1986, the Partnership began operations and executed a
purchase agreement with Marriott Corporation (the predecessor to Host Marriott
Corporation) to acquire the Hotels and the land on which certain of the Hotels
are located for a total price of $448.2 million. Of the total purchase price,
$374.7 million was paid in cash from the proceeds of mortgage financing and the
initial installment payments from the sale of the Units, and $73.5 million from
a note payable to Host Marriott Corporation. Twenty-eight of the Hotels were
conveyed to the Partnership in 1986, twenty-one Hotels in 1987, and the final
Hotel in January 1988. The Hotels are managed as part of the Courtyard by
Marriott hotel system under a long-term management agreement with Courtyard
Management Corporation (the "Manager"), currently a wholly owned subsidiary of
Marriott International. For a description of certain terms of the management
agreement, see "Certain Transactions with the Partnership--Management Agreement"
below.
The Partnership did not have sufficient cash to repay its original
mortgage loan at maturity in June 1993 and defaulted on the loan. In December
1993, the Partnership entered into a forbearance agreement whereby its mortgage
lenders agreed not to exercise their rights and remedies for nonpayment of the
loan. In April 1994, the Partnership entered into a restated loan agreement with
its mortgage lenders, which would have matured in June 1997, subject to
extension of two one-year periods if certain operating profit levels were met.
The loan required that 75% or more of the available cash flow each year be
applied to additional principal repayments. The General Partner's predecessor
provided a $37.3 million guarantee of the original loan and Host Marriott
provided a $40.0 million guarantee of the refinanced loans, which was backed up
by a guarantee from Marriott International. A total amount of $7,341,000 was
advanced by the General Partner's predecessor under the original guarantee,
which as of March 24, 2000, had accrued a total of $7,600,000 of interest.
On March 21, 1997, the Partnership refinanced its mortgage debt. The
total amount of the debt was increased from $280.8 million to $325.0 million.
The $44.2 million of excess refinancing proceeds were used to: (i) make a $7
million contribution to the property improvement fund to cover anticipated
shortfalls; (ii) pay approximately $7.0 million of refinancing costs; and (iii)
make a $30.2 million partial return of capital distribution to the partners. The
new loan requires monthly payments of interest at a fixed rate of 7.865% and
principal based on a 20-year amortization schedule. The loan has a scheduled
maturity in April 2012.
The Abandoned 1997 Rollup Transaction. In late 1997, the Partnership
and five other Marriott partnerships that own limited service hotels explored a
potential transaction involving the formation of an "umbrella partnership real
estate investment trust," or UPREIT, that would acquire the limited service
hotels owned by the six partnerships. The transaction was intended to provide
the limited partners in the six partnerships with liquidity and the opportunity
to participate in a public entity with
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growth potential. As a result of conditions in the market for limited service
hotels, the transaction was abandoned.
The Unsuccessful Sales Effort. The 1986 Confidential Private Placement
Memorandum relating to the original sale of the Units had contained financial
projections for the Partnership, including a scenario that assumed the sale of
the Hotels in 2000. In mid-1998, the Partnership and four other Marriott
partnerships retained Merrill Lynch, Pierce, Fenner & Smith Incorporated
("Merrill Lynch") as their financial advisor to explore the possibility of sales
of these Marriott partnerships, on a portfolio or individual basis, in an effort
to provide liquidity to limited partners and help them realize the value of
their investments. More than 70 prospective purchasers were contacted, and
certain financial information concerning the Partnership was made available to a
number of them for their review and analysis on a confidential basis. Due to the
large number of Hotels in the Partnership, many prospective purchasers
did not have the ability to consummate a transaction of this size. Although the
Partnership did receive a preliminary nonbinding proposal from a group
considering of persons and entities affiliated with The Blackstone Group, L.P.
and Blackstone Real Estate Associates, L.P. (collectively, the "Blackstone
Entities"), this proposal was never formalized and an agreeement in principle
was never reached in part because of downward revisions in the Manager's
budgeted operating results for the Partnership's Hotels and the Blackstone
Entities' resulting re-evaluation of its own internal projections.
The Litigation. The Settlement Agreement is intended to resolve
lawsuits brought on behalf of limited partners in the Partnership, as well as
lawsuits on behalf of partners in six other partnerships. On March 16, 1998,
limited partners in the Partnership and several other Marriott Partnerships
filed a lawsuit (the "Haas Litigation"), styled Robert M. Haas, Sr. and Irwin
Randolph Joint Tenants, et al. v. Marriott International, Inc., et al., Case No.
98-CI-04092, in the 57th Judicial District Court of Bexar County, Texas (the
"Court") against Marriott International, Host Marriott, various of their
subsidiaries, various individuals, and Hospitality Valuation Services, Inc.
(collectively, the "Haas Litigation Defendants"). This lawsuit related to the
Partnership and the following other partnerships (collectively, the "Marriott
Partnerships"): Courtyard by Marriott II Limited Partnership, Marriott Residence
Inn Limited Partnership, Marriott Residence Inn II Limited Partnership,
Fairfield Inn by Marriott Limited Partnership, Host DSM Limited Partnership
(formerly known as Desert Springs Marriott Limited Partnership) and Atlanta II
Limited Partnership (formerly known as Atlanta Marriott Marquis Limited
Partnership). The plaintiffs in the Haas Litigation alleged, among other things,
that the defendants in this lawsuit conspired to sell hotels to those Marriott
Partnerships at inflated prices and that they charged excessive management fees
to manage the hotels owned by those partnerships. They also alleged that the
Haas Litigation Defendants committed fraud, breached fiduciary duties, and
violated the provisions of various contracts. As part of the Settlement, counsel
to the plaintiffs in the Haas Litigation ("Class Counsel") will move for
certification of a settlement class consisting of all limited partners that were
Unitholders as of March 9, 2000, excluding the Haas Litigation Defendants, the
Insiders and two groups of limited partners that have elected to opt-out of the
Haas Litigation and intervene and are represented by separate counsel -- Palm
Investors, LLC and several Equity Resource Funds (the "Intervenors"). In
addition, the settlement class will consist of persons who were named as
plaintiffs in the Haas Litigation and sold their Units prior to March 9, 2000,
but did not assign their litigation claims.
In addition, certain limited partners of Courtyard by Marriott II
Limited Partnership filed a separate lawsuit, styled Whitey Ford, et al. v. Host
Marriott Corporation, et al., Case No. 96-CI-08327, in the 285th Judicial
District Court of Bexar County, Texas, involving similar allegations against
Host Marriott, Marriott International, various related entities, and others
(collectively, the "Courtyard II Defendants" and together with the Haas
Litigation Defendants, the "Defendants"). On January 29, 1998, two other limited
partners of Courtyard by Marriott II Limited Partnership, A.R. Milkes and D.R.
Burklew, filed a petition to expand this lawsuit (the "Milkes Litigation" and,
together with the Haas Litigation, the "Litigation") into a class action. On
June 23, 1998, the Court entered an order certifying a class of limited partners
under Texas law in the Milkes Litigation. As a result, Courtyard by Marriott II
Limited Partnership is no longer included in the Haas Litigation.
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The Defendants in both the Haas Litigation and the Milkes Litigation
have filed answers denying the allegations and asserting various defenses,
including the statutes of limitations.
The Negotiations. The Settlement is the result of negotiations in
connection with the Haas and the Milkes Litigation that took place over the
course of one year. The parties to the Settlement Agreement engaged in extensive
settlement negotiations and explored numerous preliminary settlement strategies
during the course of the Litigation. In March 1999, the parties proposed to
retain a mediator, and in April 1999, Mr. Finis Cowan, a former federal district
judge, was retained to mediate the dispute. During the summer of 1999, several
mediation sessions were held, both in Houston, Texas and Washington, D.C., at
which representatives of all the parties to the Litigation and their respective
counsel were present. These sessions focused primarily on various proposed
partnership restructurings and cash payments. During these negotiations, the
parties strongly disagreed on the asserted value of the claims. As no settlement
appeared imminent, the parties continued to prepare diligently for the trial,
which was scheduled for February 2000.
On August 27, 1999, the General Partner, in accordance with Section
17-403(c) of the Partnership Act, appointed an independent Special Litigation
Committee consisting of The Honorable William H. Webster and The Honorable
Charles B. Renfrew, to investigate, review, and analyze, on behalf of the
Partnership, the facts and circumstances surrounding the derivative claims
asserted in the Milkes Litigation and decide what action the Partnership should
take with respect to such claims. William H. Webster, a partner at the law firm
of Milbank, Tweed, Hadley & McCloy LLP in its Washington, D.C. office, served as
a Judge of the United States District Court for the Eastern District of Missouri
from 1970 until 1973, when he was elevated to the United States Court of Appeals
for the Eighth Circuit. From 1978 until 1987, Mr. Webster served as Director of
the Federal Bureau of Investigation. From 1987 until 1991, he served as Director
of Central Intelligence, where he headed all the foreign intelligence agencies
of the United States and the Central Intelligence Agency. Charles B. Renfrew,
who operates law offices under his own name and practiced at two major U.S. law
firms prior to that, served as a Judge of the United States District Court for
the Northern District of California from 1972-80 and as Deputy Attorney General
of the United States from 1980-81. The Special Litigation Committee retained, as
its counsel, Richard C. Tufaro and the law firm of Milbank, Tweed, Hadley &
McCloy, LLP to assist in its investigation and review.
In January 2000, counsel for the Special Litigation Committee met in
Houston, Texas with Class Counsel in an effort to advance settlement
negotiations between the parties. The Special Litigation Committee believed that
it controlled the determination of the derivative claims and formed its own
views on the value of those claims and an appropriate settlement on behalf of
the Partnership and Courtyard by Marriott II Limited Partnership (collectively,
the "Partnerships"). After telephonic conversations between the Special
Litigation Committee's counsel and the Defendants and their counsel, on February
4, 2000, the parties to the litigation and their respective counsel met in
Washington, D.C. with the Special Litigation Committee. The negotiations lasted
all day at the office of the Special Litigation Committee's counsel. It was at
this settlement meeting that a settlement strategy involving a proposed sale of
the units of limited partnership interest in the Partnerships to the Defendants
was raised. Class Counsel, after consultation with its representative clients,
viewed the proposal favorably because it provided an exit strategy and
liquidity--two significant factors desired by the class plaintiffs.
During the negotiations, liquidation of the Partnership was never
seriously considered because, in order to liquidate the Partnership, the
Partnership would have to sell its assets. Although during Merrill Lynch's
unsuccessful efforts to sell the Partnerships, a preliminary nonbinding proposal
was received from the Blackstone Entities to acquire all of the equity of the
Partnership at a price equivalent to approximately $82,000 per Unit, this
proposal was never formalized and an agreement in principle was never reached
because of uncertainties regarding future operating results of the Partnership's
Hotels. See "--The Merger--Rights of Unitholders Who Have Elected to Opt-Out of
the Settlement."
During February 2000, the numerous telephonic settlement negotiations
took place in an attempt to define the parameters of an acceptable Unit
repurchase and litigation settlement strategy. Throughout this time, Class
Counsel was meeting with its clients, advisors and with counsel to the Special
Litigation Committee to discuss various proposed settlement terms. Similarly,
the Defendants and their respective counsel and advisors continued to have
internal discussions and discussions with counsel to the Special Litigation
Committee regarding the resolution of the Litigation. Additional
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meetings were held in Houston in February 2000, culminating in the execution of
a non-binding settlement term sheet on February 23, 2000.
During the settlement process, Class Counsel, counsel to the Special
Litigation Committee, and their respective experts and advisors, or some of
them: (1) obtained additional financial material regarding all of the Marriott
Partnerships; (2) reviewed information regarding the attempted sale of
the Partnerships by Merrill Lynch, including the names of the 70 prospective
purchasers and the terms and conditions of the proposals submitted; (3)
interviewed and deposed a representative of Merrill Lynch; (4) reviewed the
terms of the secondary market purchases of units of limited partnership interest
in the Partnerships; and (5) performed such other reviews and analysis as they
deemed appropriate. The financial information relating to the Partnership made
available to Class Counsel, counsel to the Special Litigation Committee, and
their respective experts and advisors included historical operating statements
of the Partnership showing historical revenues and expenses, and budgets for the
Partnership's Hotels prepared by the Manager.
During the settlement process, the General Partner, Host LP, and
Marriott International had available historical operating statements of the
Partnership showing historical revenues and expenses, and budgets for the
Partnership's Hotels prepared by the Manager and prepared from this information
and their own internal estimates and assumptions their own projections of future
operating results of the Partnership and their own estimates of the range of
value of the Units.
Further settlement negotiations followed, resulting in the execution of
the Settlement Agreement by the Defendants, counsel for the plaintiffs, the
Intervenors and the Special Litigation Committee on March 9, 2000.
Fees. In connection with the consummation of the Purchase Offer and
the Merger, the Joint Venture will pay Merrill Lynch a fee in accordance with
the terms of its engagement letter entered into in mid-1998 in connection with
its sales efforts.
The Settlement Agreement
Insofar as it relates to the limited partners in the Partnership, the
Settlement Agreement provides for a two-step process to effectuate the
Settlement, consisting of the Purchase Offer and the Merger on the terms and
conditions set forth elsewhere in this Purchase Offer and Consent Solicitation.
The Settlement Agreement provides that the Joint Venture, Host
Marriott, Rockledge, and Marriott International, or their designees, will
deposit the settlement funds with respect to the Haas Litigation (an aggregate
amount of $152,237,550 reduced by $134,130 for each Unit held by a Unitholder
who opts-out of the Settlement and further reduced by any amounts owed by
Unitholders on the original purchase price of any Units) in escrow with Chase
Bank of Texas, N.A., which has been retained by Class Counsel to act as escrow
agent for the settlement funds (the "Escrow Agent") within three business days
after the Court enters a judgment order approving the Settlement Agreement. If
the judgment order becomes final without an appeal (other than an appeal that
relates solely to counsel fees and expenses), then the Escrow Agent will be
authorized to make distributions within seven business days after the date on
which the judgment order becomes final (such date, the "Effective Date") of an
amount equal to $134,130 per Unit (or a pro rata portion thereof) in cash to
limited partners who have submitted valid Proofs of Claim on or before the
Effective Date. If the Court approves legal fees and expenses of approximately
$18,000 per Unit to Class Counsel, the net amount that each Unitholder that is a
class member in the Haas Litigation will receive is approximately $116,000 per
Unit (or a pro rata portion thereof) (the "Net Settlement Amount"). The Net
Settlement Amount to be received by any holder will be reduced by any amount
owed by the holder on the original purchase price of such Unit. The Escrow Agent
will be authorized to make distributions of the Net Settlement Amount to limited
partners who submit valid Proofs of Claim after the Effective Date within seven
days after receipt of their Proofs of Claim. If a class action plaintiff has not
submitted a valid Proof of Claim to the Claims Administrator within 90 days
following the Effective Date and such plaintiff has not opted-out of the
Settlement, Class Counsel will execute a Proof of Claim on behalf of that
limited partner. The execution of the Proof of Claim by Class Counsel on behalf
of a limited partner will entitle the limited partner to receive the Net
Settlement Amount for each Unit held by such limited partner and release, on
behalf of
14
<PAGE>
such limited partner, all claims that are released, settled and discharged as
part of the Settlement as provided in the Proof of Claim.
Upon the terms and subject to the conditions of the Purchase Offer,
payment for the Units (other than Units held by holders who have opted out of
the Settlement) will be made by deposit of the consideration therefor with the
Escrow Agent. Upon deposit of the settlement funds with respect to the Haas
litigation the Escrow Agent for the purpose of making payment to validly
tendering Unitholders, the Purchaser's obligation to make such payment shall be
satisfied and such tendering Unitholders must thereafter look solely to Class
Counsel and the Escrow Agent for payment of the amounts owed to them by reason
of acceptance for payment of Units pursuant to the Purchase Offer or the Merger.
The Defendants in the Litigation have no responsibility for or liability
whatsoever with respect to the investment or distribution of the settlement
funds, the determination, administration, calculation or payment of claims, or
any losses incurred in connection therewith, or with the formulation or
implementation of the plan of allocation of the settlement funds, or the giving
of any notice with respect to same.
By execution and delivery of a Proof of Claim, you will be granting a
release of any and all claims, whether known or unknown, relating to the
purchase and sale of Units, the operation of the Partnership or management of
the Hotels, and other related matters, as set forth in greater detail in the
Proof of Claim. If you do not opt-out of the settlement class, you will also be
deemed to have granted such a release by virtue of the judgment order, even if
you fail to execute and deliver a valid Proof of Claim. Pursuant to a Proof of
Claim delivered prior to the Effective Date, you will also transfer your Units
to the Purchaser, free and clear of any liens or encumbrances.
The Haas Litigation Defendants have agreed with the Intervenors to pay
the Intervenors $134,130 per Unit in the Purchase Offer pursuant to the same
Settlement Agreement entered into with Class Counsel. The Intervenors have
agreed to grant releases to the Haas Litigation Defendants as provided in the
Proof of Claim and to pay their own counsel fees and expenses. The Intervenors
have also agreed to exercise their best efforts to accomplish the terms and
conditions of the Settlement Agreement and accordingly are expected to tender
their Units in the Purchase Offer and to vote in favor of the Merger and the
Amendments. Insiders who own Units will also not be members of the plaintiff
class in the Haas Litigation. They will receive $134,130 per Unit tendered in
the Purchase Offer. If any of the persons discussed in this paragraph who are
not members of the plaintiff class in the Haas Litigation do not tender their
Units prior to the Expiration Date, their Units will be converted in the Merger
in the same manner as Units held by other participating Unitholders in the
Merger.
If you or any other plaintiffs file an appeal of the judgment order
(other than an appeal that relates solely to counsel fees and expenses), the
Escrow Agent will return the settlement fund, with interest, to the Joint
Venture, Host Marriott, Rockledge, and Marriott International, or their
designees, within two days after receiving documentation of the event. If an
order of an appellate court affirming the judgment order subsequently becomes
final, then the Joint Venture, Host Marriott, Rockledge, and Marriott
International, or their designees, will return the settlement fund to the Escrow
Agent within three business days thereafter, without interest.
The Settlement Agreement provides that the limited partners in the
Partnership will continue to own their respective Units until the judgment order
becomes final. The General Partner will cause the Partnership to make
distributions of Cash Available for Distribution (as defined in the Partnership
Agreement) for the period until the judgment order is entered. Following entry
of the judgment order, and until the judgment order becomes final, assuming
there is no appeal, no additional distribution of Cash Available for
Distribution will be made, but the limited partners will be entitled to receive
interest accumulated on the settlement fund, less administrative expenses. If an
appeal is filed, the General Partner will cause the Partnership to make
distributions of Cash Available for Distribution for the period until the
judgment order becomes final.
There may be a delay in such distribution to the extent the judgment
order becomes final in the middle of an accounting period or the General Partner
is otherwise unable to finally determine the amount of the distribution prior to
the judgment order becoming final.
15
<PAGE>
Position of Marriott International, MI Investor and Rockledge Regarding Fairness
Marriott International, MI Investor and Rockledge believe that the
Purchase Offer and the Merger are fair to the unaffiliated limited partners of
the Partnership, based on the factors set forth below:
(1) The purchase price of $134,130 per Unit (a) exceeds the value of
the Units as estimated by Marriott International, MI Investor and Rockledge, (b)
exceeds the proposal of approximately $82,000 per Unit that was received by the
Partnership from an unaffiliated third party during the unsuccessful sales
efforts in 1998 and 1999, and (c) exceeds the average trading price of the Units
in 1999 in private market transactions. In connection with the Purchase Offer
and the Merger, limited partners who do not affirmatively opt-out of the
settlement class are releasing the claims asserted in the Litigation, which the
Defendants believe have no merit and have therefore contested. There is
substantial uncertainty as to whether the limited partners would recover any
value from the claims if the Litigation were to go to trial. Defendants
therefore considered the risks of litigation to all parties, the existence of
legal defenses that would defeat the claims in whole or in part, the appeal
process and the delay in any recovery to the plaintiffs even in the event of a
verdict favorable to the plaintiffs in the trial court, and the possibility that
any verdict in favor of plaintiffs would be reversed on appeal. Because the
purchase offer price per Unit exceeds the value of the Units as estimated by
Marriott International, MI Investor and Rockledge, a portion of the purchase
offer price represents an amount relating to the value of the settlement of the
claims asserted in the Litigation;
(2) The fact that the consummation of the Purchase Offer and the Merger
requires the approval of a majority of the limited partners (other than
affiliates) in the form of a consent to the Merger and the Amendments;
(3) The Purchase Offer and the Merger provide the limited partners an
opportunity to realize the value of their Units for which there is not an
existing active trading market;
(4) Neither the General Partner, the Purchaser, the Joint Venture,
Marriott International, MI Investor nor Rockledge has made or will make an
assessment of the liquidation value of the Units. Any liquidation value would
have to reflect the costs associated with prepaying outstanding debt. The
purchase price of $134,130 per Unit exceeds what Marriott International, MI
Investor and Rockledge estimate to be the liquidation value of the Units since
any liquidation of the Partnership would have required the sale of the Hotels
and, based on the unsuccessful attempt to do so in 1998 and 1999, it appeared
that such a sale was not feasible at a price acceptable to the limited partners;
(5) The terms of the Settlement (including the terms of the Purchase
Offer and the Merger) were the result of extensive arms' length negotiations
between Class Counsel, the Intervenors, the Defendants and the Special
Litigation Committee;
(6) The fact that holders of Units who do not want to participate in
the Settlement (and, therefore, do not tender their Units in the Purchase Offer)
have the right to opt-out of the Settlement, to pursue their individual claims
outside of the settlement class and to have the value of their Units appraised
in the Merger pursuant to an appraisal mechanism set forth in the Merger
Agreement;
(7) The fact that the fairness of the Settlement, including the terms
of the Purchase Offer and the Merger, is subject to Court approval;
(8) The right of the limited partners who do not opt-out of the
settlement class to appear at the hearing to determine the fairness of the
Settlement and oppose the Settlement or the fees and expenses requested by Class
Counsel in connection therewith; and
(9) The determination of the Special Litigation Committee appointed for
the Partnership by the General Partner that the terms of the Settlement (which
include the Purchase Offer and the Merger) (a) are fair and reasonable to the
Partnership (which the
16
<PAGE>
Special Litigation Committee considered, as a practical matter, to have an
identity of interest with the limited partners with respect to the derivative
claims in the Haas Litigation), and (b) include a fair and reasonable settlement
of any and all derivative claims, expressed or implied, made on behalf of the
Partnership in the Litigation.
In view of the wide variety of factors considered in connection with
their evaluation of the Purchase Offer and the Merger, Marriott International,
MI Investor and Rockledge did not find it practicable to, and did not, quantify
or otherwise attempt to assign relative weights to the individual factors, or
determine that any factor was of particular importance, in reaching their
determination. Rather, Marriott International, MI Investor and Rockledge viewed
their position as being based on the totality of the information presented to
and considered by them. In addition, Marriott International, MI Investor and
Rockledge may have given different weights to different factors.
The terms of the Purchase Offer and the Merger (as well as all of the
other terms of the Settlement Agreement) were established through extensive
arms' length negotiations between and among Class Counsel, the Defendants, the
Intervenors and the Special Litigation Committee and their respective counsel.
The board of managers of the General Partner, for and on behalf of the
Partnership, has approved the terms of the Settlement Agreement (including the
Purchase Offer and the Merger). All the members of the General Partner's board
of managers are employees of Host LP and Host Marriott.
Because the terms of the Purchase Offer and the Merger were negotiated
in the context of settlement of a class action lawsuit, Marriott International,
MI Investor and Rockledge did not additionally retain an unaffiliated
representative to act solely on behalf of unaffiliated limited partners for the
purpose of negotiating the terms of the Purchase Offer and the Merger. Instead,
the limited partners were represented by multiple law firms approved by the
Court as appropriate counsel to represent the limited partners, and the
Partnerships were represented by those same attorneys (who filed derivative
claims on behalf of the Partnerships) and by the Special Litigation Committee.
Position of the General Partner, the Purchaser, the Joint Venture, Marriott
International, MI Investor and Rockledge Regarding the Purchase Offer
The General Partner and Marriott International are Defendants and
therefore have a conflict of interest. None of the Joint Venture, the Purchaser,
Marriott International, MI Investor, Rockledge or the General Partner makes any
recommendation with respect to the Purchase Offer, the Merger, the Amendments,
or the other terms of the Settlement Agreement, including as to whether any
Unitholder should tender or to refrain from tendering his or her Units. YOU MUST
EACH MAKE YOUR OWN DECISION WHETHER OR NOT TO TENDER YOUR UNITS IN THE PURCHASE
OFFER AND WHETHER OR NOT TO CONSENT TO THE MERGER AND THE AMENDMENTS.
Determination of the Special Litigation Committee and Recommendation of Counsel
to the Class Action Plaintiffs
On August 27, 1999, the General Partner, in accordance with Section
17-403(c) of the Partnership Act, appointed an independent Special Litigation
Committee to investigate, review, and analyze, on behalf of the Partnership, the
facts and circumstances surrounding the derivative claims asserted in the Haas
Litigation and decide what action the Partnership should take with respect to
such claims. With respect to the evaluation and disposition of the derivative
claims in the Haas Litigation, no limitation was placed on the Special
Litigation Committee.
17
<PAGE>
The Special Litigation Committee engaged the law firm of Milbank,
Tweed, Hadley & McCloy LLP to act as counsel and assist in the investigation.
The Special Litigation Committee also retained the law firm of Bouchard Margules
Friedlander & Maloney Huss to advise on matters of Delaware law and Jackson &
Walker LLP to advise on matters of Texas law. In addition to these three law
firms, the Special Litigation Committee retained experts, Cushman Realty
Corporation and Maurice Robinson & Associates, LLC (the "Advisors") to assist in
analyzing the claims. The Special Litigation Committee selected the Advisors
based on their knowledge of the real estate or hotel industries. The Advisors,
as part of their analysis of the Haas Litigation, performed an analysis of the
damages claimed by the Plaintiffs in the Haas Litigation. This analysis focused
on calculating a range of damages based on various scenarios using the
historical financial information of the Partnership projections and assumptions
underlying such projections contained in the Confidential Private Placement
Memorandum relating to the original sale of the Units in 1986. The analysis was
provided to counsel to the Special Litigation Committee and used by such counsel
in connection with legal advice to the Special Litigation Committee.
The Special Litigation Committee advised the General Partner orally of
its conclusions and did not prepare a report on its findings. However, the
Special Litigation Committee is a party to the Settlement Agreement which
contains statements of the Special Litigation Committee's conclusions.
The Special Litigation Committee, its counsel and the Advisors are and
were unaffiliated with the Partnership and have no other relationship with the
Partnership other than in connection with the Milkes Litigation.
After extensive analysis of the factual and legal issues, the Special
Litigation Committee concluded that the terms of the proposed Settlement (1) are
fair and reasonable to the Partnership (which the Special Litigation Committee
considers, as a practical matter, to have an identity of interest with the
limited partners with respect to the derivative claims in the Haas Litigation),
and (2) include a fair and reasonable settlement of any and all derivative
claims, expressed or implied, made on behalf of the Partnership in the Haas
Litigation. The Special Litigation Committee has advised the Partnership it
considered the following factors in determining that the proposed Settlement is
fair and reasonable:
(1) the Settlement fairly reflects the substantial risks of litigation
to the Partnership and the limited partners;
(2) the Settlement fairly accounts for the inherent value of the Units
based upon market-tested offers to purchase the Partnership obtained by Merrill
Lynch in the summer of 1999;
(3) holders of Units who do not want to participate in the Settlement
may opt-out of the Settlement and have their Units appraised and pursue their
individual claims separately;
(4) the fairness of the Settlement is subject to Court approval;
(5) the Settlement requires the approval of a majority of the
limited partners in the form of a consent to the Merger;
(6) limited partners who do not opt-out of the class may appear at the
hearing to determine the fairness of the Settlement and oppose the Settlement;
(7) the lack of an existing active trading market for the Units;
(8) the terms of the Settlement were the result of extensive arms'
length negotiations between Class Counsel and the Defendants; and
(9) the advice of independent financial experts, Cushman Realty
Corporation and Maurice Robinson & Associates, LLC, retained by the Special
Litigation Committee in connection with the investigation.
18
<PAGE>
In addition, Class Counsel has recommended to its clients that they
approve the Settlement by tendering their Units in the Purchase Offer and
consenting to the Merger and the Amendments. Class Counsel has determined that
the Settlement represents a fair, reasonable and attractive settlement. Class
Counsel came to this conclusion after engaging in extensive investigation and
discovery on the claims asserted in the Haas Litigation that lasted over
eighteen months. According to documents filed with the Court, the investigations
and discovery conducted by Class Counsel included:
(1) inspecting thousands of pages of documents produced by the
Defendants in the Litigation and by third parties;
(2) deposing numerous present and former employees of the Defendants
in the Litigation;
(3) deposing plaintiffs;
(4) deposing third party witnesses;
(5) employing and consulting with experts, including reviewing and
producing expert reports and attending and taking expert depositions;
(6) reviewing public and on-line filings; and
(7) researching applicable legal issues with respect to the claims
asserted in the Haas Litigation.
According to documents filed with the Court, Class Counsel, based on
its collective experience in handling hundreds of limited partnership claims,
believes that the Settlement confers substantial benefits upon the class and
each member of the class and is in the best interests of the class members.
Purpose and Structure of the Purchase Offer; Merger and Amendments
The purpose of the Purchase Offer and the Merger is to fulfill the
obligations of Marriott International, Host Marriott and Rockledge under the
Settlement Agreement. See "--Special Factors--The Settlement Agreement." The
acquisition of the Units has been structured as a cash purchase offer followed
by a merger in order to ensure that all of the Units are acquired, to permit
different consideration for Unitholders that participate in the Settlement and
Unitholders that elect to opt-out of the Settlement, and to provide for a
majority vote on the Merger and Amendments.
The Settlement Agreement and the Merger Agreement provide that, if the
judgment order approving the Settlement becomes final, Unitholders who fail to
tender their Units, other than Unitholders who opt-out of the Settlement, will
receive the same consideration in the Merger as Unitholders whose Units are
purchased in the Purchase Offer. If the judgment order approving the Settlement
becomes final, each holder of Units who has opted out of the Settlement will be
entitled to receive a cash amount per Unit determined through an appraisal
process set forth in the Settlement Agreement and the Merger Agreement, but such
appraisal amount will not include any amount representing the value of the
settlement of the claims that were asserted in the Haas Litigation.
Conditions of the Purchase Offer and the Merger
Notwithstanding any other provisions of the Purchase Offer and Consent
Solicitation, the Purchaser is not obligated to accept for payment, purchase or
pay for, subject to Rule 14e-1(c) under the Securities Exchange Act of 1934, any
Units tendered, or to consummate the Merger, unless the following conditions are
satisfied:
(1) the order of the Court approving the terms of the Settlement and
the dismissal of the Litigation shall have become final (other than by reason of
an appeal relating solely to counsel fees and expenses),
(2) not more than ten percent of the Units and not more than ten
percent of the units of limited partnership interests in any one of the other
six
19
<PAGE>
Marriott Partnerships involved in the Settlement (other than Units held by
Insiders) shall be held by holders who have elected to opt-out of the
Settlement,
(3) holders of a majority of the outstanding units of limited
partnership interests in each of the Partnership and Courtyard by Marriott II
Limited Partnership (other than the general partners of these partnerships and
their affiliates) shall have submitted valid written consents to its merger and
the proposed amendments to its partnership agreement.
The condition set forth in (2) above is for the sole benefit of the
Purchaser and may be asserted by the Purchaser regardless of the circumstances
giving rise to this condition and may be waived by the Purchaser in writing, in
whole or in part, at any time and from time to time, in its sole discretion. The
failure by the Purchaser at any time to exercise this right will not be deemed a
waiver of such right and this right will be deemed an ongoing right which may be
asserted at any time and from time to time until the Expiration Date. However,
conditions (1) and (3) may not be waived by the Purchaser. Accordingly, in the
event that holders of a majority of the outstanding Units fail to consent to the
Merger and the Amendments, the Purchase Offer and the other transactions
contemplated by the Settlement will not be consummated.
Plans for the Partnership; Certain Effects of the Purchase Offer
The Purchaser, the Joint Venture, Marriott International, MI Investor
and Rockledge currently intend that, upon consummation of the Purchase Offer and
the Merger, the Partnership will continue its business and operations,
substantially as, and in such places as, they are currently being conducted.
Except as set forth in this Purchase Offer and Consent Solicitation, the
Purchaser has no present plans or proposals regardless of the outcome of the
Purchase Offer that would result in an extraordinary transaction, such as a
merger, reorganization, liquidation, or sale or transfer of a material amount of
assets, involving the Partnership or its subsidiaries, or any material changes
in the Partnership's capitalization, distribution policy, structure or business.
Immediately prior to the consummation of the Purchase Offer, Rockledge will
contribute its 99% non-managing interest in the General Partner to the Joint
Venture as a capital contribution and Host LP will contribute its 1% managing
interest to the Joint Venture as a capital contribution. As a result, following
the consummation of the Purchase Offer and the Merger, the Partnership will be
100% owned indirectly by the Joint Venture (through the General Partner and the
Purchaser) and, therefore, by the Joint Venture's equity owners, MI Investor,
Rockledge (through wholly owned subsidiaries) and Host LP.
Through their direct ownership of the General Partner, Rockledge and
Host LP each currently have an indirect 4.95% and .05% general partner interest,
respectively (5% in total), and an indirect 1.23% and .01% limited partner
interest, respectively (1.24% in total), in the Partnership's book value and
earnings/loss. Host LP owns a 95% economic non-voting interest in Rockledge and
therefore, recognizes 95% of Rockledge's net earnings/losses. Marriott
International does not own any interest in the Partnership. Following completion
of the Purchase Offer and the Merger, the interest of the Joint Venture, and
therefore the Joint Venture's equity owners, Marriott International, Rockledge
and Host LP, in the Partnership's net book value and net earnings/losses will
increase to 100%. According to the Partnership's Form 10-Q for the quarter ended
March 24, 2000, 100% of the Partnership's net book value as of March 24, 2000,
was a deficit of approximately $18.1 million (of which the 5% general partner
interest represented capital of approximately $415,000 and the 1.24% limited
partner interest represented a deficit of approximately $242,000), and 100% of
the Partnership's net earnings for the quarter ended March 24, 2000 was
approximately $4.6 million (which means that the 5% general partner and 1.24%
limited partner interests were approximately $228,000 and $56,000,
respectively). Following consummation of the Purchase Offer and the Merger, the
Joint Venture and its subsidiaries will be entitled to all of the benefits of
owning 100% of the Partnership, including all income generated by the
Partnership's operations and any future increase in the Partnership's value.
Similarly, the Joint Venture will also bear the risk of losses resulting from
the Partnership's operations and from any decline in the value of the
Partnership after the Merger.
Subject to contractual obligations to third parties, Rockledge (through
wholly owned subsidiaries) and MI Investor intend to make certain changes to the
arrangements under which the
20
<PAGE>
Manager provides management services to the subsidiaries of the Partnership that
own the Hotels to make such arrangements more consistent with arrangements that
the Manager and its affiliates currently have with other properties in which
Rockledge and Host Marriott have an interest. See "--Certain Transactions with
the Partnership." In addition, following consummation of the Purchaser Offer and
the Merger, the Partnership will be required, under the terms of its senior
notes, to make an offer to purchase all outstanding senior notes as a result of
a change of control of the Partnership.
The Units currently are registered under the Exchange Act, and the
Partnership currently is subject to the periodic reporting requirements of that
Act. Following the consummation of the Purchase Offer and the Merger, the
Partnership will become privately held directly and indirectly by Marriott
International and Rockledge through the Joint Venture and its subsidiaries.
Under the terms of its senior notes, the Partnership will be required to
continue filing periodic reports with the SEC, although it will not be required
to do so under the Exchange Act.
Following consummation of the Purchase Offer and the Merger, you will
have no further opportunity to participate in the benefit of increases, if any,
in the value of the Partnership's business and properties or to receive future
distributions, if any, in respect of the Partnership's operations.
Certain Information Concerning the Partnership
Business Description. The Partnership is a Delaware limited partnership
with its principal offices located at 10400 Fernwood Road, Bethesda, Maryland
20817. The Partnership was formed on July 15, 1986 to acquire and own the Hotels
and the respective fee or leasehold interests in the land on which the Hotels
are located. The Hotels are located in 16 states and contained a total of 7,223
guest rooms as of December 31, 1999. The Partnership is engaged solely in the
business of owning and operating hotels. The Hotels are operated as part of the
Courtyard by Marriott system, which includes over 471 hotels worldwide in the
moderately-priced segment of the lodging industry. The Hotels are managed by the
Manager, a wholly owned subsidiary of Marriott International, under the
Management Agreement. See "--Certain Transactions with the Partnership."
The Partnership has no directors or officers. The business policymaking
functions of the Partnership are carried out through the managers and executive
officers of the General Partner. The name, business address, principal
occupation, five-year employment history, and citizenship of the managers and
executive officers of the General Partner are set forth in Schedule II to this
Purchase Offer and Consent Solicitation.
Except as otherwise described in this Purchase Offer and Consent
Solicitation, neither the Partnership nor any of its affiliates nor, to the best
of the Partnership's knowledge, any of the persons listed in Schedule II hereto,
nor any associate or majority-owned subsidiary of any of the foregoing,
beneficially owns or has a right to acquire any Units. Except as otherwise
described in this Purchase Offer and Consent Solicitation, neither the
Partnership nor any of its affiliates nor, to the best of the Partnership's
knowledge, any of the persons or entities referred to above, nor any director,
executive officer or subsidiary of the Partnership, has effected any transaction
in such Units during the past 60 days.
Except as described in this Purchase Offer and Consent Solicitation,
neither the Partnership nor any of its affiliates nor, to the best of the
Partnership's knowledge, any of the persons listed on Schedule II hereto, has
any contract, arrangement, understanding or relationship with another person
with respect to any securities of the Partnership, including, but not limited
to, any contract, arrangement, understanding or relationship concerning the
transfer or voting of such securities, joint ventures, loan or option
arrangements, puts or calls, guarantees or loans, guarantees against loss or the
giving or withholding of proxies.
21
<PAGE>
The selected financial information of the Partnership and its
consolidated subsidiaries set forth below has been excerpted and derived from
Items 8 and 14 of the Partnership's Annual Report on Form 10-K for the fiscal
year ended December 31, 1999 and Part I of the Partnership's Quarterly Report on
Form 10-Q for the quarter ended March 24, 2000. More comprehensive financial and
other information is included in those reports (including management's
discussion and analysis of financial condition and results of operations), and
in other reports and documents filed by the Partnership with the SEC. The
financial information set forth below is qualified in its entirety by reference
to the reports and documents filed by the Partnership with the SEC and the
financial statements and related notes that they contain. You can examine these
reports and other documents and obtain copies of them by following the
procedures set forth under the heading "Where You Can Find More Information".
Selected Historical Consolidated Financial Data
<TABLE>
<CAPTION> Years Ended December 31,
-------------------------------------------------------------
1Q 2000 1Q 1999 1999 1998 1997 1996 1995
(in thousands, except for per unit amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
Income Statement Data:
Revenues $ 248,013 $ 248,230 $ 206,074 $ 201,250 $ 189,552 $ 181,639 $170,799
Operating profit 10,074 10,730 43,896 44,276 40,683 35,985 30,752
Net Income before extraordinary
items 4,551 4,865 19,601 18,885 15,340 13,454 4,988
Net income 4,551 4,865 19,601 18,885 27,813 13,454 4,988
Net income before extraordinary
items per LP Unit (1,150 Units) 3,759 4,019 16,192 15,601 12,672 11,114 4,120
Net Income per LP Unit
(1,150 Units) 3,759 4,019 16,192 15,601 22,976 11,114 4,120
Ratio of earnings to
fixed charges (1) 1.90 1.92 1.88 1.84 1.72 1.70 1.33
</TABLE>
<TABLE>
<CAPTION>
As of As of As of December 31
March 24, March 26, ----------------------------------------------------------------
2000 1999 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C> <C> <C>
Book value per Unit (1,150 Units) $(16,141) (17,624) (16,400) (21,639)
Balance Sheet Data:
Total assets: $326,768 $333,025 $328,860 $331,246 $331,406 $330,509 $338,740
Total liabilities: 344,915 352,965 347,321 356,046 362,991 349,839 369,224
Cash distributions per LP Unit
(1,150 Units) 3,500 3,000 11,000 10,000 35,000 2,000 -
</TABLE>
22
<PAGE>
(1) The ratio of earnings to fixed charges is unaudited and is computed by
dividing the Partnership's net income before interest expense, and other fixed
charges by total fixed charges. Fixed charges consist of interest expense
(including amortization of deferred financing costs) and the portion of rent
expense attributed to interest.
23
<PAGE>
Description of Real Estate
Hotels. The Partnership was formed to acquire and own the Hotels and
the respective fee or leasehold interests in the land on which the Hotels are
located. The Hotels are located in 16 states and contain a total of 7,223 guest
rooms as of December 31, 1999. The Partnership commenced operations on August
20, 1986 and will terminate on December 31, 2086, unless earlier dissolved.
Each of the Partnership's Courtyard by Marriott Hotels is designed
around a courtyard area containing a swimming pool (indoor pool in northern
climates), walkways, landscaped areas and a gazebo. Each Hotel generally
contains a small lobby, a restaurant with seating for approximately 50 guests, a
lounge, a hydrotherapy pool, a guest laundry, an exercise room and two small
meeting rooms. The Hotels do not contain as much public space and related
facilities as full-service hotels.
The properties consisted of 50 Hotels as of December 31, 1999. The
Hotels have been in operation for at least ten years. The Hotels range in age
between 12 and 17 years. The Hotels are geographically diversified among 16
states, and no state has more than nine Hotels.
The following table summarizes certain attributes of each of the
Hotels.
24
<PAGE>
SUMMARY OF PROPERTIES
(50 COURTYARD HOTELS)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Location Rooms Location Rooms
Alabama Michigan
Montgomery (1) 146 Dearborn (1) 147
Southfield 147
Arizona Troy 147
Phoenix Airport (1) 145 Warren 147
California North Carolina
Buena Park (1) 145 Charlotte-Arrowood Road (1) 146
Freemont (1) 146 Raleigh-Wake Forest Road 153
Pleasanton 145
Sacramento-Rancho Cordova 144 New York
San Francisco Airport (2) 147 Tarrytown 139
Santa Ana (1) 145
Ohio
Connecticut Cincinnati-Blue Ash (1) 140
Windsor (1) 149 Columbus-Dublin (1) 147
Columbus-Worthington (1) 145
Florida
Melbourne (1) 146 Pennsylvania
Miami Airport-West (1) 145 Valley Forge (1) 150
Tallahassee (1) 154
Tennessee
Georgia Brentwood (1) 145
Atlanta-Delk Road (1) 146 Memphis-Park Avenue East (1) 146
Atlanta-Executive Park (1) 145
Atlanta-Northlake (2) 128 Texas
Atlanta-Peachtree Corners 131 Arlington 147
Atlanta-Peachtree Dunwoody 128 Bedford (1) 145
Atlanta-Windy Hill 127 Dallas-Addison (1) 145
Augusta 130 Dallas-Las Colinas 147
Columbus 139 Dallas-LBJ Northwest (1) 146
Savannah 144 San Antonio Airport (1) 145
San Antonio-Medical Center (1) 146
Illinois
Naperville (1) 147 Virginia
Fair Oaks 144
Maryland Herndon (1) 146
Hunt Valley (1) 146 Hampton (1) 146
Landover 152 Richmond (1) 145
Rockville (1) 147 Virginia Beach (1) 146
Total rooms: 7,223
</TABLE>
(1) Land is leased from an affiliate of Marriott International.
(2) Land is leased from a third party.
Property Improvement Fund. The Hotels routinely purchase furniture and
equipment. The Partnership has a property improvement fund for the Hotels. The
funding of this reserve is based on a percentage of gross Hotel revenues. The
contribution to the property improvement fund has been established at 6% for all
Hotels and may be increased, at the option of the Manager, to 7% of gross Hotel
revenues in 2001.
25
<PAGE>
Debt. On March 21, 1997 both the Partnership's existing mortgage debt
on 49 of the Partnership's Hotels and the Partnership's existing mortgage debt
on the Windsor CT Hotel (collectively, the "Loan") were refinanced. The total
amount of the debt was increased from $280.8 million to $325.0 million. The
$44.2 million of excess refinancing proceeds were used to: (i) make a $7 million
contribution to the property improvement fund to cover anticipated shortfalls;
(ii) pay approximately $7 million of refinancing costs; and (iii) make a $30.2
million partial return of capital distribution to the partners. The Loan is
non-recourse and requires monthly payments of interest at a fixed rate of 7.865%
and principal based on a 20-year amortization schedule. The Loan has a scheduled
maturity of April 10, 2012; however, the loan maturity can be extended for an
additional five years. During the extended loan term, the Loan bears interest at
an Adjusted Rate, as defined, and all cash flow from Partnership operations will
be used to amortize the principal balance of the Loan. As of December 31, 1999,
the principal balance of the Loan was $305.1 million.
The refinanced mortgage Loan is secured by first mortgages on all 50 of
the Partnership's Hotels, related personal property, and the land on which the
Hotels are located or an assignment of the Partnership's interest under the land
leases. No guarantees have been provided by Host Marriott or Marriott
International. As additional security, affiliates of Marriott International, as
the land lessors, agreed to continue to subject their ownership interest as well
as receipt of ground rent to debt service on the mortgage loan.
Leases. The land on which 31 of the Hotels are located is leased from
affiliates of Marriott International. In addition, two of the Hotels are located
on land leased from third parties. The land leases have remaining terms
(including renewal options) expiring between the years 2058 and 2081. The
Marriott International land leases and the third party land leases provide for
rent based on specific percentages (from 2% to 9.75%) of certain revenue
categories, subject to minimum amounts. The minimum rentals are adjusted at
various anniversary dates throughout the lease terms, as defined in the
agreements. See also "Special Factors--Certain Transactions with the
Partnership."
Competitive Conditions. The United States lodging industry generally is
comprised of two broad segments: full-service hotels and limited-services
hotels. Full-service hotels generally offer restaurant and lounge facilities and
meeting spaces, as well as a wide range of services, typically including bell
service and room service. Limited-service hotels generally offer accommodations
with limited or no service and amenities. As moderately-priced hotels, the
Hotels compete effectively with both full-service and limited-service hotels in
their respective markets by providing streamlined services and amenities
exceeding those provided by typical limited-service hotels at prices that are
significantly lower than those available at full-service hotels.
Significant competitors in the moderately-priced lodging segment
include Holiday Inn, Ramada Inn, Four Points by Sheraton, Hampton Inn and Hilton
Garden Inns. The lodging industry in general, and the moderately-price segment
in particular, is highly competitive, but the degree of competition varies from
location to location. An increase in supply growth began in 1996 with the
introduction of a number of new national brands. It is expected that Courtyard
will continue outperforming both national and local competitors. The brand is
continuing to carefully monitor the introduction or expansion of new mid-priced
brands including Wingate Hotels, Hilton Garden Inns, Four Points by Sheraton,
AmeriSuites, Hampton Inn and Hampton Inn and Suites.
Property Improvement Fund. The Hotels routinely purchase furniture and
equipment. The Partnership has a repairs and equipment reserve (property
improvement fund) for the Hotels. The funding of this reserve is based on a
percentage of gross Hotel revenues. The contribution to the property improvement
fund has been established at 6% for all Hotels and may be increased, at the
option of the Manager, to 7% of gross Hotel revenues in 2001.
26
<PAGE>
Insurance. The General Partner believes that the Hotels are adequately
covered by insurance.
27
<PAGE>
Operating Data
The following chart sets forth the combined average occupancy and the
combined average daily room rates of the Hotels for each of the last five years.
<TABLE>
<CAPTION>
1Q 2000 1Q 1999 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C> <C> <C>
Combined average occupancy 76.4% 79.1% 79.1% 79.7% 80.0% 79.2% 81.0%
Combined average room rate $93.48 $90.18 $89.54 $87.09 $81.10 $76.39 $71.23
</TABLE>
The Partnership's tax basis of its property and equipment is recorded
at cost. The Partnership depreciates its assets using the Modified Accelerated
Cost Recovery System method ("MACRS") for tax purposes. Under MACRS, buildings
and improvements are depreciated over 15 to 39 years while furniture and
equipment is depreciated over five years.
The Partnership's 50 Hotels are located in various real estate taxing
jurisdictions. Therefore, the real estate tax rates vary by jurisdiction. 1999
real estate tax expense was $6.6 million.
The Partnership is engaged solely in the business of owning and
operating Hotels and, therefore, is engaged in one industry segment.
Certain Information Concerning the Purchaser, the Joint Venture, Marriott
International, MI Investor and Rockledge
The Purchaser. The Purchaser, a Delaware limited liability company and
a wholly owned subsidiary of the Joint Venture, was formed on April 19, 2000,
for the purpose of acquiring the Units pursuant to the Purchase Offer, and has
engaged in no activities to date, other than those incidental to its organizing
as an entity and making the Purchase Offer. Because the Purchaser is newly
formed and has minimal assets and capitalization, no meaningful financial
information with respect to the Purchaser is available. Similarly, because the
Purchaser has yet to establish an office, it should be contacted through either
MI Investor or Rockledge at the address and telephone numbers shown below.
The Joint Venture. The Joint Venture, a Delaware limited liability
company, is owned 50% by Marriott International, through MI Investor, and 50% by
Rockledge (through wholly owned subsidiaries) and Host LP. The Joint Venture was
formed by MI Investor and Rockledge (through wholly owned subsidiaries) on April
19, 2000 in order to effectuate the terms of the Settlement Agreement and has
engaged in no activities to date, other than those incidental to its
organization and satisfying the terms of the Settlement Agreement. Because the
Joint Venture has yet to establish an office, it should be contacted through
either MI Investor or Rockledge at the address and telephone numbers shown
below.
MI Investor. MI Investor, a Delaware limited liability company, is a
wholly owned indirect subsidiary of Marriott International. MI Investor was
formed on April 13, 2000, for the purpose of investing in the Joint Venture, and
has engaged in no activities to date, other than those incidental to its
organization and the formation of the Joint Venture. The principal office of MI
Investor is located at 10400 Fernwood Road, Bethesda, Maryland 20817 and its
telephone number is (301) 380-3000.
Marriott International. Marriott International, a Delaware corporation,
was incorporated on September 19, 1997 and became a public company when it was
spun off as a separate entity by the company formerly named "Marriott
International, Inc." (now known as Sodexho Marriott Services,
28
<PAGE>
Inc.) on March 27, 1998. Marriott International is a worldwide operator and
franchisor of hotels and related lodging facilities, an operator of senior
living communities, and a provider of distribution services. Its operations are
grouped in three business segments, lodging, senior living services and
distribution services, which represented 81, six, and 13 percent, respectively,
of total sales in the fiscal year ended December 31, 1999. The principal office
of Marriott International is located at 10400 Fernwood Road, Bethesda, Maryland
20817 and its telephone number is (301) 380-3000.
Marriott International is subject to the information and reporting
requirements of the Exchange Act and, in accordance therewith, files reports and
other information with the SEC relating to its business, financial condition and
other matters. Certain information, as of particular dates, concerning Marriott
International's directors and officers, the principal holders of Marriott
International's securities, any material interests of these persons in
transactions with Marriott International and other matters is required to be
disclosed in proxy statements distributed to Marriott International's
stockholders and filed with the SEC. Such reports, proxy statements, and other
information can be inspected at the public reference facilities maintained by
the SEC in Washington, D.C., New York, New York and Chicago, Illinois.
Information regarding the public reference facilities may be obtained from the
SEC by telephoning 1-800-SEC-0330. Marriott International's filings are also
available to the public on the SEC's Internet site (http://www.sec.gov). Copies
of such materials may also be obtained by mail from the Public Reference Section
of the SEC at 450 Fifth Street, N.W., Washington, D.C., 20549. Such reports,
proxy statements and other information can be inspected and copied at prescribed
rates. Such information should also be available for inspection at the New York
Stock Exchange at 20 Broad Street, New York, NY 10005.
Rockledge. Rockledge, a Delaware corporation, was formed in connection
with Host Marriott's efforts to reorganize its business operations to qualify as
a "real estate investment trust," or REIT, for federal income tax purposes.
Rockledge was formed to own various assets through a contribution of
approximately $264 million from Host Marriott to its operating partnership, the
direct ownership of which by Host Marriott or its operating partnership could
jeopardize Host Marriott's status as a REIT. These assets primarily consist of
partnership or other interests in hotels which are not leased and certain
furniture, fixtures and equipment used in the hotels. In exchange for the
contribution of these assets, the operating partnership received only non-voting
common stock, representing 95% of the total economic interests therein. The Host
Marriott Statutory Employee/Charitable Trust, the beneficiaries of which are
certain employees of Host LP, concurrently acquired all of the voting common
stock representing the remaining 5% of the total economic interest. The
principal office of Rockledge is 10400 Fernwood Road, Bethesda, Maryland 20817
and its telephone number is (301) 380-3000.
The name, business address, present principal occupation, five-year
employment history and citizenship of each of the directors and executive
officers of the Purchaser, the Joint Venture, Marriott International, MI
Investor and Rockledge are set forth in Schedule I hereto.
Except as set forth in this Purchase Offer and Consent Solicitation and
in Schedule I, neither the Joint Venture, the Purchaser, Marriott International,
MI Investor or Rockledge, nor any person controlling the Joint Venture, the
Purchaser, Marriott International, MI Investor or Rockledge, nor, to the best
knowledge of the Joint Venture, the Purchaser, Marriott International, MI
Investor or Rockledge, any of the persons listed in Schedule I or any associate
or majority-owned subsidiary of any of the foregoing, beneficially owns or has a
right to acquire any Units or has effected any transactions in the Units during
the past 60 days. Except as described in this Purchase Offer and Consent
Solicitation, neither the Joint Venture, the Purchaser, Marriott International,
MI Investor or Rockledge, nor any of their affiliates nor, to the knowledge of
the Joint Venture, the Purchaser, Marriott International, MI Investor or
Rockledge, any of the persons listed on Schedule I hereto, has any contract,
arrangement, understanding or relationship with another person with respect to
any securities of the Partnership, including, but not limited to, any contract,
arrangement, understanding or relationship concerning the transfer or voting of
such securities, joint ventures, loan or option arrangements, puts or calls,
guarantees or loans, guarantees against loss or the giving or withholding of
proxies, consents, or authorizations. Except as described in this Purchase Offer
and Consent Solicitation, neither the Joint Venture, the Purchaser, Marriott
International, MI Investor or Rockledge, nor any of their affiliates nor, to the
knowledge of the Joint Venture, the
29
<PAGE>
Purchaser, Marriott International, MI Investor or Rockledge, any of the persons
listed on Schedule I hereto, has since January 1, 1998 engaged in any business
relationship or transaction with the Partnership or any of its affiliates that
would require disclosure herein under the rules and regulations of the SEC
applicable to the Purchase Offer. Except as described in this Purchase Offer and
Consent Solicitation, there have been no contacts, negotiations or transactions
since January 1, 1998 between the Purchaser, the Joint Venture, Marriott
International, MI Investor or Rockledge, and their respective affiliates or any
of the persons listed on Schedule I hereto, on the one hand, and the Partnership
or its affiliates on the other hand, concerning a merger, consolidation,
acquisition, tender offer or other acquisition of securities, election of
directors or sale or other transfer of a material amount of assets of the
Partnership.
Source and Amount of Funds
The total amount of funds required to purchase the Units in the
Purchase Offer and to consummate the Merger will be up to approximately $152.2
million, depending upon the number of Units held by limited partners who elect
to opt-out of the class and the appraised value determined for those Units under
the Merger Agreement. The Purchaser will obtain the necessary funds, indirectly,
from Marriott International, and from Rockledge, which will obtain funds from
the operating partnership of Host Marriott through a loan or capital
contribution. MI Investor and Rockledge will provide a portion of the funds for
the Purchase Offer and the Merger by equity contributions to the Joint Venture,
and a subsidiary of Marriott International will provide a portion of the funds
through a loan. There is no financing contingency to consummation of the
Purchase Offer and the Merger. Host Marriott and Marriott International have
guaranteed the obligations of the Haas Litigation Defendants and Rockledge to
provide the funds necessary to fund payments under the Settlement Agreement, if
the judgment order becomes final.
Under the terms of the Settlement Agreement, the Defendants agreed
that, in the event that sixty days after execution of the Settlement Agreement
all necessary third party lender and other consents necessary to consummate the
Settlement Agreement (other than the consents that constitute conditions to the
Purchase Offer and the Merger) had not been obtained, they would pay interest on
the settlement funds from the sixty-first day forward at the rate set forth in
the Settlement Agreement. All such consents were timely obtained for four of the
Marriott Partnerships involved in the Settlement. Accordingly, no interest
accrued on the settlement funds for those partnerships. However, with respect to
the Partnership and Courtyard by Marriott Limited Partnership, not all necessary
consents were timely obtained and as a result a total of $_____ in interest
accrued on the balance $371,230 of the total settlement funds payable by the
Partnership and Courtyard by Marriott Limited Partnership in connection with the
Settlement. Upon receipt by the Partnership and Courtyard by Marriott Limited
Partnership of he necessary third party consents, the interest ceased to accrue.
If the Court approves the Settlement following the fairness hearing
(assuming that all conditions to the Purchase Offer and the Merger are satisfied
(or waived, if waivable), Defendants are required to deposit the full amount of
the settlement funds for all of the Marriott Partnerships, including the
Partnership, with the Escrow Agent, and interest on the balance will accrue to
the benefit of participating class members (less certain expenses relating to
the Escrow Agent and the Claims Administrator) until the settlement funds are
distributed. Any accrued interest will then get distributed to the class action
plaintiffs in proportion to their share of the settlement agreement under a plan
of allocation to be prepared by counsel to the class action plaintiffs and to be
approved by the Court. The Defendants will have no responsibility or liability
whatsoever with respect to the formulation or implementation of the plan of
allocation or the giving of notice with respect to same.
The Joint Venture, Marriott International, Host Marriott, and Rockledge
will be responsible for payment of expenses of the Purchase Offer and the
Merger. See "Other Matters -- Fees and Expenses."
30
<PAGE>
Certain Transactions with the Partnership
The following paragraphs describe certain transactions between the
Partnership, on the one hand, and Host Marriott, Rockledge, Marriott
International, and certain affiliates and related persons, on the other hand.
Conflicts of Interest. The Purchaser is an indirect wholly owned
subsidiary of CBM Joint Venture LLC (the "Joint Venture"), a Delaware limited
liability company that is a joint venture between MI CBM Investor LLC ("MI
Investor"), a Delaware limited liability company and a wholly owned indirect
subsidiary of Marriott International, and Rockledge Hotel Properties, Inc., a
Delaware corporation ("Rockledge") (through wholly owned subsidiaries).
Rockledge currently owns a 99% non-managing interest in the General Partner.
Host Marriott, L.P. ("Host LP"), which owns the 1% managing interest in the
General Partner, also owns a 95% non-voting interest in Rockledge. Host Marriott
owns approximately 78% of the equity interests in Host LP. Marriott
International currently does not own an interest in either Host Marriott,
Rockledge or the General Partner, but one of Marriott International's
subsidiaries is the manager of the hotels owned by the Partnership. Two
individuals who serve as officers and directors of Rockledge, and one individual
who is an officer of Rockledge, are also employees of Host Marriott. All the
members of the General Partner's board of managers are also employees of Host LP
and Host Marriott. In addition, as of December 31, 1999, J.W. Marriott, Jr. and
Richard E. Marriott and their respective immediate family members beneficially
owned approximately 10.8 percent and 10.6 percent, respectively, of the common
stock of Host Marriott. J.W. Marriott, Jr. is the Chairman of the Board and
chief executive officer of Marriott International and a director of Host
Marriott. Richard E. Marriott is the Chairman of the Board of Host Marriott and
a director of Host Marriott.
In December 1998, Host Marriott reorganized its business operations to
qualify as a REIT. See "Special Factors--Certain Information Concerning the
Partnership." In conjunction with its conversion to a REIT, Host Marriott spun
off, in a taxable transaction, a new company called Crestline Capital
Corporation ("Crestline"). As part of the Crestline spinoff, Host Marriott
transferred to Crestline all of the senior living communities previously owned
by Host Marriott, and Host Marriott entered into lease or sublease agreements
with Crestline for substantially all of Host Marriott's lodging properties.
Marriott International's lodging and senior living community management and
franchise agreements with Host Marriott were also assigned to Crestline. In the
case of the lodging agreements, Host Marriott remains obligated under such
agreements in the event that Crestline fails to perform its obligations
thereunder. The lodging agreements now provide for Marriott International to
manage the Marriott hotels, Ritz-Carlton hotels, Courtyard hotels and Residence
Inns leased by Crestline. Marriott International's consent is required for
Crestline to take certain major actions relating to leased properties that
Marriott International manages.
Marriott International recognized sales of $2,553 million and operating
profit before corporate expenses and interest of 221 million during 1999 from
lodging properties owned or leased by Host Marriott. Additionally, Host Marriott
is a general partner in several unconsolidated partnerships that own lodging
properties operated by Marriott International under long-term agreements.
Marriott International recognized sales of $562 million and operating profit
before corporate expenses and interest of $64 million in 1999, from the lodging
properties owned by these unconsolidated partnerships. Marriott International
also leased land to certain of these partnerships and recognized land rent
income of $24 million in both 1999.
Marriott International has provided Host Marriott with financing for a
portion of the cost of acquiring properties to be operated or franchised by
Marriott International, and may continue to provide financing to Host Marriott
or Crestline in the future. The outstanding principal balance of these loans was
$11 million and $9 million at December 31, 1999 and January 1, 1999,
respectively, and Marriott International recognized $1 million in interest and
fee income under these credit agreements with Host Marriott.
31
<PAGE>
Marriott International has guaranteed the performance of Host Marriott
and certain of its affiliates to lenders and other third parties. These
guarantees were limited to $14 million at December 31, 1999. No payments have
been made by Marriott International pursuant to these guarantees. Marriott
International continue to have the right to purchase up to 20 percent of Host
Marriott's outstanding common stock upon the occurrence of certain events
generally involving a change of control of Host Marriott. This right expires in
2017, and Host Marriott has granted an exception to the ownership limitations in
its charter to permit full exercise of this right, subject to certain conditions
related to ownership limitations applicable to REITs generally. Marriott
International lease land to Host Marriott that had an aggregate book value of
$264 million at December 31, 1999. Most of this land has been pledged to secure
debt of the lessees. Marriott International has agreed to defer receipt of
rentals on this land, if necessary, to permit the lessees to meet their debt
service requirements.
Management Agreement. The Hotels owned by the Partnership's
subsidiaries are managed by the Manager, a wholly owned subsidiary of Marriott
International, under a management agreement (the "Management Agreement"). The
following paragraphs summarize the principal provisions of the Management
Agreement.
The Management Agreement has an initial term expiring December 31, 2017
and can be renewed for four successive ten-year periods as to one or more of the
Hotels. The Partnership may terminate the Management Agreement if, during any
three consecutive years, the average operating profit, as defined, does not
exceed $40,198,000 plus 8% of the sum of owner funded capital expenditures. In
addition, upon the sale of a Hotel, the Partnership may terminate the Management
Agreement with respect to that Hotel with payment of a termination fee. Prior to
December 31, 2001, a maximum of fifteen Hotels can be sold free and clear of the
Management Agreement with payment of the termination fee. The termination fee is
calculated by the Manager as the net present value of reasonably anticipated
future incentive management fees.
The Management Agreement provides for annual payments of (1) the base
management fee equal to 3.5% of gross revenues from the Hotels, (2) the
Courtyard management fee equal to 2.5% of gross revenues from the Hotels, and
(3) the incentive management fee equal 15% of operating profit, subject to
certain limitations based on available cash flow, as defined therein.
As part of the Partnership's debt financing in March 1997, the
Partnership agreed to pay $4.2 million of deferred incentive management fees and
the Manager agreed to forgive approximately $14.9 million of these fees. This
left a remaining balance of $6.5 million of accrued incentive management fees as
of each of March 21, 1997 and December 31, 1997. The Partnership paid $823,000
and $876,000 of deferred incentive management fees during 1998 and 1999,
respectively, leaving a balance of $4.8 million of deferred incentive management
fees as of December 31, 1999. Deferred and current year incentive management
fees are payable from 50% of available cash after the payment of: (1) debt
service, (2) deferred Courtyard management fees, if any, (3) deferred Marriott
International ground rent, if any, and (4) a priority return to the Partnership
equal to 10% of cumulative capital less sale and refinancing proceeds. Deferred
management fees are not payable to the Manager from sale or refinancing
proceeds. Unpaid incentive management fees will not accrue.
The Management Agreement requires that the owner of the Hotels maintain
a repairs and equipment reserve for the Hotels. The funding of this reserve is
based on a percentage of annual gross Hotel revenues. The contribution to the
property improvement fund currently is 5% for all Hotels and may be increased,
at the option of the Manager, to
32
<PAGE>
6% of gross Hotel revenues in fiscal year 2001.
Following the Merger, the Partnership will be owned, directly and
indirectly, by Marriott International, Rockledge and Host Marriott. See
"Special Factors -- Plans for the Partnership; Certain Effects of the
Purchase Offer." Subject to contractual obligations to third parties, Rockledge
and MI Investor intend to make certain changes to the arrangements under which
the Manager provides management services to the subsidiaries of the Partnership
that own the Hotels to make such arrangements more consistent with arrangements
that the Manager and its affiliates currently have with other properties in
which Rockledge and Host Marriott have an interest. These changes include
eliminating the ability of the Management Agreement to be terminated with
respect to a Hotel upon the sale of such Hotel by payment of a termination fee,
decreasing the amount to which the incentive fee would increase under certain
circumstances and increasing annual contributions to the repairs and equipment
reserve.
The following table sets forth the Partnership's reported breakdown of
amounts paid to Marriott International and affiliates under the Management
Agreement for the years ended December 31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
----- ----
(in thousands)
<S> <C> <C>
Incentive management fee.................................... $ 9,165 $ 9,426
Ground rent................................................. 7,479 7,383
Chain services and MRP allocation........................... 10,185 9,676
Base management fee....... ................................. 6,182 6,037
Courtyard management fee.................................... 6,182 6,037
Deferred incentive management fee........................... 876 823
------- -------
$40,069 $39,382
======= =======
</TABLE>
Ground Leases. The land on which 31 of the Hotels are located is leased
from affiliates of Marriott International. In addition, two of the Hotels are
located on land leased from third parties. The ground leases have remaining
terms (including all renewal options) expiring between the years 2058 and 2081.
The Marriott International ground leases provide for rent based on specific
percentages (from 4% to 8.5%) of certain sales categories subject to minimum
amounts. The minimum rentals are adjusted at various anniversary dates
throughout the lease terms, as defined in the agreements. The affiliates of
Marriott International, as land lessors, agreed to continue to subordinate their
ownership interest, as well as receipt of ground rent, to debt service on the
Partnership's existing debt financing and qualified refinancing.
Payments to Host Marriott and Subsidiaries. The following sets forth
amounts paid by the Partnership to Host Marriott and its subsidiaries for the
years ended December 31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
---- ----
(in thousands)
<S> <C> <C>
Cash distributions (as a limited and a general partner*).......... $ 831 $ 755
Administrative expenses reimbursed................................ 146 523
----- ------
$ 977 $1,278
===== ======
</TABLE>
--------------------------
* These cash distributions were made with respect to the limited and general
partnership interests held by the General Partner. Prior to December 28, 1998,
the General Partner was a wholly owned subsidiary of Host Marriott. On December
28, 1998, Host Marriott, which owns approximately 78% of the equity interests in
Host LP, transferred its interest in the General Partner to Host LP. Host LP
currently owns a 1% managing partnership interest in the General Partner.
33
<PAGE>
STSN. In August 1999, Marriott International entered into a transaction
covering all Courtyard hotels (not just those owned by the Partnership), as well
as all Ritz-Carlton, Marriott Hotel, Resorts and Suites, and Residence Inn
hotels, for high speed internet access in hotel rooms, with a company named
STSN, Inc. STSN is a private company located in Salt Lake City, Utah, that at
the time of the transaction was unaffiliated with Marriott International or the
Manager. Marriott International also obtained equity in STSN at the price of
$.50 per share, and acquired additional equity at the price of $9.12 per share.
On June 23, 2000, Marriott International announced a program to permit all
owners of Marriott-managed hotels in which STSN is planned to be installed
(including the Partnership) to purchase from Marriott International a ratable
portion of the equity obtained at $.50 per share based on the number of rooms
owned by each owner divided by the total number of managed rooms in North
America through the end of the second quarter 2000 in Marriott hotels in which
the service is to be installed. The total number of such rooms is estimated to
be approximately 180,000. On the present allocation proposal, the Partnership
would be offered approximately 20,000 shares of STSN stock at a cost of
approximately $10,000. STSN stock is not publicly traded and there is currently
no secondary market for the shares. The shares currently held by Marriott
International are restricted and if the Partnership were to accept the proposal
and purchase the shares at $.50, its ability to resell the shares would be
restricted by the United States securities laws. STSN is currently undergoing an
additional round of private financing in which it is raising capital by selling
additional shares at the price of $29.52 per share. Therefore, based on the
price being paid in that financing , the shares offered for acquisition by the
Partnership likely have appreciated in value.
The General Partner has not accepted the proposed transaction on behalf
of the Partnership, and, indeed, there are constraints under the Partnership's
loan agreement on its ability to invest in another company without lender
consent. Host Marriott and its subsidiaries also have not accepted the
transaction on behalf of hotels that they own. If accepted, the transaction
would not be expected to close until after the closing of the Merger and,
accordingly, the benefits, if any, from the transaction would inure to the
benefit of the Purchaser and the Joint Venture. If the transaction closes prior
to the closing of the Merger, the value, if any, of the STSN stock, would be
included in the appraised value of the Units of limited partners who elect to
opt out of the Settlement. As with changes in the results of operation of the
Partnership or other events relating to the Partnership, the Net Settlement
Amount will not be increased as a result of any acquisition of STSN stock prior
to the closing of the Merger.
Security Ownership of Certain Beneficial Owners and Management
As of December 31, 1999, Palm Investors, LLC, an unrelated third party,
owned approximately 5.4% of the 1,150 Units outstanding. No other person owned
of record, or to the Partnership's knowledge owned beneficially, more than 5% of
the total number of limited partnership Units. The General Partner owns a total
of 15 Units representing a 1.24% limited partnership interest in the
Partnership. The General Partner will not tender its Units in the Purchase
Offer. In the Merger, the General Partner's Units will be converted into a 1.24%
limited partnership interest in the Partnership, and its 5% general partnership
interest will be unaffected by the Merger.
Neither the Purchaser, Rockledge, Marriott International, the Joint
Venture nor MI Investor own any Units. As of December 31, 1999, two individuals
that are officers and managers of the General Partner and officers of Host
Marriott each owned a quarter Unit. These individuals have indicated that they
intend to tender their Units in the Purchase Offer. In addition, two officers of
Marriott International owned one Unit each.
In connection with the Settlement Agreement, the Purchaser intends to
acquire all of the outstanding Units (other than Units held by the General
Partner). The Purchaser is a subsidiary of the Joint Venture.
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Regulatory Matters
General. The Purchaser is not aware of any license or regulatory permit
that appears to be material to the business of the Partnership that might be
adversely affected by the Purchaser's acquisition of Units as contemplated
herein, the Merger or the other provisions of the Settlement Agreement.
Based upon an examination of available information relating to the
businesses in which the Partnership is engaged, the Purchaser, the Joint
Venture, Marriott International, MI Investor and Rockledge believe that the
acquisition of Units pursuant to the Purchase Offer or the Merger would not
violate the antitrust laws. The Purchaser, the Joint Venture, Marriott
International, MI Investor and Rockledge believe that retention of all of the
operations of the Partnership should be permitted under the antitrust laws.
Nevertheless, no one can assure you that a challenge to the Purchase Offer on
antitrust grounds will not be made or, if such challenge is made, what the
result will be.
Except as set forth in this section entitled "--Regulatory Matters,"
the Purchaser is not aware of any filings, approvals or other action by any
federal or state governmental administrative or regulatory authority that would
be required for the acquisition of Units by the Purchaser as contemplated herein
or the Merger. Should any such other approval or action be required, it is
currently contemplated that such approval or other action would be sought. We
cannot assure you that any such additional approval or other action, if needed,
would be obtained without substantial conditions or that adverse consequences
might not result to the Partnership's business in the event that such other
approvals were not obtained or such other actions were not taken.
Final Court Hearing and Right to Appear
At the present time, the Court has only determined that the Settlement
falls within a range of reasonableness that justifies sending class members the
Notice of Pendency and Settlement of Claim and Derivative Action related to
Courtyard by Marriott LP and Final Approval Hearing (the "Notice"), which is
being distributed by Class Counsel with this Purchase Offer and Consent
Solicitation, and the holding of a formal final approval hearing on the merits
of the proposed Settlement.
The Court must determine whether the proposed Settlement is fair,
reasonable, and adequate, whether a judgment order should be entered dismissing
the Haas Litigation, and whether the Court will retain jurisdiction over
implementation of the Settlement. The factors the Court will consider in making
this determination are:
(1) whether the Settlement was negotiated at arms' length or was a
product of fraud or collusion;
(2) the complexity, expense and likely duration of the Litigation;
(3) the stage of the proceedings, including the status of discovery;
(4) the factual and legal obstacles that could prevent the plaintiffs
from prevailing on the merits;
(5) the possible range of recovery and the certainty of damages; and
(6) the respective opinions of the participants, including Class
Counsel, class representatives and the absent class members.
The Court will make these determinations on the fairness of the
proposed Settlement at the final approval hearing, which is scheduled for August
28, 2000 at 9 a.m. in the courtroom of the Honorable Michael Peden, 285th
District Court, Bexar County Courthouse, 100 Dolorosa, San Antonio, Texas. The
final approval hearing may be continued or adjourned from time to time by the
Court without further notice to you.
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Any class member who has not opted-out of the Settlement may appear at
the final approval hearing to demonstrate why the proposed Settlement should not
be approved as fair, reasonable, and adequate, why the Haas Litigation should
not be dismissed with prejudice, or to present any opposition to the proposed
distribution of the settlement funds or to Class Counsel's application for an
award of attorney's fees and expenses.
Unitholders will only be heard at the final approval hearing if they,
on or prior to August 18, 2000, submit written notice of their intention to
appear at the hearing to:
Robert M. Haas, Sr. et al. v. Marriott International,
Inc. et al., No. 98-CI 04092
District Clerk
Bexar County Courthouse
100 Dolorasa Street
San Antonio, Texas 78205
and copies to:
Co-Lead Counsel:
Stephen M. Hackerman
Hackerman Peterson Frankel & Manela
1122 Bissonnet Street
Houston, Texas 77005
and upon counsel for Defendants:
Tom A. Cunningham, Esq.
Cunningham, Darlow, Zook & Chapoton, LLP
600 Travis, Suite 1700
Houston, Texas 77002
Attorneys for Host Marriott Corporation
Seagal C. Wheatley, Esq.
Jenkens & Gilchrist, P.C.
1800 Frost Bank Tower
100 West Houston Street
San Antonio, Texas 78205
Attorneys for Marriott International, Inc.
As indicated in the Notice, the written notice of intention to appear
at the hearing should state: (1) all grounds for objection or other statement of
position, (2) a detailed description of the facts underlying each objection, (3)
a detailed description of the legal authorities supporting each objection, (4) a
statement of whether the objector intends to appear and argue at the hearing
and, if so, how long the objector anticipates needing to present the objection,
(5) a list of witnesses who the objector may call by testimony or affidavit, (6)
a list of exhibits which the objector may offer during the hearing, along with
copies of such exhibits, showing proof of service on the attorneys of record for
all parties as indicated above.
Failure to timely submit a written notice of intention to appear at the
hearing will constitute a waiver of any objections and will foreclose the
raising of objections to the Settlement, to the dismissal with prejudice of the
action, to the proposed distribution of the settlement funds, and to the fees
and expenses requested by Class Counsel.
Procedures for Opting-Out of the Settlement
Unitholders who do not wish to participate in the Settlement may
exclude themselves from the Settlement class by submitting to GEMISYS
Corporation, which has been retained by Class
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Counsel to act as the claims administrator (the "Claims Administrator"), at the
address set forth on the back cover page of the Purchase Offer and Consent
Solicitation, a written request to be excluded (an "Opt-Out Notice"). The Opt-
Out Notice must be received by the Claims Administrator on or prior to the
Expiration Date. As indicated in the Notice, the Opt-Out Notice must include:
(1) the name of the case (Haas), (2) the Unitholder's name, address and
telephone number, social security number or taxpayer identification number, (3)
the number of Units held by the Unitholder, (4) the date on which the Unitholder
purchased the Units, (5) the name of the Partnership (Courtyard by Marriott
Limited Partnership), (6) a statement that the Unitholder is requesting to be
excluded from the settlement class, and (7) the Unitholder's signature. Units
held by holders who have opted-out of the Settlement will be converted into the
right to receive a cash amount equal to the appraised value of such Units in
accordance with the procedures described under the heading "Special Factors --
The Merger -- Rights of Unitholders Who Have Elected to Opt-Out of the
Settlement." The appraised value of Units will not include any amount
representing the value of the settlement of the claims in the Haas Litigation.
Any amounts to be received in the Merger will be reduced by any amount owed on
the original purchase price of such Units.
Unitholders who wish to opt-out of the Settlement should also complete,
execute and include with their Opt-Out Notice the Certificate of Non-Foreign
Status included in the Proof of Claim. Failure to include the Certificate of
Non-Foreign Status will result in certain amounts being withheld from the cash
payment representing the appraised value of Units to be received by Unitholders
who opt-out of the Settlement. See "Federal Income Tax Considerations--Federal
Tax Withholding Applicable to Participating and Nonparticipating Unitholders" in
the Purchase Offer and Consent Solicitation and Instruction 8 to the Proof of
Claim.
Unitholders who fail to timely and validly submit an Opt-Out Notice
will be bound by all orders and judgments entered in the Haas Litigation,
whether favorable or unfavorable to them. See "Special Factors -- The Merger --
Rights of Unitholders Who Have Elected to Opt-Out of the Settlement," pages 21
and 22.
The Merger
Pursuant to the Settlement Agreement, and in accordance with the
provisions of Section 17-211 of the Delaware Revised Uniform Limited Partnership
Act (the "Partnership Act"), the Partnership, the Joint Venture and CBM I
Acquisition, L.P., a Delaware limited partnership and a subsidiary of the
Purchaser ("Merger Sub") have entered into the Merger Agreement. The following
summary of certain provisions of the Merger Agreement is qualified in its
entirety by reference to the complete text of the Merger Agreement. A copy of
the Merger Agreement may be obtained from the Partnership, without charge, by
requesting it in writing or by telephone from the Partnership at the following
address: Courtyard by Marriott Limited Partnership, 10400 Fernwood Road,
Bethesda, Maryland 20817, Telephone: (301) 380-3000.
The Merger Agreement provides that Merger Sub will be merged with and
into the Partnership, with the holders of partnership interests in the
Partnership receiving cash in specified amounts (except that the Units held by
the General Partner and the Units held by the Purchaser will be converted into
percentage interests in the surviving entity), and the General Partner and the
Purchaser will become the only partners in the Partnership. The Partnership will
be the surviving entity in the Merger and Merger Sub will cease to exist. The
Partnership will continue its existence as a limited partnership under the laws
of the State of Delaware, and its name shall continue to be "Courtyard by
Marriott Limited Partnership."
Effects of Merger
The Merger will have the effects set forth in the Partnership Act. The
sole General Partner of the Partnership following the Merger will continue to be
CBM One LLC, until it withdraws or is removed in accordance with the Partnership
Agreement, as amended, and the General Partner and the Purchaser will be the
only limited partners of the Partnership following the Merger. Assuming
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the Unitholders consent to the Merger and the Amendments and the other
conditions to the Purchase Offer and the Merger are satisfied (or waived, if
waivable), the Partnership Agreement will be amended as soon as practicable
following the Expiration Date, but in any event prior to the consummation of the
Purchase Offer to give effect to the Amendments. The Partnership Agreement will
be amended and restated as soon as practicable after the Merger to reflect the
acquisition of the Units by the Purchaser and other changes in accordance with
the terms and conditions thereof and applicable Delaware law.
Conversion of Partnership Interests in the Merger
In connection with the Merger: (1) all partnership interests in the
Merger Sub will be cancelled, (2) each Unit held by a Unitholder (other than the
Purchaser or the General Partner) who has not delivered a Proof of Claim prior
to the Expiration Date and who has not elected to opt-out of the Settlement will
be converted into the right to receive $134,130 per Unit (or a pro rata portion
thereof) in cash. If the Court approves legal fees and expenses of approximately
$18,000 per Unit to Class Counsel in the Haas Litigation, the net amount that
each Unitholder will receive in the Merger is approximately $116,000 per Unit,
which amount will be reduced by any amount owed by the holder on the original
purchase price of his or her Units, (3) the Units held by Purchaser (including
Units acquired in the Purchase Offer) will be converted into a 93.76% limited
partnership interest in the Partnership, and (4) the 15 Units held by the
General Partner will be converted into a 1.24% limited partnership interest in
the Partnership, and the General Partner's general partnership interest in the
Partnership will remain outstanding so that the General Partner will continue to
own a 5% general partnership interest in the Partnership.
Rights of Unitholders Who Have Elected to Opt-Out of the Settlement
If you elect not to participate in the Settlement by timely delivering
an Opt-Out Notice to the Claims Administrator as described herein, your Units
will be converted in the Merger into the right to receive cash in an amount
equal to the appraised value of such Units, determined in the following manner.
The appraised value of your Units in the Merger will be an amount that you would
receive if the entire equity interest in the Partnership were sold for an amount
equal to (i) the average of the appraised value of the Partnership's portfolio
of Hotels determined by two appraisers (in the manner described in the paragraph
below) plus (or minus) (ii) the net working capital of the Partnership (to the
extent not distributed to the partners) minus (iii) the aggregate amount of
indebtedness of the Partnership and its subsidiaries minus (iv) the fair value
of deferred management fees accrued under the Management Agreement minus (v) the
amount of any commitments for owner funded capital expenditures and the
estimated cost of any deferred maintenance with respect to the Partnership's
properties, and the proceeds of such sale were then distributed among the
partners of the Partnership in the same manner as liquidation proceeds in
accordance with the terms of the Partnership Agreement. The liquidity of the
Units will not be a factor in determining the fair market value of the
Units.
In order to determine the appraised value of Partnership's portfolio of
the Hotels, two independent, nationally recognized hotel valuation firms
_____________________________ and ____________________________, have been
selected in consultation with Class Counsel and will be approved by the Court
(or, if the Court does not approve such firms, such substitutes as may be
approved by the Court). These independent valuation firms will appraise the
market value of the Partnership's portfolio of Hotels as of the Effective Date,
which appraisals will be completed within 60 days after the effective time of
the Merger and set forth in a report certified by a MAI appraiser as having been
prepared in accordance with the requirements of the Standards of Professional
Practice of the Appraisal Institute and the Uniform Standards of Professional
Appraisal Practice of the Appraisal Foundation (which may be based on site
visits to 10 or more Hotels and a limited scope review to the extent deemed
appropriate by such appraisal firm). The Court will have no involvement in the
appraisal process, other than approving the independent valuation firms that
will conduct the appraisals. Unitholders who have opted-out of the Settlement
may request a copy of the summary of the appraisal, free of charge, by
requesting it in writing or by telephone from the Partnership at the following
address: Courtyard by Marriott Limited Parnership, 10400 Fernwood Road,
Bethesda, Maryland 20817, Telephone: (301) 380-3000.
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The valuation firms will not perform appraisals of each Hotel in the
Partnership's portfolio, which would involve assessing the local real estate and
lodging market condition, capitalization rates, capital expenditure
requirements, and other relevant factors for each Hotel separately, but rather
will value the portfolio of Hotels as a whole, which is likely to entail
employing more generalized assumptions regarding market and lodging conditions
and appropriate capitalization rates and portfolio wide capital expenditure
requirements, and other portfolio wide assumptions. Although it is not expected
that there would be material differences between the aggregate results of
individual Hotel appraisals and a portfolio appraisal, the results would likely
differ and the difference could be material.
In the fall of 1999, in connection with Merrill Lynch's efforts to sell
the Partnership, the Partnership received a preliminary nonbinding proposal from
the Blackstone Entities to acquire all of the equity of the Partnership at a
price equivalent to approximately $82,000 per Unit. The proposal was based on a
methodology of adjustments similar to the methodology described in the first
paragraph of this section. This proposal was never formalized and an agreement
in principle was never reached in part because of downward revisions in the
Manager's budgeted operating results of for the Partnership's Hotels and the
Blackstone Entities' resulting re-evaluation of its own internal projections. As
of December 31, 1999, the Blackstone Entities owned approximately 17% of the
outstanding limited partnership units of Host LP (which are redeemable by Host
Marriott for shares of its common stock) and one of Blackstone Real Estate
Advisors, L.P.'s senior advisors and partners serves on the board of directors
of Host Marriott.
The appraised value of Units payable in the Merger to persons who opt-
out of the Settlement may be more or less than $82,000 per Unit, depending upon
the market values of the Hotels determined by the independent appraisers and the
actual amount of the foregoing adjustments at the time of the Merger, which may
differ materially from the amounts on which the 1999 acquisition proposal was
based. In addition, the appraised value of the Hotels may differ from the price
that a third party would be willing to pay for the Partnership's entire
portfolio of Hotels and the appraised value per Unit may be lower or higher than
the Net Settlement Amount per Unit. If you opt-out of the settlement class and
elect not to participate in the Settlement, the amount you will receive in the
Merger will not include any amount representing the value of the settlement of
the claims asserted against the Defendants in the Haas Litigation. Any
consideration to be received in the Merger by any limited partner will be
reduced by any amount owed on the original purchase price of his or her Units.
The Joint Venture will pay any expenses incurred in connection with the
appraisal process.
The Amendments
The proposed amendments to the Partnership Agreement are discussed
below. Capitalized terms used herein but not defined have the meanings set forth
in the Partnership Agreement. In general, the proposed amendments are intended
to facilitate the consummation of the Purchase Offer and the Merger. If for any
reason the Purchase Offer is not consummated, the Amendments to the Partnership
Agreement will not be implemented, even if they receive Unitholder approval. A
copy of the Partnership Agreement
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may be obtained from the Partnership, without charge, by requesting it in
writing or by telephone from the Partnership at the following address: Courtyard
by Marriott Limited Partnership, 10400 Fernwood Road, Bethesda, Maryland 20817,
Telephone: (301) 380-3000.
1. Elimination of Fifty Percent Transfer Restriction. Section 7.01.B
of the Partnership Agreement effectively prohibits the transfer of 50% or more
of the outstanding Units within a 12-month period. The proposed Amendment would
eliminate this restriction on the transfer of Units.
Purpose and Effect of the Amendment. Under Section 708 of the Internal
Revenue Code of 1986, as amended (the "Code"), a partnership is considered to
"terminate" for federal income tax purposes if 50% or more of the interests in
profits and capital are sold within a 12-month period (a "Section 708
Termination"). The Partnership Agreement, as currently written, prohibits any
assignment of Units that would result in a Section 708 Termination. Thus, the
Partnership Agreement, when read in conjunction with Section 708, permits the
transfer of up to, but not including, 50% of the total number of outstanding
Units in any consecutive 12-month period. The Purchase Offer and the Merger
would result in a transfer of all of the outstanding Units (except the 15 Units
held by the General Partner). Accordingly, the General Partner is proposing, at
the request of the Joint Venture and the Purchaser, the deletion of Section
7.01.B from the Partnership Agreement to facilitate consummation of the Purchase
Offer and the Merger.
The effect of this Amendment is to permit the Purchaser to acquire
Units in the Purchase Offer without regard to a 50% limit. The Amendment will
not have an adverse tax effect onlimited partners, because they will not be
limited partners after the Merger.
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Text of the Amendment. Section 7.01.B of the Partnership Agreement,
which currently reads as follows, would be deleted entirely by the Amendment:
No assignment of any Interest may be made if the assignment is pursuant
to a sale or exchange of the Interest and if the Interest sought to be assigned
when added to the total of all other Interest assigned within a period of 12
consecutive months prior thereto, would, in the opinion of legal counsel for the
Partnership, result in the Partnership being deemed to have been terminated
within the meaning of section 708 of the Code. The General Partner shall give
Notification to all Limited Partners in the event that sales or exchanges should
be suspended for such reason. Any deferred sales or exchanges shall be made (in
chronological order to the extent practicable) as of the first day of an
Accounting Period after the end of any such 12-month period, subject to the
provisions of this Article Seven.
2. Revision of Restriction on Timing of Transfers. Section 7.01.A of
the Partnership Agreement permits the assignment of Units only on the first day
of an Accounting Period. The Amendment to Section 7.01.A would eliminate this
restriction for the transfer of Units to the Purchaser pursuant to the Purchase
Offer, and would exempt the Purchaser from this restriction for any subsequent
transfer of Units to another entity.
Purpose and Effect of the Amendment. Section 7.01A of the Partnership
Agreement permits the assignment of Units only on the first day of each
Accounting Period. Without amending the Partnership Agreement to permit the
waiver of this requirement, the closing date for the Purchase Offer would have
to fall on the first day of an Accounting Period, rather than an earlier or
later date that otherwise would be chosen as the closing date. Accordingly, the
General Partner has proposed, at the request of the Joint Venture and the
Purchaser, the inclusion in Section 7.01.A of a provision that would eliminate
the Section 7.01.A transfer restrictions for Units transferred pursuant to the
Purchase Offer. This change would permit the transfer of such Units and the
closing of the Purchase Offer to occur on the earliest date practicable
following the expiration of the Purchase Offer, and in any event, on such date
as is necessary to facilitate the orderly consummation of the Purchase Offer.
The General Partner also has proposed, at the request of the Joint Venture and
the Purchaser, that Unitholders exempt the Purchaser from this restriction for
all subsequent assignments of its Units to any other entity in order to provide
the Purchaser with the flexibility to transfer its Units on such date that may
be necessary to facilitate the transfer. Because such transfers would occur in
isolated transactions, the General Partner does not believe that, as a result of
such transfers, the Partnership would be treated as an association taxable as a
corporation under Section 7704 of the Code.
The effect of this Amendment is to permit the closing of the Purchase
Offer to occur on the earliest date practicable following the expiration of the
Purchase Offer, and in any event, on such date as is necessary to facilitate the
orderly consummation of the Purchase Offer. The Amendment will not have an
adverse tax effect on limited partners, because they will not be limited
partners after the Merger.
Text of the Amendment. Section 7.01.A of the Partnership Agreement
would be revised to add the underlined language set forth below:
No assignment of any Interest may be made other than on the
first day of an Accounting Period, provided, however, that this
----------------------------
restriction on the timing of assignment shall not apply to (i) any
------------------------------------------------------------------
transfer of Units by Limited Partners to CBM I Holdings LLC or (ii) any
-----------------------------------------------------------------------
subsequent assignment of any Units by CBM I Holdings LLC.
---------------------------------------------------------
3. Amendments to Provisions Relating to Allocations of Profits and
Losses and Distributions of Cash. Section 4.05 of the Partnership Agreement
provides that net profits, gains, net losses or losses attributable to Units
that are transferred during the taxable year shall be allocated between the
transferor and transferee according to the number of accounting periods in such
taxable year that each owned the Units. If Units are transferred on a date other
than the first day of an accounting period, in violation of the transfer
restriction imposed by Section 7.01.A of the Partnership Agreement (discussed
above under "--Revision of Restriction on Timing of Transfers"), Section 4.05
requires that net profits, gains, net losses or losses attributable to the Units
for the
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accounting period in which the transfer occurs shall be prorated between the
transferor and the transferee if, and to the extent, legally required in the
opinion of legal counsel. Section 4.07.A of the Partnership Agreement
provides that cash available for distribution with respect to each fiscal year
of the Partnership shall be distributed at least annually. Section 4.10 of the
Partnership Agreement provides that cash available for distribution with respect
to Units shall be distributed to the limited partners pro rata in accordance
with the number of Units held by each as of the end of the accounting period
with regard to which the distribution relates. The Amendments to these
provisions would clarify that Unitholders (1) would receive allocations of
profit or loss on their Units up through the Effective Date rather than through
the end of the preceding accounting period, (2) would receive a distribution
from cash available for distribution for the period ending on the day prior to
the date of the entry of the judgment order, and (3) would not receive any
additional cash distributions (including any sale or refinancing proceeds)
relating to periods beginning on or after the date of the entry of the judgment
order (which cash distributions would inure to the benefit of the Purchaser),
unless an appeal is filed with regard to the judgment order (other than an
appeal that relates solely to counsel fees and expenses), in which case the
Unitholders also would receive a distribution of cash available for distribution
for the period beginning on the date the judgment order is entered and ending on
the Effective Date.
Purpose and Effect of the Amendments. The change to Section 4.07 of the
Partnership Agreement has been proposed to permit Unitholders to receive a
distribution of cash available for distribution from the Partnership for the
period ending on the day prior to the date of the entry of the judgment order,
as required by the terms of the Settlement Agreement. In the event an appeal is
timely filed with regard to the judgment order after it is entered (other than
an appeal that relates solely to counsel fees and expenses), the proposed change
to Section 4.07 also would permit the Unitholders to receive a distribution of
cash available for distribution from the Partnership for the period beginning on
the date the judgment order is entered and ending on the Effective Date. Because
the Partnership distributes cash available for distribution on an annual basis
in accordance with Section 4.07.A, Section 4.10 otherwise would cause all cash
distributions (including sale or refinancing proceeds) with respect to the Units
to be made to the Purchaser if the Unitholders disposed of their Units before
the end of the accounting period ending prior to the date of any such
distributions from the Partnership. As a result of amending Section 4.07 so as
to require the distributions described in the Settlement Agreement, the
Unitholders will receive a distribution of cash available for distribution for
the period ending on the day prior to the entry of the judgment order and, if an
appeal is filed with regard to the judgment order (other than an appeal that
relates solely to counsel fees and expenses), a distribution of cash available
for distribution for the period beginning on the date the judgment order is
filed and ending on the Effective Date but will receive no distributions for any
period after the Effective Date.
The proposed Amendment to Section 4.05 would require the Partnership to
allocate net profits, gains, net losses and losses with respect to the Units for
the fiscal year of the Partnership in which the judgment order becomes final
between the Purchaser and each Unitholder based upon the number of days that
each held such Units during such fiscal year (including any short fiscal year
for tax purposes resulting from a "technical" termination of the Partnership
pursuant to Section 708(b)(1)(B) of the Code). Because the Partnership currently
is generating net income, if the judgment order becomes final on a date other
than the first day of an Accounting Period, the Amendment would result in a
greater amount of taxable income being allocated to the Unitholders than would
be the case currently under the Partnership Agreement. However, the additional
allocation of taxable income would increase each Unitholder's adjusted tax basis
in his Units and, thus, would decrease the amount of capital gain, or increase
any capital loss, recognized by the Unitholder in the Purchase Offer or as a
result of the Merger. See "Federal Income Tax Considerations--Allocations of
Profits and Losses to Participating and Nonparticipating Unitholders."
The effect of this Amendment is to conform the allocation and
distribution provisions of the Partnership Agreement to the revisions of the
Settlement Agreement, so that the respective parties will have the cash and tax
benefits and burdens for the respective periods contemplated in the Settlement
Agreement, as described above.
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Text of the Amendments. Section 4.05 of the Partnership Agreement would
be amended to add the underlined language set forth below:
Any Net Profits or Net Losses for any Fiscal Year
allocable to the Limited Partners shall be allocated among the Limited
Partners pro rata in accordance with the number of Units owned by each
as of the end of such Fiscal Year; provided that if any Unit is
assigned during the Fiscal Year in accordance with this Agreement, the
Net Profits or Net Losses that are so allocable to such Unit shall be
allocated between the assignor and assignee of such Unit according to
the number of Accounting Periods in such Fiscal Year each owned such
Unit. Any Gains or Losses allocable to the Limited Partners shall be
allocated among the Limited Partners who held Units on the last day of
the Accounting Periods in which the sale or disposition giving rise to
such Gains or Losses occurred, pro rata in accordance with the number
of Units owned by each such Limited Partner. If any Unit is assigned by
a Limited Partner other than on the first day of an Accounting Period
(in contravention of the Agreement), then the Partnership shall
recognize such assignment for the purposes of allocating Net Profits,
Gains, Net Losses or Losses if, and to the extent, it is legally
required to do so in the opinion of legal counsel. Notwithstanding the
-------------------
foregoing, each transfer of Units to CBM I Holdings LLC or acquisition
----------------------------------------------------------------------
of Units pursuant to the merger of CBM Acquisition L.P., an affiliate
---------------------------------------------------------------------
of CBM I Holdings LLC, with and into the Partnership (the "Merger")
-------------------------------------------------------------------
pursuant to an agreement and plan of merger (the "Merger Agreement"),
---------------------------------------------------------------------
with the Partnership surviving, in connection with the settlement of
--------------------------------------------------------------------
certain claims brought by the Limited Partners against the General
------------------------------------------------------------------
Partner and other defendants, as described in the Settlement Agreement,
-----------------------------------------------------------------------
dated as of March 9, 2000 (the "Settlement Agreement"), shall be
----------------------------------------------------------------
considered to be in accordance with this Agreement and the Net Profits,
-----------------------------------------------------------------------
Gains, Net Losses or Losses for the Fiscal Year (including any short
--------------------------------------------------------------------
Fiscal Year resulting from the termination of the Partnership pursuant
----------------------------------------------------------------------
to Section 708(b)(1)(B) of the Code) in which the transfer occurs shall
-----------------------------------------------------------------------
be allocated between the transferor and the transferee based upon the
---------------------------------------------------------------------
number of days that each held such Units during such Fiscal Year.
-----------------------------------------------------------------
Section 4.07 of the Partnership Agreement would be amended to renumber
Section 4.07 as Section 4.07.A and to add new Section 4.07.C, as set forth
below:
Section 4.07.C. To effectuate the terms of the
----------------------------------------------
Settlement Agreement, the Partnership shall make the following
--------------------------------------------------------------
extraordinary distributions of Cash Available for Distribution within
---------------------------------------------------------------------
90 days after the end of the relevant distribution period:
---------------------------------------------------------
(i) To each Limited Partner, his pro rata share of
--------------------------------------------------
Cash Available for Distribution, as determined in accordance with the
---------------------------------------------------------------------
provisions of Section 4.07.A. above, with regard to the period ending
---------------------------------------------------------------------
on the day prior to the date of the entry of the judgment order
---------------------------------------------------------------
relating to the Settlement Agreement (the "Judgment Order"). Subject to
-----------------------------------------------------------------------
Section 4.07.B(ii) below, after receipt of this distribution, no
----------------------------------------------------------------
Limited Partner shall have a right to any other distribution from the
---------------------------------------------------------------------
Partnership pursuant to this Article Four or any other provision of
-------------------------------------------------------------------
this Agreement.
---------------
(ii) To each Limited Partner, if and only if an
-----------------------------------------------
appeal with regard to the Judgment Order is timely filed within the
-------------------------------------------------------------------
time permitted for such appeal (other than an appeal that relates
-----------------------------------------------------------------
solely to counsel fees and expenses), his pro rata share of Cash
----------------------------------------------------------------
Available for Distribution, as determined in accordance with the
----------------------------------------------------------------
provisions of Section 4.07.A. above, with regard to the period
--------------------------------------------------------------
beginning on the date of the entry of the Judgment Order and ending on
----------------------------------------------------------------------
the day on which the Judgment Order becomes "final" (as such term is
--------------------------------------------------------------------
defined in the Settlement Agreement).
-------------------------------------
Notwithstanding the last sentence of Section 4.10,
--------------------------------------------------
for allocation and distribution purposes, each Limited Partner who
------------------------------------------------------------------
transfers Units pursuant to the Settlement Agreement or the Merger
------------------------------------------------------------------
shall be deemed to be a Limited Partner of record as of the end of the
----------------------------------------------------------------------
Accounting Period prior to each distribution described in Section
-----------------------------------------------------------------
4.07.B(i) 4.07.C(i) and (ii) and Section 4.10 shall be applied
--------------------------------------------------------------
accordingly.
------------
43
<PAGE>
4. Amendment to Provisions Relating to Authority of the General
Partner to Manage the Partnership.
The Partnership Agreement contains provisions providing for appraisal
procedures in the event that the Partnership sells any Hotels to the General
Partner or an affiliate of the General Partner, and in the event of a
distribution of the Partnership's assets in connection with a liquidation. Those
appraisal procedures are intended to establish a fair purchase price for the
Hotels and the Partnership's assets in those limited circumstances. Special
Delaware counsel to the General Partner has advised the General Partner that,
because the Partner is not selling any Hotels or liquidating the Partnership in
connection with the Purchase Offer and the Merger, the Partnership Agreement
does not require the Partnership, to conduct an appraisal procedure of the type
that would be required in the event of a sale of Hotels to the General Partner
or any of its affiliates or in the event of a distribution of the Partnership's
assets in connection with a liquidation.
The procedure set forth in the Settlement Agreement and the Merger
Agreement providing for appraisal of the fair market value of the Units by one
or more third parties to establish the value of Units held by holders who have
elected to opt-out of the Settlement is not required by the Partnership
Agreement. Rather, in connection with the Settlement, a purchase price for the
Units in the Purchase Offer, as well as the appraisal process for determining
the value of Units held by limited partners who have elected to opt-out of the
Settlement, was established through arms-length negotiations between Defendants
and Class Counsel.
Purpose and Effect of the Amendment. Section 5.01A of the Partnership
Agreement currently provides that, except as expressly provided in the
Partnership Agreement, the authority of the General Partner to conduct the
business of the Partnership shall be exercised only by the General Partner.
Section 5.01C of the Partnership Agreement delineates certain powers that the
General Partner may exercise without the consent of the limited partners. To the
extent that the appraisal procedure for determining the value of Units held by
limited partners who have elected to opt-out of the Settlement could otherwise
be deemed to fall within the exclusive authority of the General Partner to
conduct the business of the Partnership, the proposed amendment to Section 5.01C
would clarify that the General Partner has the power to delegate the authority
to conduct such appraisal procedures in accordance with the Settlement Agreement
and the Merger Agreement.
The effect of this Amendment is to permit the appraised value of Units
held by limited partners who opt-out of the Settlement to be determined by
independent valuation firms for purposes of the Merger.
Text of the Amendment. Section 5.01.C of the Partnership Agreement,
would be amended to add the underlined language set forth below:
(vii) sell up to 20 hotels (no more than five Hotels
at less than the Partnership's purchase
price);
(viii) retain such persons or entities as the General
Partner, in its sole discretion, shall deem
necessary or appropriate in order to appraise the
fair market value of the Hotels and the value of
the Units in accordance with the terms of the
Settlement Agreement and the Merger Agreement; and
(ix) take such actions as the General Partner
determines are advisable or necessary, and will
not result in any material adverse effect on the
economic position of holders of a majority of the
Units, to preserve the tax status of the
Partnership as a partnership for Federal income
tax purposes.
44
<PAGE>
Federal Income Tax Considerations
Summarized below are the material United States federal income tax
considerations of the Settlement.
General. The following discussion summarizes certain federal income tax
considerations related to the Settlement that may be relevant to (i) a
Unitholder who tenders his Units and submits the required Proof of Claim to the
Claims Administrator pursuant to the terms of the Purchase Offer and a
Unitholder who does not tender his Units and submit the Proof of Claim but who
does not affirmatively "opt-out" of the Settlement (in either case, hereinafter,
a "Participating Unitholder"), or (ii) a Unitholder who affirmatively "opts out"
of the Settlement and therefore exchanges his Units in the Merger (hereinafter,
a "Nonparticipating Unitholder").
The information in this section is based upon the Internal Revenue Code
of 1986, as amended (the "Code"), Treasury Regulations thereunder, rulings, and
other pronouncements and decisions now in effect, all of which are subject to
change (perhaps with retroactive effect). The General Partner has not requested,
and does not plan to request, any rulings from the IRS concerning the tax
treatment of the Unitholders in connection with the Settlement. Thus, it is
possible that the IRS would challenge the statements in this discussion, which
do not bind the IRS or the courts, and that a court would agree with the IRS.
The discussion set forth herein is not intended to be exhaustive of all
possible tax considerations. For example, this summary does not give a detailed
discussion of any state, local, or foreign tax considerations. Nor does it
discuss all aspects of federal income taxation that may be relevant to specific
Unitholders in light of their particular circumstances. Except where
specifically indicated, the discussion below describes general federal income
tax considerations applicable to individuals who are citizens or residents of
the United States. Accordingly, the following discussion has limited application
to domestic corporations and persons subject to specialized federal income tax
treatment, such as foreign persons, tax-exempt entities, regulated investment
companies and insurance companies.
The following discussion includes an estimate by the General Partner,
on a per Unit basis, of a Unitholder's adjusted tax basis in his Units
(including the amount of syndication costs includible in his basis), the amount
of the Partnership's liabilities allocable to such Unitholder, the passive
activity loss carry forward, if any, attributable to his ownership of Units and
the amount of "unrecaptured Section 1250 gain" that such Unitholder would
recognize at the time of the disposition of his Units. These amounts are only
estimates, and there could be material differences between these estimated
amounts and the actual numbers due to a variety of factors. In addition, these
estimates apply only to a Unitholder who purchased his Units on the date of the
original offering of the Units and who has held his Units continuously since
that time. The estimated amounts could differ considerably for a Unitholder who
acquired some or all of his Units after the date of the original offering. The
amount of gain recognized by such Unitholders in connection with the disposition
of their Units pursuant to the Settlement will depend upon when they acquired
their Units and the price they paid for the Units (as adjusted for subsequent
allocations of Partnership income and loss and subsequent Partnership
distributions).
UNITHOLDERS SHOULD BOTH REVIEW THE FOLLOWING DISCUSSION AND CONSULT
WITH THEIR TAX ADVISORS TO DETERMINE THE TAX CONSEQUENCES TO THEM -- INCLUDING
ANY STATE, LOCAL OR NON-U.S. TAX CONSEQUENCES -- IN LIGHT OF THEIR PARTICULAR
TAX SITUATION, OF CHOOSING TO PARTICIPATE IN THE SETTLEMENT OR OPTING OUT OF THE
SETTLEMENT.
The class of Participating Unitholders is represented by Class Counsel,
who have engaged Chamberlain, Hrdlicka, White, Williams, and Martin
("Chamberlain Hrdlicka") as special tax counsel. Chamberlain Hrdlicka is
separately providing to the Unitholders its summary regarding the potential
federal income tax consequences resulting from the Settlement. You should review
this summary carefully with your tax advisor. That summary is solely the
responsibility of such special tax counsel, and none of the Purchaser, the
Partnership, the General Partner, the Joint Venture,
45
<PAGE>
Rockledge, the MI Investor, any of the Defendants nor any of their affiliates or
advisors express any views with respect to the matters set forth therein or have
any responsibility with respect thereto.
Tax Treatment of Participating Unitholders. Each Participating
Unitholder will receive, either in the Purchase Offer or pursuant to the Merger,
cash in the amount of $134,130 per Unit (or a pro rata portion thereof), before
reduction (in the case of class members) for such Unitholder's pro rata share of
legal fees and expenses ("Class Counsel's Attorneys' Fees") awarded by the court
to Class Counsel (the "Gross Per Unit Settlement Amount"). Each Participating
Unitholder very likely will be deemed, solely for federal income tax purposes,
to have received two separate amounts, on a per Unit basis: (1) an amount in
exchange for his Units (for purposes of this discussion, the "Deemed Unit
Purchase Amount"), and (2) a separate amount in settlement of the claims
asserted in the Haas Litigation (for purposes of this discussion, the "Deemed
Claim Value," which, as described below, may or may not be considered to include
the Unitholder's pro rata share of Class Counsel's Attorneys' Fees).
The correct allocation of the Gross Per Unit Settlement Amount between
the Deemed Unit Purchase Amount and the Deemed Claim Value for federal income
tax purposes is a question of fact and may depend in part upon the fair market
value of the Units. None of the Defendants nor any of their affiliates are
taking any position regarding the allocation by the Participating Unitholders of
the Gross Per Unit Settlement Amount between the Deemed Unit Purchase Amount and
the Deemed Claim Value for federal income tax purposes. As described above in
"The Merger -- Rights of Unitholders Who Have Elected to Opt-Out of the
Settlement," however, Nonparticipating Unitholders will receive cash in the
Merger in an amount per Unit equal to the appraised value of a Unit, as
determined pursuant to a separate appraisal process that will be completed
within 60 days after the Merger. In addition, Class Counsel will assert in
court, for purposes of determining their legal fees, that the plaintiffs are
receiving in the Settlement benefits resulting from the Haas Litigation with a
value that is in excess of the value of the Units under the existing partnership
structure and agreements. Finally, the Purchaser and the Defendants will make an
allocation between the Deemed Unit Purchase Amount and the Deemed Claim Value
for the purpose of determining the Purchaser's initial tax basis in the Units
acquired by it through the Purchase Offer and pursuant to the Merger, the
Purchaser's share of the Partnership's tax basis in its property and the
consequences to the Defendants of the Settlement for tax and financial
accounting purposes. There can be no assurance that the IRS would not assert
that a Participating Unitholder must treat the appraised value of the Units held
by the Nonparticipating Unitholders, the value of the benefits received by the
plaintiffs in settlement of the Haas Litigation that is asserted by Class
Counsel in their petition for legal fees and expenses, the amounts used by the
Purchaser and the Defendants for determining the tax and financial accounting
consequences to them of the Settlement, or some other measurement of value as
determinative for purposes of allocating the Gross Per Unit Settlement Amount
between the Deemed Unit Purchase Amount and the Deemed Claim Value.
Federal Tax Consequences of Disposition of Units. Each Participating
Unitholder will be treated as having made a taxable disposition of his Units in
the Purchase Offer or pursuant to the Merger. The disposition likely would be
deemed to occur, with regard to a Participating Unitholder who tenders his Units
and submits the Proof of Claim, on the date his right to receive the Gross Per
Unit Settlement Amount becomes fixed, which would be the Effective Date, and,
with regard to a Participating Unitholder who does not tender his Units and
submit the Proof of Claim, on the effective date of the Merger. The gain or loss
recognized by a Unitholder upon the disposition of his Units will equal the
difference between the amount considered realized by the Unitholder for tax
purposes in exchange for his Units (as described in the next paragraph) and the
Unitholder's adjusted tax basis in such Units (described below under "Basis of
Units of Participating and Nonparticipating Unitholders").
The amount considered realized by each Participating Unitholder will
equal the sum of the following items: (1) the cash received for his Units at the
time of the disposition (which will equal the Deemed Unit Purchase Amount and
will be deemed to include any amount owed by the Unitholder on the original
purchase price of his Units), and (2) the portion of the Partnership's
liabilities allocable to the Participating Unitholder's Units for federal income
tax purposes immediately prior to the date of the disposition of such Units. The
General Partner estimates that,
46
<PAGE>
as of December 31, 1999, the dollar amount of the Partnership's liabilities
allocable to each Participating Unitholder was approximately $238,000 per Unit.
A Unitholder will recognize gain to the extent that the amount realized
by him in exchange for his Units (as determined in the preceding paragraph)
exceeds his adjusted tax basis in the Units (as described below under "Basis of
Units of Participating and Nonparticipating Unitholders"). The taxable gain
recognized by the Participating Unitholder will exceed the cash amount received
with respect to his Units by an amount equal to the excess (if any) of his share
of the Partnership's liabilities allocable to him for federal tax purposes over
his adjusted tax basis in his Units (which is commonly referred to as a
"negative capital account").
For a discussion of the federal income tax rates applicable to the gain
recognized by a Unitholder from the disposition of a Unit that has been held as
a capital asset by the Unitholder, see "Federal Income Tax Rates Applicable to
Gain from Disposition of Units by Participating and Nonparticipating
Unitholders" below.
Federal Tax Consequences of Receipt of Deemed Claim Value. As noted
above, there can be no certainty as to what portion of the Gross Per Unit
Settlement Amount would be considered allocable to the Deemed Claim Value
(rather than the Deemed Unit Purchase Amount). Moreover, there is considerable
uncertainty in the law as to how amounts that are treated as allocable to the
Deemed Claim Value received by a Participating Unitholder would be characterized
for federal income tax purposes.
The determination of the character and amount of income and gain
recognized by a plaintiff in connection with payments received in settlement of
litigation depends on many factors, including the nature and relative merits of
the claims made in the litigation that is being settled, and whether a portion
of the settlement payment that may otherwise be characterized as capital in
nature is subject to recharacterization as ordinary income to reflect certain
tax benefits realized by the plaintiff in prior years. In general, an amount
received in settlement of a claim may be characterized as ordinary income (if
the amount relates to lost profits or punitive damages) or a return of capital
or capital gain (if the amount relates to injury to capital assets).
The complaints of the plaintiffs in the Haas Litigation are specified
in their pleadings filed in that litigation. As described in the preceding
paragraph, to the extent the plaintiffs' complaints might be construed as
relating to injury to capital assets, a recovery attributable to those
complaints may result in the recognition of capital gain by the plaintiffs.
Conversely, to the extent the plaintiffs' complaints might be construed as
asking for lost profits or punitive damages, a recovery attributable to those
complaints may result in the recognition of ordinary income by the plaintiffs.
The Settlement Agreement does not address the relative merits of any of the
claims and does not provide for an allocation of all or a part of the Gross Per
Unit Settlement Amount to any specific claim. Moreover, there will be no
judicial determination of the merits of any of the various claims or the proper
allocation of the Gross Per Unit Settlement Amount among the claims. To the
extent that a Participating Unitholder takes the position that the Deemed Claim
Value should be characterized as a return of capital or capital gain, there can
be no assurance that the IRS would not challenge this position and determine
that some or perhaps even all of the Deemed Claim Value should be treated by a
Participating Unitholder as ordinary income for federal income tax purposes.
In the event that any interest accrued on the Deemed Claim Value is
payable to a Participating Unitholder, such Participating Unitholder will be
required to treat the interest as ordinary income for federal income tax
purposes.
Tax Treatment of Class Counsel's Attorneys' Fees. As described above in
"Special Factors--The Settlement Agreement," the Net Settlement Amount reflects
a reduction for each Participating Unitholder's pro rata share of Class
Counsel's Attorneys' Fees. The IRS could take the position that each
Participating Unitholder must include in income his share of Plaintiff's
Counsel's Attorneys' Fees. There is existing judicial authority that would
support a position that, under certain circumstances, a plaintiff's attorneys'
fees and expenses that are paid by a defendant in litigation pursuant to a
judgment or settlement are excludable from the income of the plaintiff; however,
the facts in these cases are distinguishable from the facts underlying the Haas
47
<PAGE>
Litigation, and there can be no assurance that a court would follow the
decisions in those cases. The determination of whether a Participating
Unitholder must include in income his share of Class Counsel's Attorneys' Fees
may depend upon the laws of Texas or that of another state (including the
Participating Unitholder's state of residence) regarding the relative rights
under state law of a particular Participating Unitholder and of Class Counsel to
that portion of the Deemed Claim Value represented by legal fees and
expenses.
In the event that a Participating Unitholder must include his share of
the Class Counsel's Attorneys' Fees in income, the characterization of that
amount as ordinary income or capital gain would depend on the manner in which
the balance of the Deemed Claim Value is correctly characterized. For example,
if the Deemed Claim Value were determined to be allocable between claims for
lost profits and claims for injury to a capital asset, the legal fees allocated
to lost profits will be treated as ordinary income and the legal fees allocated
to the capital asset claim likely will be treated as a return of capital or
capital gain.
A Participating Unitholder may be able to claim a deduction on his
federal income tax return with regard to all or a portion of the Class Counsel's
Attorneys' Fees paid on his behalf by the Defendants to the extent those amounts
are required to be included in income. If the Participating Unitholder is
required to treat part of the Deemed Claim Value as ordinary income, the
corresponding part of the legal fees and expenses paid on his behalf that are
required to be included in income may be deductible currently under Section 162
(which addresses trade or business expenditures) or Section 212 (which addresses
expenditures for the production of income) of the Code. Because (among other
things) each Participating Unitholder is a limited partner rather than a general
partner, such Participating Unitholder may not be able to prove that legal fees
and expenses incurred in the Litigation are properly characterized as trade or
business expenditures, which is the necessary prerequisite for an ordinary
deduction under Section 162. Even if a Participating Unitholder takes the
position that all or a portion of the Class Counsel's Attorneys' Fees that he is
required to include in income relates to the production of income and such
position is respected (with the result that the fees and expenses fall under
Section 212), if such Participating Unitholder is an individual, the Class
Counsel's Attorneys' Fees would be treated as a miscellaneous itemized deduction
that is allowable as a deduction only to the extent that the Participating
Unitholder's total miscellaneous itemized deductions (including the Class
Counsel's Attorneys' Fees) exceeds two percent (2%) of his adjusted gross
income. Such deduction will be subject to reduction if the Participating
Unitholder's "adjusted gross income" for the tax year with regard to which the
deduction relates exceeds a specified amount (which amount, for 2000, is
$128,950 (or $64,475 in the case of a married individual filing a separate
return)). In calculating his "alternative minimum taxable income," a
Participating Unitholder who is an individual will not be able to utilize any
miscellaneous itemized deductions.
A Participating Unitholder will be required to capitalize (i.e., add to
the adjusted tax basis in his Units) any portion of the Class Counsel's
Attorneys' Fees that are paid on his behalf by the Defendants and that relate to
capital asset claims, resulting in a reduction of the total amount of capital
gain, or an increase in any capital loss, recognized by the Participating
Unitholder as a result of the Settlement.
Tax Treatment of Nonparticipating Unitholders. Each Nonparticipating
Unitholder will be treated as having made a taxable disposition of his Units
pursuant to the Merger, which disposition would be deemed to occur on the
effective date of the Merger. The gain or loss recognized by a Nonparticipating
Unitholder upon the disposition of his Units will equal the difference between
the amount considered realized by the Unitholder for tax purposes in exchange
for his Units in the Merger and the Unitholder's adjusted tax basis in such
Units. See "Basis of Units of Participating and Nonparticipating Unitholders"
below.
The amount realized by each Nonparticipating Unitholder will equal the
sum of the following items: (1) the cash received for his Units at the time of
the Merger (as determined in accordance with the procedures described above in
"Special Factors--The Merger--Rights of Unitholders Who Have Elected to Opt-Out
of the Settlement"), which will be deemed to include any amount owed by the
Nonparticipating Unitholder on the original purchase price of his Units, and (2)
the portion of the Partnership's liabilities allocable to the Nonparticipating
48
<PAGE>
Unitholder's Units for federal income tax purposes immediately prior to the
Merger. The General Partner estimates that, as of December 31, 1999, the dollar
amount of the Partnership's liabilities allocable to each Nonparticipating
Unitholder was approximately $238,000 per Unit.
To the extent that the amount realized, as determined in the preceding
paragraph, exceeds the Nonparticipating Unitholder's adjusted tax basis in the
Units, such Nonparticipating Unitholder will recognize gain. The taxable gain
recognized by the Nonparticipating Unitholder will exceed the cash amount
received with respect to his Units by an amount equal to the excess (if any) of
his share of the Partnership's liabilities allocable to him for federal tax
purposes over his adjusted tax basis in his Units (which is commonly referred to
as a "negative capital account").
For a discussion of the federal income tax rates applicable to the gain
recognized by a Nonparticipating Unitholder from the disposition of a Unit that
has been held as a capital asset by the Nonparticipating Unitholder, see
"--Federal Income Tax Rates Applicable to Gain from Disposition of Units by
Participating and Nonparticipating Unitholders" below.
Allocations of Profits and Losses to Participating and Nonparticipating
Unitholders. Pursuant to the Amendments, Unitholders will be allocated
Partnership profits and losses through the period ending on the date that the
judgment order relating to the Settlement becomes final. However, if no appeal
is filed after the judgment order is entered, Unitholders will receive a final
distribution of cash available for distribution (in accordance with the terms of
the Partnership Agreement) for the period ending on the day before the date the
judgment order is entered. Unitholders will not receive any distribution that
relates to the period beginning on the date of the entry of the judgment order
and ending on the date the judgment order becomes final (the "Appeal Period")
unless an appeal is filed with regard to the judgment order during the Appeal
Period (other than an appeal relating solely to counsel's fees), in which event
Unitholders also will receive a distribution of cash available for distribution
(in accordance with the terms of the Partnership Agreement) for the Appeal
Period. Any allocation of taxable income received by a Unitholder with regard to
the Appeal Period will increase such Unitholder's adjusted tax basis in his
Units and, thus, will decrease the amount of capital gain, or increase any
capital loss, recognized by the Unitholder as a result of the disposition of his
Units in the Purchase Offer or pursuant to the Merger. Any distribution received
by a Unitholder will decrease such Unitholder's adjusted tax basis in his Units
and, consequently, will increase the amount of capital gain, or decrease any
capital loss, recognized by the Unitholder as a result of the disposition of his
Units.
Basis of Units of Participating and Nonparticipating Unitholders. In
general, a Unitholder had an initial tax basis in his Units ("Initial Basis")
equal to his cash investment in the Partnership, plus his share of the
Partnership's liabilities allocable to him for tax purposes at the time he
acquired his Units. A Unitholder's Initial Basis generally has been increased by
(1) such Unitholder's share of Partnership taxable income, and (2) any increases
in his share of liabilities of the Partnership. Generally, such Unitholder's
Initial Basis has been decreased (but not below zero) by (a) his share of
Partnership cash distributions, (b) any decreases in his share of liabilities of
the Partnership, (c) his share of losses of the Partnership, and (d) his share
of nondeductible expenditures of the Partnership that are not chargeable to
capital. A Unitholder's basis in his Units would include his share of the
syndication costs incurred by the Partnership at formation if he acquired his
Units in the original offering.
The General Partner estimates that, as of December 31, 1999, a
Unitholder who acquired his Units at the time of the original offering of such
Units and has held such Units at all times since the offering would have an
adjusted basis in each Unit of approximately $201,000 (which amount includes
approximately $238,000 attributable to his share of the Partnership's
nonrecourse liabilities). Accordingly, such a Unitholder has a "negative capital
account" with respect to his Units of approximately $37,000, and thus the gain
recognized on any disposition of those Units would exceed the cash received
therefor by that amount. Such Unitholder's share of syndication costs would be
approximately $11,000 per Unit.
Federal Income Tax Rates Applicable to Gain from Disposition of Units
by Participating and Nonparticipating Unitholders. The disposition of Units by a
Unitholder in the Purchase Offer or pursuant to the Merger generally will result
in the recognition of capital gain
49
<PAGE>
by the Unitholder with respect to the Deemed Unit Purchase Amount if the Units
have been held by the Unitholder as a capital asset. For corporations, the
maximum rate of tax on the net capital gain from a sale or exchange of a capital
asset held for more than twelve months is currently 35%. Generally, non-
corporate Unitholders (i.e., individuals, trusts and estates) who have held
their Units as capital assets for more than 12 months will be taxed at a maximum
long-term capital gain rate of 20% on the disposition of those Units. However, a
maximum rate of 25% for non-corporate Unitholders may apply to capital gain that
is recognized as a result of the transfer of Units in the Purchase Offer or
pursuant to the Merger to the extent such capital gain is treated as
"unrecaptured section 1250 gain" (i.e., previously claimed depreciation
deductions with respect to depreciable real property that would not be
recaptured as ordinary income pursuant to Sections 751 and 1250 of the Code, as
described in the next paragraph). While there is some uncertainty regarding the
issue, the IRS takes the position, for which there is support in legislative
history, that a Unitholder who has held his Units for more than one year prior
to the disposition of those Units will be subject to the 25% capital gain tax
rate on his share of the Partnership's "unrecaptured Section 1250 gain."
Regulations proposed by the IRS that were issued in August of 1999 would treat
the amount of "unrecaptured Section 1250 gain" that a partner must recognize
upon the disposition of his partnership interest as his share of the amount that
would result if his partnership had transferred all of its Section 1250 property
in a fully taxable transaction immediately prior to the disposition of his
partnership interest. There can be no assurance that such proposed regulations,
if adopted, would be adopted in their proposed form without substantive
revisions. Accordingly, Unitholders are urged to consult with their own tax
advisors with respect to their capital gain tax liability.
In addition, to the extent that the amount realized on the disposition
of the Units attributable to a Unitholder's share of the Partnership's inventory
items and/or "unrealized receivables" (as defined in Section 751 of the Code)
exceeds the basis attributable to those assets, such excess will be treated as
ordinary income, taxable to non-corporate Unitholders at a maximum statutory
rate of 39.6%. Unrealized receivables include amounts that would be subject to
recapture as ordinary income if the Partnership had sold its assets at their
fair market value at the time of the disposition of the Units, such as
"depreciation recapture" under Sections 1245 and 1250 of the Code.
The General Partner estimates that, as of December 31, 1999, the
"unrecaptured Section 1250 gain" of the Partnership that is taxable to
non-corporate Unitholders at the 25% capital gain rate was approximately $87,000
per Unit with regard to a Unitholder who acquired his Units in the original
offering of Units by the Partnership.
The General Partner has not estimated the fair market value of the
Partnership's personal property, and thus takes no position at this time as to
whether the value is such that a Unitholder would recognize ordinary income
pursuant to Sections 751 and 1245 upon the disposition of his Units. In any
event, the ordinary income amount would be equal to the Unitholder's share of
the excess, if any, of the value of such personal property at the time of
disposition of the Units over its adjusted basis at such time. For purposes of
determining its share of the Partnership's tax basis in its personal property
after the Purchase Offer and the Merger, however, the Purchaser will take the
position that the fair market value of the Partnership's personal property is
equal to its adjusted tax basis at the time of the Purchase Offer and the
Merger. If this position is respected by the IRS, no ordinary income would be
recognized pursuant to Sections 751 and 1245; however, there can be no assurance
that the IRS will respect the Purchaser's position.
Passive Activity Income and Loss Carryforwards of Participating and
Nonparticipating Unitholders. Any gain recognized by a Unitholder in connection
with the disposition of his Units pursuant to the Settlement will constitute
"passive activity income" for purposes of the "passive activity loss" limitation
rules. Accordingly, such income generally may be offset by losses from all
sources, including "passive activity loss" carryforwards with respect to the
Partnership and "passive" or active losses from other activities. The General
Partner estimates that, as of December 31, 1999, a Unitholder who purchased his
Units at the time of the original offering, has held those Units continuously
since that time, and whose Units have been his only investment in a passive
activity would not have any passive activity loss carryforward with respect to
his Units.
Federal Tax Withholding Applicable to Participating and
Nonparticipating Unitholders. The federal income tax laws require that taxes be
withheld on amounts payable to
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foreign persons by reason of a disposition of certain United States real
property interests, which includes interests in certain partnerships that hold
real property in the United States. Withholding of ten percent (10%) of the
amount realized by a Unitholder pursuant to the Purchase Offer or the Merger may
be required unless the Unitholder completes, executes and returns the
Certificate of Non-Foreign Status included in the Proof of Claim. Because
uncertainty exists as to the correct allocation of the amount received by a
Participating Unitholder in the Purchase Offer or pursuant to the Merger between
the Deemed Unit Purchase Amount and the Deemed Claim Value, solely for purposes
of determining any amounts required to be withheld, the "amount realized" by a
Participating Unitholder will be treated as the sum of (1) the amount of
$134,130 per Unit (or a pro rata portion thereof) plus (2) the Participating
Unitholder's share of the Partnership's nonrecourse liabilities immediately
prior to the disposition of his Units. The "amount realized" by a
Nonparticipating Unitholder will be treated as the sum of (a) the cash amount
received for his Units at the time of the Merger (which will be deemed to
include any amount owed by the Nonparticipating Unitholder on the original
purchase price of his Units), plus (b) the Nonparticipating Unitholder's share
of the Partnership's nonrecourse liabilities immediately prior to the
disposition of his Units. See "Important Tax Information" in the Proof of Claim.
Even if a Unitholder chooses not to return the rest of the Proof of
Claim, he should return the Certificate of Non-Foreign Status to prevent federal
income tax withholding on the amounts payable to him pursuant to the Settlement.
* * * * *
BECAUSE THE INCOME TAX CONSEQUENCES OF THE DISPOSITION OF UNITS
PURSUANT TO THE SETTLEMENT WILL NOT NECESSARILY BE THE SAME FOR ALL UNITHOLDERS,
UNITHOLDERS CONSIDERING TENDERING THEIR UNITS SHOULD CONSULT THEIR TAX ADVISORS
WITH SPECIFIC REFERENCE TO THEIR OWN TAX SITUATIONS.
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THE PURCHASE OFFER
Terms of the Purchase Offer
Upon the terms, and subject to the conditions of, the Purchase Offer
(including, if the Purchase Offer is extended or amended, the terms and
conditions of any such extension or amendment), the Purchaser will accept for
payment and thereby purchase all Units validly tendered on or prior to the
Expiration Date and not validly withdrawn in accordance with the procedures
described under the heading "--Withdrawal Rights" of this Purchase Offer and
Consent Solicitation. The term "Expiration Date" means 12:00 midnight, New York
City time, on Friday, August 21, 2000, unless and until the Purchaser, in its
sole discretion, shall have extended the period of time during which the
Purchase Offer is open, in which event the term "Expiration Date" shall mean the
latest time and date at which the Purchase Offer, as so extended by the
Purchaser, shall expire.
The Purchaser expressly reserves the right, in its sole discretion, at
any time or from time to time, to extend the period during which the Purchase
Offer is open by giving oral or written notice of such extension to the Claims
Administrator and making a public announcement thereof. There can be no
assurance that the Purchaser will exercise its right to extend the Purchase
Offer. During any such extension, all Units previously tendered and not
withdrawn will remain subject to the Purchase Offer and subject to the right of
a tendering Unitholder to withdraw such Units. See "--Withdrawal Rights." For
purposes of this Purchase Offer, a "business day" means any day other than a
Saturday, Sunday, or federal holiday and consists of the time period from 12:01
a.m. through 12:00 midnight, New York City time.
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Subject to applicable rules and regulations of the SEC and to the
provisions of the Settlement Agreement and any applicable court order, the
Purchaser reserves the right, at any time or from time to time, to (a) terminate
the Purchase Offer and not accept for payment any Units, (b) delay acceptance
for payment or, regardless of whether such Units were accepted for payment,
payment for, any Units and not pay for any Units not accepted for payment or
paid for, until such time as the first condition referred to under the heading
"Special Factors--Conditions of the Purchase Offer and the Merger" is satisfied,
(c) waive any unsatisfied condition (if it is waivable) to its obligation to
acquire Units pursuant to the Purchase Offer, (d) extend the period of time
during which the Purchase Offer is open, or (e) otherwise amend the Purchase
Offer. Whenever the Purchaser extends the period during which the Purchase Offer
is open, makes a material change in the terms of the Purchase Offer, waives a
condition of the Purchase Offer, terminates the Purchase Offer or otherwise
amends the Purchase Offer, it will give oral or written notice of such event to
the Claims Administrator and make a public announcement thereof in the manner
provided below. The Purchaser acknowledges that (a) Rule 14e-1(c) under the
Exchange Act requires the Purchaser to pay the consideration offered or return
the Units tendered promptly after the termination or withdrawal of the Purchase
Offer (except as provided in clause (b) of the first sentence of this paragraph)
and (b) upon and after the Expiration Date, the Purchaser may not delay
acceptance for payment of, or payment for (except as provided in clause (b) of
the first sentence of this paragraph), any Units if the second or third
conditions specified under the heading "Special Factors--Conditions of the
Purchase Offer and the Merger" have been satisfied, without extending the period
of time during which the Purchase Offer is open. The Purchaser has confirmed to
the Partnership that it does not intend to terminate the Purchase Offer for any
reason other than any of the conditions specified under the heading "Special
Factors--Conditions of the Purchase Offer and the Merger" not having been
satisfied.
Any extension, delay in payment, termination, waiver of conditions, or
material amendment to the terms of the Purchase Offer will be followed as
promptly as practicable by a public announcement thereof, and such announcement
in the case of an extension will be made no later than 9:00 a.m., New York City
time, on the next business day after the previously scheduled Expiration Date.
Without limiting the manner in which the Purchaser may choose to make any public
announcement, subject to applicable law (including Rules 14d-4(c), 14d-6(d) and
14e-1 under the Exchange Act, which require that material changes be promptly
disseminated to holders of Units), the Purchaser shall have no obligation to
publish, advertise or otherwise communicate any such public announcement other
than by issuing a release to the Dow Jones News Service or by letter sent to the
Unitholders.
If the Purchaser makes a material change in the terms of the Purchase
Offer or the information concerning the Purchase Offer, or waives a material
condition of the Purchase Offer, the Purchaser will extend the Purchase Offer
and disseminate additional tender offer materials to the extent required by
Rules 14d-4(d), 14d-6(c) and 14e-1 under the Exchange Act. Those rules prescribe
that the minimum period during which a tender offer must remain open following
material changes in the terms of the tender offer or information concerning the
tender offer, other than a change in price or a change in percentage of
securities sought or in any dealer's soliciting fee, will depend upon the facts
and circumstances, including the relative materiality of the terms or
information changed. The SEC has announced in a published release that in its
view a tender offer must remain open for a minimum period of time following a
material change in the terms of a tender offer or in information concerning a
tender offer. The release states that a tender offer should remain open for a
minimum of five business days from the date the material change is first
published, sent or given to security holders and that, if material changes are
made with respect to information that approaches the significance of price and
share levels, a minimum of 10 business days may be required to allow for
adequate dissemination and investor response.
If, by the Expiration Date, the second condition to the Purchase Offer
set forth under the heading "Special Factors--Conditions of the Purchase Offer
and Merger," has not been satisfied, the Purchaser may, in its sole discretion,
elect to (a) extend the Purchase Offer and, subject to applicable withdrawal
rights, retain all tendered Units until the expiration of the Purchase Offer, as
extended, subject to the terms of the Purchase Offer, (b) waive the unsatisfied
condition and not extend the Purchase Offer or (c) terminate the Purchase Offer
and
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return all tendered Units to tendering Unitholders and be relieved from any
obligations under the Settlement Agreement.
If an order of an appropriate court denying approval of the Settlement
becomes final after all applicable appeals have been exhausted or if the parties
to the Settlement Agreement decide to terminate the Settlement as to the
Partnership, the Purchase Offer will terminate and all tendered Units will be
returned to the tendering Unitholders as soon as practicable.
The Partnership has provided the Purchaser and the Claims Administrator
with a list of Unitholders and security position listings for the purpose of
disseminating the Purchase Offer and Consent Solicitation to Unitholders. This
Purchase Offer and Consent Solicitation and the related documents and, if
required, other relevant materials will be mailed to record holders of Units and
will be furnished for subsequent transmittal to beneficial owners of Units to
brokers, dealers, commercial banks, trust companies and similar persons whose
names, or the names of whose nominees, appear on the Unitholder list or, if
applicable, who are listed as participants in a clearing agency's security
position listing for subsequent transmittal to beneficial owners of Units.
The Purchaser does not currently intend to make available a "subsequent
offering period" as provided for in Rule 14d-11 of the Exchange Act.
Rights Of Class Members Who Sold Their Units But Did Not Assign Litigation
Claims
If a Unitholder purchased a Unit from a class member without obtaining
an assignment of that class member's litigation claims, the Purchaser will still
pay $134,130 for each Unit that such Unitholder tenders in the Purchase Offer or
that is converted in the Merger. However, this amount represents not only the
value of such Unitholder's Units, but also the value of the settlement of the
claims asserted in the Haas Litigation. Accordingly, the $134,130 per Unit (or a
net amount per unit of approximately $116,000 after payment of court awarded
legal fees and expenses to Class Counsel of approximately $18,000 per Unit), or
a pro rata portion thereof will have to be divided between such Unitholder and
the class member from whom such Unitholder purchased the Units. If such
Unitholder and the former class member are unable to agree on how the money
should be divided, the division will be made by a special master appointed by
the Court.
Payment for the Units will be made by deposit of the purchase price
therefor with the Escrow Agent. Upon deposit of the settlement funds with
respect to the Haas Litigation with the Escrow Agent for the purpose of making
payment to validly tendering Unitholders, the Purchaser's obligation to make
such payment shall be satisfied and such tendering Unitholders must thereafter
look solely to Class Counsel and the Escrow Agent for payment of the amounts
owed to them by reason of acceptance for payment of Units pursuant to the
Purchase Offer or the Merger. The Defendants in the Litigation have no
responsibility for or liability whatsoever with respect to the investment or
distribution of the settlement funds, the determination, administration,
calculation or payment of claims, or any losses incurred in connection
therewith, or with the formulation or implementation of the plan of allocation
of the settlement funds, or the giving of any notice with respect to same.
Provisions for Unaffiliated Unitholders.
Neither the Purchaser, the Joint Venture, Marriott International, MI
Investor nor Rockledge will grant unitholders that are unaffiliated with such
entities access to the corporate files of such entities. Such entities will not
provide unaffiliated unitholders with counsel or appraisal services at the
expense of such entities.
The Purchaser will not grant unitholders that are unaffiliated with the
Purchaser access to the corporate files of the Purchaser. The Purchaser will not
provide unaffiliated unitholders with counsel or appraisal services at the
expense of the Purchaser.
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Settlement Fund; Acceptance for Payment; Payment for Units
Upon the terms and subject to the conditions of this Purchase Offer and
Consent Solicitation (including, if the Purchase Offer is extended or amended,
the terms and conditions of any such extension or amendment), on or before the
third business day following the entry by the Court of an executed judgment
order approving the Settlement, the Purchaser or the Joint Venture, or one or
more of their designees, will pay or cause to be paid by wire transfer the
settlement funds to the Escrow Agent. The Escrow Agent will deposit the
settlement funds in an interest-bearing account.
If the judgment order becomes final without an appeal (other than an
appeal that relates solely to counsel fees and expenses) and you have submitted
a valid Proof of Claim to the Claims Administrator on or before the Effective
Date, within seven business days following such date, the Escrow Agent will
distribute to you the Net Settlement Amount for each Unit held by you. If you
submit a valid Proof of Claim after the Effective Date, the Escrow Agent will
distribute to you the Net Settlement Amount for each Unit held by you within
seven business days following the receipt of the Proof of Claim by the Claims
Administrator. If a class action plaintiff has not submitted a valid Proof of
Claim to the Claims Administrator within 90 days following the Effective Date
and such plaintiff has not opted out of the Settlement, Class Counsel may
execute a Proof of Claim on behalf of that limited partner. The execution of the
Proof of Claim by Class Counsel on behalf of a limited partner will entitle the
limited partner to receive the Net Settlement Amount for each Unit held by such
limited partner and release, on behalf of such limited partner, all claims that
are released, settled and discharged as part of the Settlement as provided in
the Proof of Claim. The Escrow Agent will not distribute funds from the
settlement fund to any limited partner unless and until a valid Proof of Claim
for that limited partner is received, whether from such limited partner or from
counsel to the class action plaintiffs. The Net Settlement Amount to be received
by any holder of a Unit will be reduced by any amount owed by the holder on the
original purchase price of such Unit.
If you or any other plaintiffs file an appeal of the judgment order
(other than an appeal that relates solely to counsel fees and expenses), the
Escrow Agent will return the settlement fund, with interest, to the Purchaser or
the Joint Venture, or their designees, within two days after receiving
documentation of such event. If an order of an appellate court affirming the
judgment order subsequently becomes final, then the Purchaser or the Joint
Venture, or their designees, will return the settlement fund to the Escrow Agent
within three business days thereafter, without interest.
The Purchaser and the Escrow Agent expressly reserve the right to delay
the acceptance for payment of, or payment for, Units in order to comply in whole
or in part with any applicable law and the terms of the Settlement Agreement and
any applicable court order.
Units tendered pursuant to the Purchase Offer may be withdrawn at any
time on or prior to the Expiration Date and, unless accepted for payment by the
Purchaser pursuant to the Purchase Offer, may also be withdrawn at any time
after _____, 2000. Units will be returned promptly at such time as it is finally
determined that such conditions will not be satisfied or waived. In addition,
written consents submitted prior to the Expiration Date will remain valid and
outstanding after the Expiration Date and will not expire until the conditions
for consummation of the Purchase Offer are satisfied or waived (if waivable) or
until such time as it is finally determined that such conditions will not be
satisfied or waived.
For purposes of the Purchase Offer, the Purchaser will be deemed to
have accepted for payment (and thereby purchased) Units validly tendered and not
withdrawn as, if and when the Purchaser gives oral or written notice to the
Claims Administrator that the "Effective Date" under the Settlement Agreement
has occurred.
If, prior to the Expiration Date, the Purchaser increases the
consideration offered per Unit, the Purchaser will pay such increased
consideration to all holders of those Units purchased pursuant to the Purchase
Offer, whether or not such Units have been tendered prior to such increase in
the consideration.
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Procedures for Accepting the Purchase Offer and Tendering Units
In order for a Unitholder to validly tender Units pursuant to the
Purchase Offer, a properly completed and duly executed Proof of Claim (or
facsimile thereof) and any other documents required by the Proof of Claim must
be received by the Claims Administrator at its address set forth on the back
cover of this Purchase Offer and Consent Solicitation on or prior to the
Expiration Date.
If the Units are registered in the name of a person other than the
signer of the Proof of Claim, or if payment is to be made to a person other than
the registered holder of the Units surrendered, then the Proof of Claim must be
accompanied by duly executed powers signed exactly as the name or names of the
registered holder or holders appear in the records of the Partnership. See
Instructions 4 and 6 of the Proof of Claim.
The method of delivery of the Proof of Claim and all other required
documents is at the option and risk of each tendering Unitholder. If delivery is
by mail, registered mail with return receipt requested, properly insured, is
recommended. In all cases, sufficient time should be allowed to ensure timely
delivery.
Notwithstanding any other provision hereof, payment for Units accepted
for payment pursuant to the Purchase Offer will in all cases be made only after
timely receipt by the Claims Administrator of a properly completed and duly
executed Proof of Claim (or facsimile thereof) and any other documents required
by the Proof of Claim.
Appointment as Proxy. By executing the Proof of Claim, a tendering
Unitholder irrevocably appoints designees of the Purchaser, and each of them, as
such Unitholder's attorneys-in-fact and proxies in the manner set forth in the
Proof of Claim, each with full power of substitution, to the full extent of such
Unitholder's rights with respect to the Units tendered by such Unitholder and
accepted for payment by the Purchaser and with respect to any and all other
Units or other securities or rights issued or issuable in respect of such Units
after the date of this Purchase Offer and Consent Solicitation. All such proxies
shall be considered coupled with an interest in the tendered Units. This
appointment will become effective when the judgment order rendered by the Court
becomes final. Upon such acceptance for payment, all prior proxies given by such
Unitholder with respect to such Units or other securities or rights will,
without further action, be revoked, and no subsequent proxies may be given (and,
if given, will not be deemed effective) by such Unitholder. The designees of the
Purchaser will, with respect to such Units and other securities or rights, be
empowered to exercise all voting and other rights of such Unitholder as the
designees, in their sole discretion, may deem proper at any annual, special or
adjourned meeting of the Unitholders, by written consent in lieu of any such
meeting or otherwise. The Purchaser reserves the right to require that, in order
for Units to be deemed validly tendered, immediately after the judgment order
rendered by the Court becomes final, the Purchaser must be able to exercise full
voting and other rights with respect to such Units and other securities or
rights including voting at any meeting of Unitholders then scheduled or acting
by written consent. In addition, by executing a Proof of Claim, a tendering
Unitholder agrees promptly to remit and transfer to the Claims Administrator for
the account of the Purchaser any and all cash dividends, distributions, rights,
other Units and other securities issued or issuable in respect thereof on or
after the date that the Court renders a judgment order (assuming there is no
appeal of the order) or, in the event of an appeal, the date that the judgment
order becomes final accompanied by appropriate documentation of transfer.
Pending such remittance or appropriate assurance thereof, the Purchaser shall be
entitled to all rights and privileges as owner of any such other Units or other
securities or property and may withhold the entire purchase price or deduct from
the purchase price the amount or value thereof, as determined by the Purchaser
in its sole discretion.
Determination of Validity. The Claims Administrator will review the
validity, form and eligibility (including the timeliness of receipt) of Units
tendered pursuant to any of the procedures described above. All issues as to the
validity, form, eligibility and acceptance for payment of any tendered Units
will be determined by the Court. No tender of Units will be deemed to have been
validly made until all defects and irregularities have been cured or waived.
None of the Purchaser, the Joint Venture, Rockledge or Marriott International,
any of their affiliates or assigns, if any, the
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Claims Administrator, or any other person will be under any duty to give
notification of any defects or irregularities in tenders or incur any liability
for failure to give any such notification.
It is a violation of Section 14(e) of the Exchange Act and Rule 14e-4
promulgated thereunder for a person to tender Units for his or her account
unless the person so tendering (1) owns such Units or (2) owns other securities
convertible into or exchangeable for such Units or owns an option, warrant or
right to purchase such Units and intends to acquire such Units for tender by
conversion, exchange or exercise of such option, warrant or right. Rule 14e-4
provides a similar restriction applicable to the tender or guarantee of a tender
on behalf of another person.
A tender of Units made pursuant to any one of the procedures set forth
above will constitute the tendering Unitholder's acceptance of the terms and
conditions of the Purchase Offer, including the tendering Unitholder's
representation that (1) such Unitholder owns the Units being tendered within the
meaning of Rule 14e-4 and (2) the tender of such Units complies with Rule 14e-4.
Please note, however, that tendering your Units in the Purchase Offer
does not in itself constitute your consent to the Merger and the Amendments. You
can only consent to the Merger and the Amendments by executing the GREEN Consent
Form and returning it to the Claims Administrator prior to the Expiration Date
in the manner described under the heading "The Written Consents--Voting and
Revocation of Consents."
Withdrawal Rights
Except as otherwise provided in this Section, tenders of Units made
pursuant to the Purchase Offer are irrevocable. Units tendered pursuant to the
Purchase Offer may be withdrawn at any time on or prior to the Expiration Date
and, unless theretofore accepted for payment by the Purchaser pursuant to the
Purchaser Offer, may also be withdrawn at any time after _______, 2000, but any
Consent Form properly executed and received and not withdrawn prior to the
Expiration Date will become binding and irrevocable after the Expiration Date
and will be deemed coupled with an interest. See "The Written Consents - Voting
and Revocation of Consents." Units will be returned promptly at such time as it
is finally determined that such conditions will not be satisfied or waived.
In order for a withdrawal to be effective, a written, telegraphic or
facsimile transmission notice of withdrawal must be timely received by the
Claims Administrator at one of its addresses or numbers set forth on the back
cover of this Purchase Offer and Consent Solicitation. Any such notice of
withdrawal must specify the name of the person who tendered the Units to be
withdrawn, the number of Units to be withdrawn, and the name of the registered
holder of the Units to be withdrawn, if different from that of the tendering
Unitholder.
Withdrawals of Units may not be rescinded and any Units properly
withdrawn, thereafter, will be deemed not validly tendered for purposes of the
Purchase Offer. However, withdrawn Units may be re-tendered at any time prior to
the Expiration Date by following one of the procedures described under the
heading "--Procedures for Accepting the Purchase Offer and Tendering Units."
All questions as to the form and validity (including the timeliness of
receipt) of any notice of withdrawal will be determined by the Court. Neither
the Purchaser, the Joint Venture, Marriott International, MI Investor or
Rockledge any of their affiliates or assigns, if any, the Claims Administrator
nor any other person will be under any duty to give notification of any defects
or irregularities in any notice of withdrawal or incur any liability for failing
to give any such notification.
Market for the Partnership's Limited Partnership Units and Related Security
Holder Matters
There is currently no established public trading market for the Units,
and it is not anticipated that a public market for the Units will develop.
Transfers of Units are limited to the first date of each Accounting Period (as
defined in the Partnership Agreement) and may be made only to
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accredited investors. All transfers are subject to approval by the General
Partner. As of July 10, 2000, there were 1,070 holders (including holders of
half-units) of record of the 1,150 Units.
During 1999, 12.5 Units were sold by Unitholders at prices ranging from
$65,000 to $86,000 per Unit. Between January 1, 2000 and May 1, 2000, 2 Units
were sold by Unitholders at prices ranging from $73,190 to $80,000 per Unit.
Since May 1, 2000, 3.5 Units have been sold by Unitholders at a price of $80,000
per Unit. However, these transfers have not been approved by the General Partner
and the purchasers of these 3.5 Units have not been admitted as limited partners
to the Partnership. The Partnership does not have any information regarding the
circumstances surrounding any of the above sales and believes that these sales
prices are not necessarily indicative of the market value of the Units.
The Settlement Agreement provides that, until the judgment order
approving the Settlement becomes final, the limited partners in the Partnership
will continue to own their respective Units. The General Partner will cause the
Partnership to make distributions of Cash Available for Distribution (as defined
in the Partnership Agreement) for the period until the judgment order is
entered. Following entry of the judgment order, and until the order becomes
final, assuming there is no appeal other than an appeal as to counsel fees and
expenses only, no further Cash Available for Distribution will be distributed.
If an appeal is filed, the General Partner will cause the Partnership to make
distributions of Cash Available for Distribution for the period until the
judgment order becomes final.
As of December 31, 1999, the Partnership had distributed a total of
$4.9 million to the General Partner and $92.2 million to the limited partners
($80,181 per limited partner unit) since inception. Included in the $80,181
of distributions per Unit was a $4,000 distribution per Unit from excess
refinancing proceeds that was distributed to the partners in 1988 and the
$25,000 per Unit from 1997 excess refinancing proceeds. During 1999, the
Partnership distributed $666,000 to the General Partner and $12.7 million
($3,000 and $8,000 per Unit from 1998 and 1999 operations, respectively) to the
limited partners. An additional $3,500 per Unit from 1999 operations was
distributed in February 2000.
Transfer Fees and Taxes
Except as set forth in this paragraph, the Purchaser will pay or cause
to be paid any transfer taxes and fees with respect to the transfer and sale of
purchased Units to it or its order, pursuant to the Purchase Offer. If, however,
payment of the purchase price for the Units is to be made to, or if tendered
Units are registered in the name of, any person other than the person(s) signing
the Proof of Claim, the amount of any transfer taxes (whether imposed on the
registered holders(s) or such person) payable on account of the transfer to such
person will be deducted from the purchase price for the Units unless
satisfactory evidence of the payment of such taxes or exemption therefrom is
submitted. See also Instruction 5 to the Proof of Claim. The Purchaser will not
subtract any transfer fees from the Net Settlement Amount per Unit, other than
as described in this paragraph.
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THE WRITTEN CONSENTS
In accordance with the terms of the Settlement Agreement, the General
Partner is soliciting the consent of the Unitholders to (1) the Merger and (2)
the Amendments to the Partnership Agreement. As discussed more fully under
"Special Factors--The Settlement Agreement," the Merger and the proposed
Amendments must receive Unitholder approval in order for Unitholders to have the
opportunity to receive the cash price per Unit offered pursuant to the Purchase
Offer. For a discussion of the interests that the Purchaser, the General Partner
and their respective affiliates have in the Amendments, the Merger and the
Purchase Offer, see "Special Factors--Certain Transactions with the
Partnership."
Record Date and Outstanding Units
The General Partner has set the close of business on July 10, 2000 as
the record date for the determination of Unitholders entitled to consent to the
Merger and the Amendments. The only Unitholders who will be entitled to consent
to the Merger and the Amendments will be Unitholders of record as of the record
date who have been admitted to the Partnership as limited partners and who are
not in default with respect to the original purchase price of their Units. On
the record date, there were 1,150 Units issued and outstanding, held of record
by 1,070 Unitholders. The Partnership has no other class of securities.
Majority Vote Required; Voting Rights
Under the Partnership Agreement, approval of the Merger and the
Amendments require the affirmative consent of Unitholders (excluding the General
Partner and its affiliates) holding a majority of the issued and outstanding
Units. An abstention or failure to timely return the enclosed Consent Form will
have the same effect as not consenting to the Merger and the Amendments. With
the exception of the General Partner, the Purchaser, and their respective
affiliates, each Unitholder who has been admitted to the Partnership as a
limited partner is entitled to cast one vote for each Unit held of record on the
Merger and the Amendments, other than Unitholders who are in default with
respect to the original purchase price of their Units who shall not be entitled
to cast a vote with respect to such Units. Holders of half-Units are entitled to
cast half a vote for each half-Unit held of record. Units held by the General
Partner, the Purchaser and their affiliates cannot be voted on the Merger and
the Amendments. The Claims Administrator, an independent intermediary, has been
retained by Class Counsel to tabulate and validate the written consents. The
Claims Administrator also currently serves as the Partnership's transfer agent.
All issues regarding the validity of any written consents will be determined by
the Court.
Solicitation Period
The solicitation period is the time during which Unitholders may vote
for or against the Merger and the Amendments. The solicitation period will
commence upon delivery of this Purchase Offer and Consent Solicitation and will
continue until 12:00 midnight, New York City time, on August 21, 2000 unless the
Purchase Offer is extended by the Purchaser, in which case the solicitation
period will be extended to such later date that coincides with the expiration
date of the Purchase Offer, and as to which notice is given to Unitholders.
Voting and Revocation of Consents
A GREEN Consent Form is included with this Purchase Offer and Consent
Solicitation. The Consent Form should be properly executed and returned to the
Claims Administrator, GEMISYS Corporation, Proxy Department, 7103 South Revere
Parkway, Englewood, Colorado 80112. In addition, properly completed and executed
Consent Forms may be returned to the Claims Administrator via facsimile (303)
705-6171. In order for the Consent Forms transmitted via facsimile to be valid,
the entire Consent Form (front and back) must be received by
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GEMISYS. Such notices and Consent Forms transmitted via facsimile will be deemed
to have been received and dated on the date they are actually received by
GEMISYS.
Any properly executed Consent Forms received by GEMISYS prior to the
Expiration Date will be voted in accordance with the instructions contained
therein. All properly executed Consent Forms that contain no voting instructions
will be deemed to have consented to the Merger and all of the Amendments.
Consent Forms will be effective only when actually received by the Claims
Administrator prior to the Expiration Date. Consent Forms may be withdrawn at
any time prior to the Expiration Date. In addition, subsequent to the submission
of a Consent Form, but prior to the Expiration Date, Unitholders may change
their vote. For a withdrawal or change of vote to be effective, Unitholders must
execute and deliver to the Claims Administrator, prior to the Expiration Date, a
subsequently dated Consent Form or a written notice stating that the consent is
revoked. Unitholders may submit such subsequently dated Consent Form or written
notice via regular mail or facsimile, provided that it is received by the Claims
Administrator on or prior to the Expiration Date. In order for subsequently
dated Consent Forms transmitted via facsimile to be valid, the entire
subsequently dated Consent Form (front and back) must be received by GEMISYS on
or prior to the Expiration Date. Any subsequently dated Consent Form or written
revocation notices transmitted via facsimile will be deemed to have been
received and dated on the date they are actually received by GEMISYS. Consent
Forms and notices of withdrawal or change of vote dated after the Expiration
Date will not be valid. All properly executed Consent Forms that are received
and not withdrawn prior to the Expiration Date will become binding and
irrevocable after the Expiration Date and will be deemed coupled with an
interest. Valid written consents submitted prior to the Expiration Date will
remain valid and outstanding after the Expiration Date and will not expire until
the conditions for consummation of the Purchase Offer are satisfied or waived
(if waivable) or until such time as it is finally determined that such
conditions will not be satisfied or waived. Questions concerning (1) how to
complete the Consent Form, (2) where to remit the Consent Form or (3) obtaining
additional Consent Forms should be directed to the Claims Administrator.
Substantive questions concerning the Consent Form should be directed to David
Berg or Jim Moriarty, counsel to the class action plaintiffs. Mr. Berg's
telephone number is (713) 529-5622 and Mr. Moriarty's telephone number is (713)
528-0700.
Effective Time of Amendments
If approved by the Unitholders, the Amendments will become effective
when the General Partner executes and delivers an Amended and Restated Agreement
of Limited Partnership incorporating the Amendments in accordance with the
Partnership Agreement. Assuming the Unitholders will consent to the Merger and
the Amendments and the conditions to the Purchase Offer and the Merger will be
satisfied, it is contemplated that the General Partner will execute and deliver
the Amended and Restated Agreement of Limited Partnership as soon as practicable
following the Expiration Date, but in any event immediately prior to the
consummation of the Purchase Offer. If for any reason the Purchase Offer is not
consummated, however, the Amendments to the Partnership Agreement will not be
implemented, even if they receive Unitholder approval.
Effective Time of the Merger
As soon as practicable after all conditions of the Purchase Offer and
the Merger have been satisfied (or waived, if waivable), the General Partner
will file a certificate of merger with the Secretary of State of the State of
Delaware. The Merger shall become effective upon the filing of the certificate
of merger with the Secretary of State of the State of Delaware or such later
time as provided in the certificate of merger.
No Special Meeting
The Partnership Agreement does not require a special meeting of
Unitholders to consider the Merger or the Amendments. Accordingly, no such
meeting will be held.
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Rights of Appraisal
The Partnership was organized under the Partnership Act. Under the
Partnership Act a limited partnership agreement or a merger agreement may
contractually provide for appraisal rights with respect to limited partnership
interests. Neither the Partnership Agreement nor the Merger Agreement provides
for a judicial appraisal of Units in connection with the Merger. However, the
Settlement Agreement and the Merger Agreement provide that upon consummation of
the Merger, each Unit held by a holder who elects not to participate in the
Settlement by delivering an Opt-Out Notice to the Claims Administrator no later
than the Expiration Date will be converted into the right to receive the
appraised value of such Unit, not including any amount relating to the claims
asserted in the litigation, as determined in accordance with the provisions in
the Settlement Agreement and the Merger Agreement, and reduced by any amount
owed by the holder on the original purchase price of such Unit. Unitholders who
wish to opt-out of the Settlement must follow the procedures described under the
heading "Special Factors -- Procedures for Opting-Out of the Settlement."
Interests of Certain Persons in the Matters to be Acted Upon
In considering whether to vote for or against the Merger and the
Amendments, you should be aware that the General Partner is a Defendant.
Accordingly, the General Partner has a conflict of interest with respect to this
consent solicitation and makes no recommendation to any Unitholder as to whether
to vote for or against the Merger and the Amendments.
Your vote in favor of the Merger and the Amendments does not require
that you tender your Units pursuant to the Purchase Offer. If you desire to
receive the Net Settlement Amount for each of your Units, you should submit the
Proof of Claim and consent to the Merger and the Amendments. If you desire to
have the value of your Units appraised pursuant to the terms of the Settlement
Agreement and the Merger Agreement, you should consent to the Merger and the
Amendments, not tender your Units and submit an Opt-Out Notice to the Claims
Administrator no later than the Expiration Date.
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OTHER MATTERS
Fees and Expenses
Counsel to the class action plaintiffs has retained GEMISYS Corporation
to act as the Claims Administrator in connection with the Purchase Offer and the
Consent Solicitation. The Claims Administrator will be paid a fee of
approximately $25,000 for its services in connection with the Haas Litigation.
The Claims Administrator will be reimbursed for certain reasonable out-of-pocket
expenses and will be indemnified against certain liabilities and expenses in
connection with the Purchase Offer and the Consent Solicitation, including
certain liabilities under federal securities law. The costs of sending the
Notice and the Purchase Offer and Consent Solicitation and related materials to
the Partnership's limited partners will be paid by the Joint Venture. Other fees
and expenses will be paid out of any interest accrued on the settlement funds
during the time the settlement funds (including the settlement funds relating to
the other Marriott Partnerships) are in escrow. See "Special Factors -- The
Settlement Agreement." To the extent such accrued interest is insufficient to
cover the Claims Administrator's fees and expenses, the fees will be paid by the
Joint Venture.
The Court has approved the retention of Chase Bank of Texas, N.A. to
act as escrow agent for the settlement funds relating to all of the Litigation
covered by the Settlement Agreement. The escrow agent will be paid a fee of
approximately $25,000 for its services in connection with the Haas Litigation.
The Escrow Agent will be paid out of any interest accrued during the time the
settlement funds (including the settlement funds relating to the other Marriott
Partnerships) are in escrow. To the extent such accrued interest is insufficient
to cover the fees, the fees will be paid by the Joint Venture.
Neither the Purchaser, the Joint Venture, Marriott International, MI
Investor nor Rockledge will pay any fees or commissions to any broker or dealer
or any other person for soliciting tenders of Units pursuant to this Purchase
Offer and Consent Solicitation (other than the fees to the Claims
Administrator). Brokers, dealers, commercial banks and trust companies will,
upon request, be reimbursed by the Joint Venture for customary mailing and
handling expenses incurred by them in forwarding materials to their customers.
It is estimated that the expenses incurred by the Joint Venture in
connection with the successful consummation of this Purchase Offer and Consent
Solicitation will be approximately as set forth below (none of which are payable
by the Partnership):
Accounting Fees................................................. $4,100
Claims Administrator Fees and Expenses.......................... $25,000
Fees to Merrill Lynch........................................... $2,000,000
Legal Fees...................................................... $1,900,000
Printing Costs.................................................. $75,000
Appraisal Fees.................................................. $875,000
Escrow Agent Fees............................................... $25,000
Filing Fees..................................................... $30,448
Miscellaneous................................................... $65,452
Total......................................... $5,000,000
Miscellaneous
The Purchase Offer and Consent Solicitation is being made to all
holders of Units, other than the General Partner. The Purchaser is not aware of
any state where the making of the Purchase
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<PAGE>
Offer or the soliciting of consents is prohibited by administrative or judicial
action pursuant to any valid state statute. If the Purchaser becomes aware of
any valid state statute prohibiting the making of the Purchase Offer or the
acceptance of Units pursuant thereto, or the soliciting of consents, the
Purchaser will make a good faith effort to comply with such state statute. If,
after such good faith effort, the Purchaser cannot comply with such state
statute, the Purchase Offer and Consent Solicitation will not be made to nor
will tenders be accepted from or on behalf of the holders of Units in such
state.
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<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
Pursuant to Rule 14d-3 of the General Rules and Regulations under the
Exchange Act, the Purchaser, the Joint Venture, Marriott International, MI
Investor and Rockledge have filed with the SEC a Tender Offer Statement on
Schedule TO, and pursuant to Rule 14d-9 and Rule 14a-6 of the Exchange Act, the
Partnership has filed with the SEC a Solicitation/Recommendation Statement on
Schedule 14D-9 and a Consent Solicitation Statement on Schedule 14A,
respectively, together with exhibits in each case, furnishing certain additional
information with respect to the Purchase Offer and the Consent Solicitation. In
addition, the Partnership files annual, quarterly and special reports and other
information with the SEC. You may read and copy any reports, statements or other
information that the Partnership files with the SEC at the SEC's public
reference rooms in Washington, D.C., New York, New York and Chicago, Illinois.
Please call the SEC at 1-800-SEC-0330 for further information on the public
reference rooms. These SEC filings are also available to the public from
commercial document retrieval services and at the Internet world wide web site
maintained by the SEC at www.sec.gov. Copies of such materials may also be
obtained from the Public Reference Section of the SEC at 450 Fifth Street, N.W.,
Washington, D.C. 20549 at prescribed rates.
The SEC allows the Partnership to "incorporate by reference"
information into this Purchase Offer and Consent Solicitation, which means that
the Partnership can disclose important information to you by referring you to
other documents filed separately with the SEC. The information incorporated by
reference is considered part of this Purchase Offer and Consent Solicitation,
except for any information superseded by information contained directly in this
Purchase Offer and Consent Solicitation or in later filed documents incorporated
by reference in this Purchase Offer and Consent Solicitation. This Purchase
Offer and Consent Solicitation incorporates by reference the documents set forth
below that the Partnership has previously filed with the SEC. These documents
contain important information about the Partnership and its financial
performance.
<TABLE>
<CAPTION>
SEC Filings Period
---------------------------------------------------------- ------------------------------
<S> <C>
Annual Report on Form 10-K filed March 28, 2000...... Fiscal year ended December 31,
1999
Quarterly Report on Form 10-Q filed May 8, 2000...... Quarter ended March 24, 2000
Current Reports on Form 8-K.......................... Dated April 28, 2000
</TABLE>
The Partnership also incorporates by reference additional documents
that it may file with the SEC between the date of this Purchase Offer and
Consent Solicitation and the date that the Purchase Offer and Merger are
consummated. These include periodic reports, such as Annual Reports on Form
10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K. If you are
a Unitholder, we may have sent you some of the documents incorporated by
reference, but you can obtain any of them through the SEC or the SEC's Internet
web site as described above.
Documents incorporated by reference are available from the Partnership
without charge, excluding all exhibits, except that if the Partnership has
specifically incorporated by reference an exhibit in this Purchase Offer and
Consent Solicitation, the exhibit will also be available without charge.
Unitholders may obtain documents incorporated by reference in this Purchase
Offer and Consent Solicitation and any exhibits filed herewith, including copies
of the Merger Agreement, without charge, by requesting them in writing or by
telephone from the Partnership at the following address:
Courtyard by Marriott Limited Partnership
10400 Fernwood Road
Bethesda, Maryland 20817
Telephone: (301) 380-3000
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<PAGE>
You should rely only on the information contained or incorporated by
reference in this Purchase Offer and Consent Solicitation. We have not
authorized anyone to provide you with information that is different from what is
contained in this Purchase Offer and Consent Solicitation. This Purchase Offer
and Consent Solicitation is dated July __, 2000. You should not assume
that the information contained in this Purchase Offer and Consent Solicitation
is accurate as of any date other than that date. The mailing of this Purchase
Offer and Consent Solicitation does not create any implication of the contrary.
No person has been authorized to give any information or make any
representation on behalf of the Partnership, the General Partner or the
Purchaser not contained herein or in the Proof of Claim and, if given or made,
such information or representation must not be relied on as having been
authorized.
CBM I HOLDINGS LLC
CBM ONE LLC
_____________ __, 2000
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<PAGE>
SCHEDULE I
DIRECTORS AND EXECUTIVE OFFICERS OF MARRIOTT INTERNATIONAL, INC.,
MI CBM INVESTOR LLC, ROCKLEDGE HOTEL PROPERTIES, INC.,
CBM JOINT VENTURE LLC AND CBM I HOLDINGS LLC
The following table sets forth the name, business address and principal
occupation or employment at the present time and during the last five years, and
the name, principal business and address of any corporation or other
organization in which such employment is or was conducted, of each director and
executive officer of Marriott International, Inc., MI CBM Investor LLC,
Rockledge Hotel Properties, Inc., CBM Joint Venture LLC and CBM I Holdings LLC.
The business address of each such person is 10400 Fernwood Road, Bethesda,
Maryland 20817. Except as otherwise noted, each occupation set forth below a
person's name refers to employment with Marriott International, Inc., MI CBM
Investor LLC, Rockledge Hotel Properties, Inc., CBM Joint Venture LLC and CBM I
Holdings LLC, respectively, and each such person has held such occupation for at
least the past five years and, other than Dr. Cheng, each such person is a
citizen of the United States. Except as otherwise noted, where an office with
Marriott International, Inc. is set forth opposite a person's name, that person
has held that office since March 1998, when the present Marriott International,
Inc. was spun off from the prior corporation of the same name ("Old Marriott
International," now known as Sodexho Marriott Services, Inc.) and prior to that
spin-off held the same office with Old Marriott International.
I. MARRIOTT INTERNATIONAL, INC.
<TABLE>
<CAPTION>
Present Principal Occupation or Employment and
Material Occupations, Offices or Employment Held
Name During the Past Five Years
---- --------------------------------------------------------
<S> <C>
J.W. Marriott, Jr. J.W. Marriott, Jr. is Chairman of the Board and Chief Executive Officer
Chairman of the Board and Chief Executive of Marriott International. He joined Marriott Corporation (now known as
Officer Host Marriott Corporation) in 1956, became President and a director in 1964,
Chief Executive Officer in 1972 and Chairman of the Board in 1985. Mr.
Marriott also is a director of Host Marriott Corporation, General Motors
Corporation and the Naval Academy Endowment Trust. He serves on the Board of
Trustees of the National Geographic Society and The J. Willard & Alice S.
Marriott Foundation, and the Board of Directors of Georgetown University,
and is a member of the Executive Committee of the World Travel & Tourism
Council and the Business Council. Mr. Marriott has served as Chief Executive
Officer of Marriott International since its inception in 1997, and served as
Chairman and Chief Executive Officer of Old Marriott International from
October 1993 to March 1998. Mr. Marriott has served as a director of
Marriott International since March 1998.
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
Todd Clist Todd Clist joined Marriott Corporation in 1968. Mr. Clist served as general
Vice President; manager of several hotels before being named Regional Vice President,
President, North American Midwest Region for Marriott Hotels, Resorts and Suites in 1980. Mr. Clist
Lodging Operations became Executive Vice President of Marketing for Marriott Hotels, Resorts
and Suites in 1985, and Senior Vice President, Lodging Products and Markets
in 1989. Mr. Clist was named Executive Vice President and General Manager
for Fairfield Inn in 1990, for both Fairfield Inn and Courtyard in 1991, and
for Fairfield Inn, Courtyard and Residence Inn in 1993. Mr. Clist was
appointed to his current position in January 1994.
Edwin D. Fuller Edwin D. Fuller joined Marriott Corporation in 1972 and held several sales
Vice President; President and Managing positions before being appointed Vice President of Marketing in 1979. He
Director--Marriott Lodging International became Regional Vice President in the Midwest Region in 1985, Regional Vice
President of the Western Region in 1988, and in 1990 was promoted to Senior
Vice President & Managing Director of International Lodging, with a focus on
developing the international group of hotels. He was named Executive Vice
President and Managing Director of International Lodging in 1994, and was
promoted to his current position of President and Managing Director of
International Lodging in 1997.
Gilbert M. Grosvenor Gilbert M. Grosvenor is Chairman of the Board of the National Geographic
Director Society (a publisher of books and magazines and producer of television
documentaries) and a director or trustee of Chevy Chase Federal Savings
Bank, Ethyl Corporation, B.F. Saul REIT and Saul Centers, Inc. He is on the
Board of Visitors of the Nicholas School of the Environment of Duke
University. Mr. Grosvenor served as a member of the Board of Directors of
Old Marriott International (and prior to October 1993 of Marriott
Corporation) from 1987 to March 1998, and has served as a director of
Marriott International since March 1998.
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
Henry Cheng Kar-Shun Henry Cheng Kar-Shun has served as Managing Director of New World
Director Development Company Limited ("New World Development"), a publicly held Hong
Kong real estate development and investment company, since 1989. He is the
the Chairman of New World China Land Limited, New World CyberBase Limited,
New World Infrastructure Limited and Tai Fook Group Limited and a director
of HKR International Limited and Kwoon Chung Bus Holding Limited, all of
which are publicly-held Hong Kong companies. Dr. Cheng serves as an
executive officer of Chow Tai Fook Enterprises Limited, a privately-held
family company that controls New World Development. Dr. Cheng served as
Chairman and Director of Renaissance Hotel Group N.V. from June 1995 until
its purchase by the Company in March 1997. He is Chairman of the Advisory
Council for The Better Hong Kong Foundation. Dr. Cheng serves as a member of
the Services Promotion Strategy Group, a unit under the Hong Kong Financial
Secretary's Office, and as a Committee Member of the Eighth and Ninth
Chinese People's Political Consultative Committee of the People's Republic
of China. Dr. Cheng has also served as a member of the Election Committee of
the Hong Kong Special Administrative Region. Dr. Cheng served as a director
of Old Marriott from June 1997 to March 1998, and has served as a director
of the Company since March 1998.
Brendan M. Keegan Brendan M. Keegan joined Marriott Corporation in 1971, in the Corporate
Vice President; Executive Vice President--Human Organization Development Department and subsequently held several
Resources human resources positions, including Vice President of Organization
Development and Executive Succession Planning. In 1986, Mr. Keegan was named
Senior Vice President, Human Resources, Marriott Service Group. In April
1997, Mr. Keegan was appointed Senior Vice President of Human Resources for
Marriott International's worldwide human resources functions, including
compensation, benefits, labor and employee relations, employment and human
resources planning and development. In February 1998, he was appointed to
his current position.
</TABLE>
69
<PAGE>
<TABLE>
<S> <C>
Richard E. Marriott Richard E. Marriott is Chairman of the Board of Host Marriott Corporation.
Director He is also Chairman of the Board of First Media Corporation and serves as as
a trustee of Gallaudet University, Polynesian Cultural Center, Primary
Children's Medical Center, Boys and Girls Clubs of America SE Region and The
J. Willard & Alice S. Marriott Foundation. He is President and a member of
the Board of Trustees of the Marriott Foundation for People with
Disabilities and President and a director of the R.E.M. Family Foundation,
Inc. He also serves on the Board of Trustees of Federal City Council and the
Advisory Committee for the International Hotel and Restaurant Association.
Prior to 1993, Mr. Marriott served as an Executive Vice President and member
of the Board of Directors of Marriott Corporation. Mr. Marriott has been a
director of Marriott Corporation (now known as Host Marriott Corporation)
since 1979, served as a director of Old Marriott International from October
1993 to March 1998, and has served as a director of Marriott International
since March 1998.
Floretta Dukes McKenzie Floretta Dukes McKenzie is the founder, Chairwoman and Chief Executive
Director Officer of The McKenzie Group, Inc. (an educational consulting firm). She is
also a director or trustee of Potomac Electric Power Company (PEPCO),
National Geographic Society, Acacia Group, Group Hospitalization and Medical
Services, Inc. (GHMSI), Howard University, White House Historical
Association, American Association of School Administrators Leadership of
Learning Foundation, Lightspan Partnership, Inc., Impact II - The Teachers
Network, National School Board Foundation, Institute for Educational
Leadership, Inc., Forum for the American School Superintendent, Harvard
Graduate School of Education Urban Superintendents Program and Johns Hopkins
Leadership Development Program. From 1981 to 1988, she served as
Superintendent of the District of Columbia Public Schools and Chief State
School Officer. Dr. McKenzie served as a director of Old Marriott (and prior
to October 1993 of Marriott Corporation) from 1992 to March 1998, and has
served as a director of the Company since March 1998.
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
Harry J. Pearce Harry J. Pearce is Vice Chairman of the Board of General Motors Corporation
Director (an automobile manufacturer) and a director of General Motors Acceptance
Corporation, Hughes Electronics Corporation, Alliance of Automobile
Manufacturers, MDU Resources Group, Inc. and the Bone Marrow Foundation and
is a member of the U.S. Air Force Academy's Board of Visitors. He also
serves on the Board of Trustees of Howard University and Northwestern
University and is a member of the Northwestern University School of Law's
Law Board. Mr. Pearce served as a director of Old Marriott International
from 1995 to March 1998, and has served as a director of Marriott
International since March 1998.
William T. Petty William T. Petty joined Marriott Corporation in 1984 as Vice President of
Vice President; Executive Vice President, North Planning & Business. He has since held a number of positions with Marriott
American Lodging Operations Corporation and Marriott International, becoming Vice President of Market
Planning in 1985; General Manager of the Atlanta Perimeter Marriott Hotel in
1989; Vice President of Operations for Marriott's time share division in 1990;
Regional Vice President for Lodging Operations in 1991; and Senior Vice
President for the Western Region in 1995. Mr. Petty was appointed to his
present position in December 1998.
Robert T. Pras Robert T. Pras joined Marriott Corporation in 1979 as Executive Vice
Vice President; President--Marriott Distribution President of Fairfield Farm Kitchens, the predecessor of Marriott
Services Distribution Services. In 1981, Mr. Pras became Executive Vice President of
Procurement and Distribution. In May 1986, Mr. Pras was appointed to the
additional position of General Manager of Marriott Corporation's Continuing
Care Retirement Communities. He was named Executive Vice President and General
Manager of Marriott Distribution Services in 1990. Mr. Pras was appointed to
his current position in January 1997.
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
W. Mitt Romney W. Mitt Romney was appointed President and Chief Executive Officer of the
Director Salt Lake Olympic Committee on February 19, 1999. He is a director, President
and Chief Executive Officer of Bain Capital, Inc. (a private equity investment
firm). He is also a director of Staples, Inc. Mr. Romney is a member of the
Executive Board of the Boy Scouts of America and the board of the National
Points of Light Foundation. Mr. Romney served as a member of the Board of
Directors of Old Marriott (and of Marriott Corporation prior to October 1993)
from 1993 to March 1998 and has served as a director of Marriott International
since March 1998.
Joseph Ryan Joseph Ryan joined Old Marriott in December 1994 as Executive Vice President
Executive Vice President and and General Counsel. Prior to that time, he was a partner in the law firm of
General Counsel O'Melveny & Myers, serving as the Managing Partner from 1993 until his
departure. He joined O'Melveny & Myers in 1967 and was admitted as a partner
in 1976.
Roger W. Sant Roger W. Sant is Chairman of the Board of The AES Corporation (a global power
Director company) which he co-founded in 1981. Since 1994, Mr. Sant has chaired the the
Board of World Wildlife Fund (U.S.). He also chairs the Board of The Summit
Foundation, and is a Board member of WWF-International and The National
Symphony. Mr. Sant served as a director of Old Marriott International from
1993 to March 1998, and has served as a director of Marriott International
since March 1998.
Horst H. Schulze Horst H. Schulze has served as the President and Chief Operating Officer of
Vice President ; President and The Ritz-Carlton since 1988. Mr. Schulze joined The Ritz-Carlton in 1983 as
Chief Operating Officer, The Ritz-Carlton Hotel Vice Company, LLC President, Operations and was appointed Executive Vice
President in 1987. Prior to 1983, he spent nine years with Hyatt Hotels
Corporation where he held several positions including Hotel General
Manager, Regional Vice President and Corporate Vice President.
</TABLE>
72
<PAGE>
<TABLE>
<S> <C>
William J. Shaw William J. Shaw has served as President and Chief Operating Officer of
Director, President and Chief Operating Officer Marriott International since March 1997 (including service in the same
capacity with Old Marriott International until March 1998). Mr. Shaw joined
Marriott Corporation in 1974, was elected Corporate Controller in 1979 and a
Vice President in 1982. In 1986, Mr. Shaw was elected Senior Vice President--
Finance and Treasurer of Marriott Corporation. He was elected Chief Financial
Officer and Executive Vice President of Marriott Corporation in April 1988. In
February 1992, he was elected President of the Marriott Service Group. Mr.
Shaw is also Chairman of the Board of Directors of Sodexho Marriott Services,
Inc. He also serves on the Board of Trustees of the University of Notre Dame
and the Suburban Hospital Foundation. Mr. Shaw has served as a director of Old
Marriott International (now named Sodexho Marriott Services, Inc.) since May
1997, and as a director of Marriott International since March 1998.
Lawrence M. Small Lawrence M. Small is the Secretary of the Smithsonian Institution, the
Director world's largest combined museum and research complex, a position to which he
was elected in September, 1999. Prior to becoming the 11th Secretary, he
served as as President and Chief Operating Officer of Fannie Mae, the nation's
largest housing finance company, since 1991. Before joining Fannie Mae, Mr.
Small had served as Vice Chairman and Chairman of the Executive Committee of
the Board of Directors of Citicorp and Citibank, N.A., since January 1990. He
had been associated with Citibank since 1964. He is also a director of The
Chubb Corporation, New York City's Spanish Repertory Theatre, the John F.
Kennedy Center for the Performing Arts, the National Gallery, the Woodrow
Wilson Center International Center for Scholars and Mt. Sinai-NYU Medical
Center and Health System. Mr. Small served as director of Old Marriott from
1995 to March 1998, and he has served as a director of the Company since March
1998.
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
Arne M. Sorenson Arne M. Sorenson joined Old Marriott in 1996 as Senior Vice President of
Executive Vice President and Business Development. He was instrumental in Marriott International's
Chief Financial Officer acquisition of the Renaissance Hotel Group in 1997. Prior to joining Marriott,
he was a partner in the law firm of Latham & Watkins in Washington, D.C.,
where he played a key role in 1992 and 1993 in the distribution of Old
Marriott International by Marriott Corporation. Effective October 1, 1998, Mr.
Sorenson was appointed Executive Vice President and Chief Financial Officer.
James M. Sullivan James M. Sullivan joined Marriott Corporation in 1980, departed in 1983 to
Executive Vice President-- Lodging Development acquire, manage, expand and subsequently sell a successful restaurant chain,
and returned to Marriott Corporation in 1986 as Vice President of Mergers and
Acquisitions. Mr. Sullivan became Senior Vice President, Finance - Lodging in
1989, Senior Vice President - Lodging Development in 1990 and was appointed to
his current position in December 1995.
William R. Tiefel William R. Tiefel joined Marriott Corporation in 1961 and was named President
Vice Chairman; Chairman--The Ritz-Carlton Hotel of Marriott Hotels, Resorts and Suites in 1998. He had previously served as
Company, LLC resident manager and general manager at several Marriott hotels prior to being
appointed Regional Vice President and later Executive Vice President of
Marriott Hotels, Hotels, Resorts and Suites and Marriott Ownership Resorts.
Mr. Tiefel was elected Executive Vice President of Marriott Corporation in
November 1989. In March 1992, he was elected President - Marriott Lodging
Group and assumed responsibility for all of Marriott's lodging brands. In May
1998 he was appointed to his current position.
</TABLE>
74
<PAGE>
<TABLE>
<S> <C>
Stephen P. Weisz Stephen P. Weisz joined Marriott Corporation in 1972 President of the
Vice President; President - Mid-Atlantic Region in 1991. Mr. Weisz had previously served as Senior Vice
Marriott Vacation Club International President of Rooms Operations before being appointed as Vice President of the
Revenue Management Group. Mr. Weisz became Senior Vice President of Sales and
Marketing for Marriott Hotels, Resorts and Suites in August 1992 and Executive
Vice President - Lodging Brands in August 1994. In December 1996, Mr. Weisz
was appointed President - Marriott Vacation Club International.
II. ROCKLEDGE HOTEL PROPERTIES, INC.
Richard A. Burton Richard A. Burton joined Host Marriott in 1996 as Senior Vice President--
Vice President Taxes. Prior to joining Host Marriott, Mr. Burton was Senior Tax Counsel at
Mobil Oil Corporation. Prior to that, Mr. Burton also practiced law at
Sutherland, Asbill & Brennan and served as Attorney Advisor to the United
States Tax Court in Washington, D.C.
Robert E. Parsons, Jr. Robert E. Parsons, Jr. joined the Corporate Financial Planning staff of
President and Director Host Marriott Corporation ("Host Marriott") in 1981, became Assistant
Treasurer in 1988, Senior Vice President and Treasurer in 1993 and in 1995, he
was elected Executive Vice President and Chief Financial Officer. He also
serves as a director, manager and officer of numerous Host Marriott
subsidiaries.
Christopher G. Townsend Christopher G. Townsend joined Host Marriott's Law Department in 1982 as a
Vice President, Secretary and Director Senior Attorney, became Assistant Secretary in 1984, Assistant General Counsel
in 1986, Senior Vice President, Corporate Secretary and Deputy General Counsel
in 1993 and in January 1997, he was made General Counsel. He also serves as a
director, manager and officer of numerous Host Marriott subsidiaries.
</TABLE>
75
<PAGE>
<TABLE>
<S> <C>
W. Edward Walter W. Edward Walter joined Host Marriott in 1996 as Senior Vice President--
Vice President and Treasurer Acquisitions and, in 1998 was made Treasurer. He also serves as a director,
manager and officer of numerous Host Marriott subsidiaries. Prior to joining
Host Marriott, Mr. Walter was a partner at Trammell Crow Residential Company
and President of Bailey Capital Corporation, a real estate firm focusing on
tax-exempt real estate investments.
</TABLE>
III. MI CBM INVESTOR LLC
<TABLE>
<CAPTION>
Present Principal Occupation or Employment and Material
Occupations, Offices or Employment Held During the Past
Name Five Years
---- ---------------------------------------------------------
<S> <C>
Executive Officers and Managers:
-------------------------------
Kevin M. Kimball Kevin M. Kimball joined Marriott Corporation in 1976 as an analyst in the
President and Manager Treasury Department. In 1980 he was promoted to Director, Partnerships and
Syndications, and was named Vice President and Assistant Corporate Controller
in 1986, Vice President, Financial Planning and Analysis in 1989, and Vice
President Finance, Residence Inn in 1990. In 1993, Mr. Kimball was appointed
Senior Vice President and Corporate Controller of Marriott International, Inc.
In 1994 he was named Senior Vice President and Chief Financial Officer for
Marriott Lodging, and promoted to Executive Vice President and Chief Financial
Officer for Marriott Lodging in 1996. Mr. Kimball was appointed President and
Manager of MI Investor on April 13, 2000.
Carolyn B. Handlon Carolyn B. Handlon joined Marriott Corporation in 1987 as Manager of
Treasurer and Manager Corporate Finance. In 1992, she was promoted to Vice President and named
Assistant Treasurer of Marriott International in October 1993, and Senior Vice
President, Finance and Treasurer in June 1999. Ms. Handlon was appointed
Treasurer and Manager of MI Investor on April 13, 2000.
Ward R. Cooper Ward R. Cooper joined Marriott Corporation in 1988 as an Attorney. In
Assistant Secretary and Manager addition to that position he was appointed Assistant Secretary of Marriott
Corporation in 1992. He assumed the same positions with Marriott International
in October, 1993, and was promoted to Assistant General Counsel and Assistant
Secretary in January, 1994. Mr. Cooper was appointed Assistant Secretary and
Manager of MI Investor on April 13, 2000.
</TABLE>
76
<PAGE>
IV. CBM JOINT VENTURE LLC
CBM Joint Venture LLC does not have any directors or executive
officers. It is managed by its members, Rockledge Hotel Properties, Inc. and MI
CBM Investor LLC. Information concerning the directors and executive officers of
Rockledge Hotel Properties, Inc. and MI CBM Investor LLC is set forth elsewhere
on this Schedule I.
V. CBM I HOLDINGS LLC
CBM I Holdings LLC does not have any directors or executive officers.
It is managed by its sole member CBM Mezzanine Borrower LLC, which is managed by
its sole member CBM Joint Venture LLC. CBM Joint Venture LLC is managed by its
members, Rockledge Hotel Properties, Inc. and MI CBM Investor LLC. Information
concerning the directors and executive officers of Rockledge Hotel Properties,
Inc. and MI CBM Investor LLC is set forth elsewhere on this Schedule I.
77
<PAGE>
SCHEDULE II
DIRECTORS AND EXECUTIVE OFFICERS OF CBM ONE LLC
The following table sets forth the name, business address and principal
occupation or employment at the present time and during the last five years, and
the name, principal business and address of any corporation or other
organization in which such employment is or was conducted, of each manager and
executive officer of CBM One LLC. Except as otherwise noted, each such person is
a citizen of the United States and the business address of each such person is
10400 Fernwood Road, Washington, D.C. 20058. Except as otherwise noted, each
occupation set forth below a person's name refers to employment with CBM One LLC
and each such person has held such occupation for at least the past five years.
<TABLE>
<CAPTION>
Present Principal Occupation or
Employment and Material Occupations,
Offices or Employment Held During
Name the Past Five Years
------------------------------------- -------------------------------------
<S> <C>
Robert E. Parsons, Jr. Robert E. Parsons, Jr. joined the
President and Manager Corporate Financial Planning staff of
Host Marriott Corporation ("Host
Marriott") in 1981, became Assistant
Treasurer in 1988, Senior Vice
President and Treasurer in 1993 and
in 1995, he was elected Executive
Vice President and Chief Financial
Officer. He is also an Executive Vice
President and Chief Financial Officer
of Host Marriott L.P. and serves as a
director, manager and officer of
numerous Host Marriott subsidiaries
Christopher G. Townsend Christopher G. Townsend joined Host
Executive Vice President, Secretary Marriott's Law Department in 1982 as
and Manager a Senior Attorney, became Assistant
Secretary in 1984, Assistant General
Counsel in 1986, Senior Vice
President, Corporate Secretary and
Deputy General Counsel in 1993 and in
January 1997, he was made General
Counsel. He is also a Senior Vice
President, Corporate Secretary and
General Counsel of Host Marriott L.P.
and serves as a director, manager and
officer of numerous Host Marriott
subsidiaries.
W. Edward Walter W. Edward Walter joined Host Marriott
Treasurer in 1996 as Senior Vice President--
Acquisitions and, in 1998 was made
Treasurer. He is also a Senior Vice
President and Treasurer of Host
Marriott L.P. and serves as a
director, manager and officer of
numerous Host Marriott subsidiaries.
Prior to joining Host Marriott, Mr.
Walter was a partner at Trammell Crow
Residential Company and President of
Bailey Capital Corporation, a real
estate firm focusing on tax-exempt
real estate investments.
</TABLE>
78
<PAGE>
[Back cover page]
Questions and requests for assistance concerning (1) how to complete
the Consent Form or the Proof of Claim, (2) where to remit the Consent Form or
the Proof of Claim or (3) obtaining additional copies of this Purchase Offer and
Consent Solicitation, the Proof of Claim and the Consent Form and other Purchase
Offer and Consent Solicitation materials should be directed to the Claims
Administrator at its address and telephone number listed below. You may also
contact your broker, dealer, commercial bank, trust company or other nominee for
assistance concerning the Purchase Offer or the Merger. Substantive questions
concerning the Consent Form and the Proof of Claim should be directed to David
Berg or Jim Moriarty, counsel to the class action plaintiffs. Mr. Berg's
telephone number is (713) 529-5622 and Mr. Moriarty's telephone number is (713)
528-0700.
Facsimile copies of the BLUE Proof of Claim will be accepted. The GREEN
Consent Form, properly completed and duly executed, may be returned to the
Claims Administrator in the enclosed envelope with pre-paid postage. Facsimile
copies of the GREEN Consent Form, properly completed and duly executed, will
also be accepted. However, in order for Consent Forms transmitted via facsimile
to be valid, the entire form of Consent Form (front and back) must be received
by GEMISYS. Consent Forms transmitted via facsimile will be deemed to have been
received and dated on the date they are actually received by GEMISYS. The Proof
of Claim and the Consent Form, and any other required documents should be sent
or delivered by you or your broker, dealer, commercial bank, trust company or
other nominee to the Claims Administrator, at one of the addresses set forth
below:
The Claims Administrator for the Purchase Offer and Consent Solicitation is:
<TABLE>
<S> <C> <C>
GEMISYS Corporation
By Mail: Facsimile Transmission: By Hand or Overnight Delivery:
Attention: Proxy Department 303-705-6171 Attention: Proxy Department
7103 South Revere Parkway 7103 South Revere Parkway
Englewood, CO 80112-9523 Englewood, CO 80112-9523
Telephone:
(800) 326-8222
</TABLE>
79
<PAGE>
CONSENT FORM
THIS WRITTEN CONSENT IS SOLICITED BY THE GENERAL PARTNER OF COURTYARD BY
MARRIOTT LIMITED PARTNERSHIP FOR ACTION BY WRITTEN CONSENT OF LIMITED PARTNERS
TO BE EFFECTIVE AS SET FORTH IN THE PURCHASE OFFER AND CONSENT SOLICITATION
ACCOMPANYING THIS CONSENT FORM
The undersigned, with respect to each unit in Courtyard by Marriott Limited
Partnership (the "Partnership") held of record by the undersigned on
July 10, 2000, hereby sets forth his, her or its vote in connection with the
written consent solicited by the General Partner of the Partnership as described
in the Purchase Offer and Consent Solicitation accompanying this consent form.
You are encouraged to indicate your vote by marking the appropriate box on the
reverse side. Failure to check any of the boxes with respect to the proposed
authorization will, if this consent card has been signed and dated, constitute
a vote "FOR" the proposed authorization. Please sign and date this card. A
postage-paid return envelope is enclosed for your convenience in returning this
form.
IMPORTANT: PLEASE VOTE, DATE AND SIGN ON REVERSE SIDE.
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<PAGE>
Authorization of the General Partner's grant of consent on behalf of the
Partnership to:
(1) the proposed Merger as described in the accompanying Purchase Offer and
Consent Solicitation Statement dated ____________, 2000.
FOR [_] AGAINST [_] ABSTAIN [_]
(2) the following proposed amendments to Partnership Agreement as described
in the accompanying Purchase Offer and Consent Solicitation Statement
dated ____________, 2000:
(a) The proposed amendment to Section 7.01B of the Partnership Agreement:
FOR [_] AGAINST [_] ABSTAIN [_]
(b) The proposed amendment to Section 7.01A of the Partnership Agreement:
FOR [_] AGAINST [_] ABSTAIN [_]
(c) The proposed amendment to Section 4.07 of the Partnership Agreement:
FOR [_] AGAINST [_] ABSTAIN [_]
(d) The proposed amendment to Section 5.01C of the Partnership Agreement:
FOR [_] AGAINST [_] ABSTAIN [_]
______________________________________
(SIGNATURE(S) OF LIMITED PARTNERS(S))
Dated: _________________, 2000
(NOTE: Please sign exactly as your name
or names appear on the label. If more
than one name appears, all persons so
designated should sign. When signing in
a representative capacity, please give
your full title.)
81
