<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
Hotel Properties, L.P.
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(Name of Registrant as Specified In Its Charter)
N/A
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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)(4) 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.
[_] 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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(3) Filing Party:
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(4) Date Filed:
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Notes:
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HOTEL PROPERTIES L.P.
3 WORLD FINANCIAL CENTER, 29TH FLOOR
NEW YORK, NEW YORK 10285
May 5, 1998
Dear Unitholders:
The General Partner of Hotel Properties L.P., a Delaware limited partnership
formerly known as EQ/Shearson Hotel Properties, L.P. (the "Partnership"),
hereby requests your written consent on matters described in the enclosed
Proxy Statement. Please review the Proxy Statement carefully. YOUR CONSENT IS
IMPORTANT. TO MAXIMIZE DISTRIBUTIONS TO YOU, THE TRANSACTIONS DESCRIBED IN THE
PROXY STATEMENT MUST BE COMPLETED BY JUNE 1, 1998. CONSEQUENTLY, I URGE YOU TO
COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED CONSENT CARD IN THE ENCLOSED
POSTAGE-PAID ENVELOPE AS SOON AS POSSIBLE, AND, IN ANY CASE, BEFORE MAY 15,
1998.
You are asked to consider and consent to two proposals: (i) the sale of the
four hotels comprising all of the assets of the Partnership (the
"Transaction"), the Los Angeles Airport Marriott Hotel, the St. Louis Airport
Marriott Hotel, the Nashville Airport Marriott Hotel, and Marriott's Tan-Tar-A
Resort Hotel, Lake of the Ozarks, Missouri, (the "Hotels") to Marriott Hotel
Services, Inc. for $114 million in cash, and (ii) an amendment (the
"Amendment") to the Agreement of Limited Partnership of the Partnership to
permit the General Partner, without further consent of the Unitholders, in the
event that the Transaction does not occur and some or all of the Hotels are
not sold, to sell the unsold Hotels on terms and conditions that the General
Partner, in its sole discretion, determines to be in the best interests of the
Partnership and the Unitholders. The Transaction and the Amendment are fully
described in the accompanying Proxy Statement.
After consummation of the Transaction, the General Partner estimates that
proceeds available for distribution to Unitholders will be approximately $37
million to $39 million, or $10.57 to $11.14 per Unit, assuming that the
Transaction is completed by June 1, 1998.
THE GENERAL PARTNER HAS CAREFULLY REVIEWED THE VARIOUS ALTERNATIVES
AVAILABLE TO THE PARTNERSHIP, AND HAS DETERMINED THAT THE TRANSACTION AND THE
AMENDMENT REPRESENT THE BEST COURSES OF ACTION FOR, AND ARE IN THE BEST
INTERESTS OF, THE PARTNERSHIP AND THE UNITHOLDERS. ACCORDINGLY, THE GENERAL
PARTNER HAS APPROVED THE TRANSACTION AND THE AMENDMENT AND RECOMMENDS THAT
UNITHOLDERS USE THE ENCLOSED CONSENT CARD TO VOTE FOR APPROVAL OF THE
TRANSACTION AND THE AMENDMENT.
The written consent of the holders of a majority of outstanding Units is
required to approve each of the proposals. Not voting on a proposal will have
the same effect as voting against it, so I once again urge you to complete,
sign and date the enclosed consent card and return it in the enclosed postage-
paid envelope at your earliest convenience. If you have any questions, or
would like more information regarding the Proxy Statement, please call D.F.
King & Co., Inc., the Partnership's Solicitation Agent for this consent
solicitation, at 1-800-290-6426.
Sincerely,
EHP/GP INC.
General Partner
/s/ Jeffrey C. Carter
Jeffrey C. Carter
President
IN ORDER TO ENSURE YOUR REPRESENTATION IN THE ACTION TO BE TAKEN BY WRITTEN
CONSENT, YOU ARE REQUESTED TO SIGN AND DATE THE ENCLOSED CONSENT CARD AS
PROMPTLY AS POSSIBLE AND RETURN IT IN THE ENCLOSED POSTAGE-PAID ENVELOPE.
<PAGE>
HOTEL PROPERTIES L.P.
3 WORLD FINANCIAL CENTER, 29TH FLOOR
NEW YORK, NEW YORK 10285
NOTICE AND PROXY STATEMENT
FOR ACTION BY WRITTEN CONSENT
To the Unitholders:
Attached hereto is a Proxy Statement (the "Proxy Statement") which solicits
the written consent of the Unitholders of Hotel Properties L.P., a Delaware
limited partnership formerly known as EQ/Shearson Hotel Properties, L.P. (the
"Partnership"), for the following actions:
1. To approve the sale of the four hotels comprising all of the
Partnership's assets (the "Transaction"), the Los Angeles Airport Marriott
Hotel, the St. Louis Airport Marriott Hotel, the Nashville Airport Marriott
Hotel, and Marriott's Tan-Tar-A Resort Hotel, Lake of the Ozarks, Missouri
(the "Hotels"), pursuant to a Purchase and Sale Agreement, dated as of
April 23, 1998, providing for the sale of the Hotels for $114 million in
cash; and
2. To amend the Agreement of Limited Partnership of the Partnership (the
"Amendment") to permit the General Partner, without further consent of the
Unitholders, in the event that the closing of the Transaction does not
occur and some or all of the Hotels are not sold, to sell the unsold Hotels
on terms and conditions that the General Partner, in its sole discretion,
determines to be in the best interests of the Partnership and the
Unitholders.
Only Unitholders of record at the close of business on May 4, 1998 shall be
entitled to notice of the proposed Transaction and Amendment and to instruct
E.H.P. Depositary Corp., which acts as the "assignor limited partner" (the
"Assignor Limited Partner"), to give its consent. Unitholders will not be
entitled to dissenters' rights of appraisal under Delaware law or the
Agreement of Limited Partnership of the Partnership in connection with the
Transaction. The written consent of the holders of a majority of outstanding
Units is required to direct the Assignor Limited Partner to consent to the
Transaction and the Amendment.
Information regarding the Transaction and the Amendment and related matters
is contained in the enclosed Proxy Statement and the annex thereto, which is
incorporated by reference herein and forms a part of this notice.
PLEASE COMPLETE, SIGN AND DATE THE ENCLOSED CONSENT CARD AND RETURN IT
PROMPTLY IN THE ENCLOSED ENVELOPE AS SOON AS POSSIBLE. IT IS IMPORTANT THAT
YOUR INTERESTS BE REPRESENTED AND THAT YOUR CONSENT BE RECEIVED.
By Order of the General Partner,
EHP/GP INC.
General Partner
/s/ Jeffrey C. Carter
Jeffrey C. Carter
President
New York, New York
May 4, 1998
<PAGE>
HOTEL PROPERTIES L.P.
PROXY STATEMENT
FOR UNITHOLDER ACTION BY WRITTEN CONSENT
This Proxy Statement and the accompanying documents are being mailed to
holders ("Unitholders") of the economic and certain other rights attributable
to the limited partnership interests (each, a "Unit") in Hotel Properties
L.P., formerly known as EQ/Shearson Hotel Properties L.P. (the "Partnership"),
in connection with the solicitation by EHP/GP Inc. (the "General Partner"), a
Delaware corporation and the general partner of the Partnership, of written
consents of the Partnership's Unitholders.
These written consents of the Unitholders are sought in accordance with the
provisions of the Agreement of Limited Partnership of the Partnership (the
"Partnership Agreement") to instruct E.H.P. Depositary Corp., which acts as
the "assignor limited partner" (the "Assignor Limited Partner"), (i) to
approve the sale of the four hotels comprising all of the Partnership's assets
(the "Transaction"), the Los Angeles Airport Marriott Hotel (the "Los Angeles
Hotel"), the St. Louis Airport Marriott Hotel (the "St. Louis Hotel"), the
Nashville Airport Marriott Hotel (the "Nashville Hotel"), and Marriott's Tan-
Tar-A Resort Hotel, Lake of the Ozarks, Missouri (the "Tan-Tar-A Hotel")
(collectively, the "Hotels"), pursuant to a Purchase and Sale Agreement, dated
as of April 23, 1998, providing for the sale of the Hotels for $114 million in
cash and (ii) to amend the Partnership Agreement to permit the General
Partner, without further consent of the Unitholders, in the event that the
closing of the Transaction does not occur and some or all of the Hotels are
not sold (the "Remaining Hotels"), to sell the Remaining Hotels to any party
not affiliated with the General Partner on terms and conditions that the
General Partner, in its sole discretion, determines to be in the best
interests of the Partnership and the Unitholders. If the amendment is
approved, the General Partner will not sell the Hotels to any affiliate
without the consent of the holders of a majority of Units.
After actively marketing the Hotels, the General Partner accepted a bid for
$114 million in cash, subject to a right of first refusal held by Marriott
Hotel Services, Inc. ("Marriott"). See "THE OPERATING LEASES--Marriott's Right
of First Refusal." Marriott exercised its right of first refusal and entered
into the Purchase and Sale Agreement. The General Partner did not have the
Hotels appraised, nor has it requested a fairness opinion relating to the
purchase price.
If the Transaction is approved, upon completion of the Transaction, the
General Partner estimates that proceeds available for distribution to
Unitholders will be approximately $37 million to $39 million, or $10.57 to
$11.14 per Unit, assuming that the Transaction is completed by June 1, 1998.
See "THE TRANSACTION--Distributions." Certain Unitholders that are non-
residents of the State of California will be subject to California withholding
and certain individual Unitholders that are non-residents of the State of
Missouri will be subject to Missouri withholding, which will reduce the cash
distribution paid to such Unitholders accordingly. See "THE TRANSACTION--
Certain Federal Income Tax Consequences." The actual amount of net proceeds to
be derived from the Transaction will not be known until after closing, and no
assurance may be given that either the obligations of the Partnership or any
reserves against future obligations will not exceed current expectations or
that the total amount of distributions will be equal to the estimates
specified herein.
Enclosed with this Proxy Statement is a Notice For Action by Written Consent
together with a written consent for your signature. Failure to return a
properly executed and dated consent card will have the same effect as a vote
"AGAINST" the Transaction and the Amendment. Any consent given pursuant to
this solicitation may be revoked by the person giving it any time prior to the
receipt of consent cards representing a majority of outstanding Units that
vote "FOR" approval of the Transaction and the Amendment by (i) executing and
returning a written consent bearing a later date or (ii) filing written notice
of such revocation with the General Partner stating that the consent is
revoked. If no instructions are indicated on a properly executed consent, the
Units represented by such consent will be considered a vote "FOR" approval of
the Transaction and the Amendment.
This Proxy Statement is first being mailed to Unitholders on or about May 5,
1998.
THE DATE OF THIS PROXY STATEMENT IS MAY 5, 1998.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
SUMMARY.................................................................... 1
THE WRITTEN CONSENTS....................................................... 4
General................................................................... 4
Record Date and Outstanding Units; Voting Rights; No Market............... 4
Majority Vote Required.................................................... 4
Voting and Revocation of Consents......................................... 4
Absence of Dissenters' Rights of Appraisal; Effect of Vote For
Transaction.............................................................. 5
Solicitation of Consents.................................................. 5
THE PARTNERSHIP............................................................ 5
THE TRANSACTION............................................................ 6
Overview.................................................................. 6
Background of and Reasons for the Transaction............................. 6
Recommendation of the General Partner..................................... 7
Distributions............................................................. 8
Certain Federal Income Tax Consequences................................... 10
Accounting Treatment...................................................... 12
THE PURCHASE AND SALE AGREEMENT............................................ 13
The Purchase and Sale..................................................... 13
Prorations and Apportionments............................................. 13
Representations and Warranties............................................ 13
Title..................................................................... 14
Conditions Precedent...................................................... 14
Assignment................................................................ 14
Risk of Loss; Condemnation................................................ 14
Termination............................................................... 14
</TABLE>
<TABLE>
<S> <C>
INTERESTS OF CERTAIN PERSONS IN THE TRANSACTION........................... 15
UNAUDITED PRO FORMA FINANCIAL DATA........................................ 16
SELECTED FINANCIAL DATA................................................... 19
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS............................................................... 20
THE HOTELS................................................................ 24
General.................................................................. 24
The Tan-Tar-A Hotel...................................................... 24
The Nashville Hotel...................................................... 25
The St. Louis Hotel...................................................... 25
The Los Angeles Hotel.................................................... 26
THE OPERATING LEASES...................................................... 27
THE AMENDMENT............................................................. 33
INDEX TO FINANCIAL STATEMENTS............................................. F-1
</TABLE>
ANNEX A--Purchase and Sale Agreement, dated as of April 23, 1998, between
Marriott Hotel Services, Inc. and the Partnership
<PAGE>
SUMMARY
The following is a summary of certain information contained elsewhere in this
Proxy Statement and is presented herein solely to furnish limited introductory
information regarding the Transaction and the Amendment and the parties
thereto. This summary is not intended to be complete and is qualified in its
entirety by the more detailed information contained or incorporated by
reference in this Proxy Statement and the annex hereto, to which reference is
made for a complete statement of the matters discussed below. Unitholders are
urged to read this Proxy Statement, including the annex hereto, and the
accompanying documents in their entirety and to consider them with care. Unless
otherwise defined herein, capitalized terms used in this summary have the
respective meanings ascribed to them elsewhere in the Proxy Statement.
This Proxy Statement may contain forward-looking statements. Discussions
containing such forward-looking statements may be found in the material set
forth under "Summary," "The Transaction" and "Unaudited Pro Forma Financial
Data" as well as within the Proxy Statement generally. In addition, when used
in this Proxy Statement, the words "believes," "anticipates," "expects,"
"estimates" and similar expressions are intended to identify forward-looking
statements. Such statements are subject to a number of risks and uncertainties.
Actual results could differ materially from those described in the forward-
looking statements as a result of the factors set forth in the sections
indicated and in the Proxy Statement generally. The Partnership further
cautions Unitholders that the discussion of these factors may not be
exhaustive. The Partnership undertakes no obligation to publicly release the
results of any revisions to these forward-looking statements that may be made
to reflect any future events or circumstances.
THE WRITTEN CONSENTS
The General Partner is soliciting the written consents of Unitholders to
approve the Transaction and the Amendment. Only Unitholders of record at the
close of business on May 4, 1998 (the "Record Date") shall be entitled to
notice of the request for written consent. As of the Record Date, there were
approximately 2,200 Unitholders of record with 3,464,700 Units issued and
outstanding. Each Unitholder shall be entitled to direct the Assignor Limited
Partner to cast one vote per Unit held of record by such Unitholder with
respect to each matter to be acted upon. In order for the Transaction and the
Amendment to be approved, Unitholders representing a majority of the
outstanding Units must instruct the Assignor Limited Partner to consent to each
proposal. In determining whether the Transaction and the Amendment have
received the requisite number of affirmative votes, abstentions will have the
same effect as a vote against the proposals. If a Unitholder executes and
returns a consent card and does not specify otherwise, the Units represented by
such consent card will be considered a vote "FOR" approval of the Transaction
and the Amendment. A Unitholder who has executed and returned a consent card
may revoke it at any time prior to the receipt of consent cards representing a
majority of outstanding Units that vote "FOR" approval of the Transaction and
the Amendment by (i) executing and returning a written consent bearing a later
date or (ii) filing written notice of revocation with the General Partner
stating that the consent is revoked.
THE PARTNERSHIP
Hotel Properties L.P. is a Delaware limited partnership (the "Partnership")
formed on September 24, 1987. Its Units are not listed on any exchange.
The General Partner of the Partnership is EHP/GP Inc. (formerly known as
Shearson EHP/GP Inc.), a Delaware corporation (the "General Partner"). The
General Partner is an indirect wholly-owned subsidiary of Lehman Brothers Inc.
("Lehman Brothers").
<PAGE>
The Partnership was formed to acquire the Hotels from The Equitable Life
Assurance Society of the United States ("Equitable"). Each of the Hotels was
purchased subject to an operating lease (collectively, the "Operating Leases"),
pursuant to which the operation of each of the Hotels is under the possession,
management, supervision and control of Marriott Hotel Services, Inc.
("Marriott"), a wholly-owned subsidiary of Marriott International Inc.
On June 3, 1988, the Partnership completed an offering of $34,647,000 of
depositary units of limited partnership interest ("Units," the holders of which
are referred to as "Unitholders") representing assignments of the economic
rights and benefits attributable to limited partnership interests in the
Partnership (the "Public Offering"). On the same day, the Partnership acquired
the Hotels for a total purchase price of $104,238,200. On June 28, 1995, the
Partnership refinanced the original acquisition financing provided by Equitable
with new borrowings (the "Equitable Loan") from Equitable totaling $82,469,417
($79,938,000 in mortgage loans and a $2,531,417 revolving line of credit),
evidenced by a consolidated promissory note (the "Equitable Note"). There was
$78,332,542 outstanding under the Equitable Loan as of December 31, 1997.
Pursuant to the terms of the Equitable Note, (a) principal and interest are
to be paid until June 2, 2000, at which time all outstanding principal and
accrued interest are due and payable, and (b) the outstanding principal may be
prepaid without a prepayment charge any time on or prior to June 1, 1998. The
Partnership's repayment of the Equitable Loan is secured by first mortgages on
each of the Hotels and by an assignment of leases and rents applicable to each
Hotel. Subsequent to June 1, 1998, prepayment of the Equitable Loan will be
subject to a prepayment penalty as described below in "The Partnership." The
prepayment penalty will be approximately $700,000 on June 2, 1998.
THE TRANSACTION
If the Transaction is approved, the Partnership intends to sell the Hotels to
Marriott for a purchase price of $114 million in cash (the "Purchase Price"),
and Marriott will assume all of the obligations of the Partnership with respect
to the Operating Leases.
Upon completion of the Transaction, the General Partner estimates that
proceeds available for distribution to Unitholders will be approximately $37
million to $39 million, or $10.57 to $11.14 per Unit, assuming that the
Transaction is completed by June 1, 1998. See "THE TRANSACTION--Distributions."
Certain Unitholders that are non-residents of the State of California will be
subject to California withholding and certain individual Unitholders that are
non-residents of the State of Missouri will be subject to Missouri withholding,
which will reduce the cash distributions paid to such Unitholders accordingly.
See "THE TRANSACTION--Certain Federal Income Tax Consequences." The actual
amount of net proceeds to be derived from the Transaction will not be known
until some time after closing, and no assurance may be given that either the
obligations of the Partnership or reserve against future obligations will not
exceed current expectations or that the total amount of distributions will be
equal to the estimates specified herein.
THE AMENDMENT
Section 7.05(c) of the Partnership Agreement provides that the General
Partner generally may not, without the consent of the holders of a majority of
the Units, cause the Partnership to sell all or substantially all of the
Partnership's assets (the "Sale Limitation"). The General Partner, on behalf of
the Partnership, proposes to eliminate the Sale Limitation by deleting Section
7.05(c) and all references thereto from the Partnership Agreement so that it
has the power to sell all of the assets of the Partnership, including the
Remaining Hotels (if any), without the expense and potential delay of a
separate Unitholder consent solicitation. The General Partner believes that
elimination of the Sale Limitation will also simplify the procedures associated
with the sale of the Remaining Hotels (if necessary) and therefore enhance the
marketability of the Remaining Hotels.
2
<PAGE>
Effectiveness of the Amendment is not conditioned upon the closing of the
Transaction. Accordingly, if approved, the Amendment will be effective whether
or not the Transaction is ultimately consummated as set forth herein. THE
EFFECT OF THE AMENDMENT WILL BE TO AUTHORIZE THE GENERAL PARTNER, WITHOUT
FURTHER CONSENT OF THE UNITHOLDERS, TO DISPOSE OF THE REMAINING HOTELS UPON
TERMS THAT THE GENERAL PARTNER, IN ITS SOLE DISCRETION, DETERMINES TO BE IN THE
BEST INTERESTS OF THE UNITHOLDERS. HOWEVER, THE GENERAL PARTNER WILL NOT SELL
ANY OF THE HOTELS TO ANY OF ITS AFFILIATES WITHOUT THE CONSENT OF THE HOLDERS
OF A MAJORITY OF THE UNITS.
RECOMMENDATION OF THE GENERAL PARTNER
The General Partner has determined that the Transaction and the Amendment
represent the best courses of action for, and that the Transaction and the
Amendments are in the best interests of, the Partnership and the Unitholders.
Accordingly, the General Partner has approved the Transaction and the Amendment
and recommends that Unitholders use the enclosed proxy card to direct the
Assignor Limited Partner to vote "FOR" approval of the Transaction and the
Amendment. See "THE TRANSACTION--Recommendation of the General Partner."
SUMMARY OF TAX CONSEQUENCES
GENERAL
The Transaction will constitute a taxable event and will result in the
Partnership and the Unitholders recognizing gain, a portion of which will be
ordinary income from the recapture of depreciation.
ESTIMATED TAXABLE GAIN AND INCOME
Based upon the description of the Transaction contained in this Proxy
Statement and assuming the Transaction is completed by June 1, 1998, the
Partnership's independent accountants have advised the Partnership that
Unitholders will recognize gain for Federal income tax purposes in 1998 of
approximately $5.22 per Unit, net of syndication costs. A portion of the gain,
approximately $.76 per Unit, will be characterized as ordinary income as a
result of the recapture of prior depreciation deductions. The balance of such
gain is expected to constitute "Section 1231" gain, which will be treated as
long-term capital gain in the hands of a Unitholder if the Unitholder's
"Section 1231" gains exceed its "Section 1231" losses.
THE ESTIMATES OF TAXABLE INCOME AND GAIN PROVIDED HEREIN ARE HYPOTHETICAL
AMOUNTS BASED UPON A NUMBER OF ASSUMPTIONS THAT MAY NOT BE CORRECT FOR ANY
GIVEN UNITHOLDER, ARE PRELIMINARY AND ARE FOR ILLUSTRATIVE PURPOSES ONLY. THESE
ASSUMPTIONS INCLUDE THE SALE DATE, ESTIMATED CLOSING COSTS, THE CREDIT TO THE
BUYER FOR REPLACEMENT RESERVES AND ACTUAL OPERATING RESULTS THROUGH SALE. THE
COMPUTATION ASSUMES SELLING COSTS AT 2% OF THE SALES PRICE, REPLACEMENT RESERVE
CASH BALANCES EQUAL TO THAT AT DECEMBER 31, 1997 AND OPERATIONS COMPARABLE TO
THE FIRST FIVE MONTHS OF 1997. THUS, THE ACTUAL INCOME AND GAIN RECOGNIZED BY
ANY UNITHOLDER CANNOT BE DETERMINED WITH CERTAINTY, IS LIKELY TO VARY
MATERIALLY FOR ANY SPECIFIC UNITHOLDER AND MAY BE SIGNIFICANTLY GREATER OR LESS
THAN THAT DESCRIBED HEREIN. RULINGS AND OPINIONS HAVE NOT AND WILL NOT BE
REQUESTED FROM THE INTERNAL REVENUE SERVICE OR PROVIDED BY COUNSEL TO THE
PARTNERSHIP WITH RESPECT TO THE MATTERS DISCUSSED HEREIN. CONSEQUENTLY,
UNITHOLDERS ARE STRONGLY URGED TO CONSULT THEIR TAX ADVISORS REGARDING THE TAX
CONSEQUENCES OF THE TRANSACTION IN LIGHT OF THEIR PARTICULAR CIRCUMSTANCES AND
INCOME TAX SITUATION. SEE "THE TRANSACTION--CERTAIN FEDERAL INCOME TAX
CONSEQUENCES."
3
<PAGE>
THE WRITTEN CONSENTS
GENERAL
The purpose of soliciting the written consents is to (i) approve the
Transaction and (ii) to approve the Amendment.
RECORD DATE AND OUTSTANDING UNITS; VOTING RIGHTS; NO MARKET
Only Unitholders of record at the close of business on May 4, 1998, the
Record Date, shall be entitled to notice of and to instruct the Assignor
Limited Partner to give its consent. As of the Record Date, there were
approximately 2,200 Unitholders of record with 3,464,700 Units issued and
outstanding. To the General Partner's knowledge, no officer or director of the
General Partner owned any Units. Each Unitholder shall be entitled to direct
the Assignor Limited Partner to cast one vote per Unit owned by such
Unitholder. Neither the General Partner nor any of its affiliates shall be
permitted to direct the vote of any Units, but any individual officer,
director or stockholder of the General Partner or its affiliates who holds any
Units in an individual capacity shall be entitled to vote the Units held in
such individual capacity. No established trading market exists for the Units.
MAJORITY VOTE REQUIRED
Under the Partnership's Agreement of Limited Partnership and pursuant to
Delaware law, any action that may be taken at any annual or special meeting of
the Unitholders of the Partnership may be taken without a meeting, without
prior notice and without a vote, if a consent in writing, setting forth the
action so taken, is signed by the holders of outstanding Units having not less
than the minimum number of votes that would be necessary to direct the
Assignor Limited Partner to authorize or take such action at a meeting at
which all Units entitled to vote thereon were present and voted. The matter
being considered by the Unitholders is being submitted for action by written
consent, rather than by votes cast at a meeting. The proposals will be deemed
to have been approved at the earliest time after the date of this Proxy
Statement at which the Partnership has received consents that have not
previously been revoked representing the approval of a majority of the Units
outstanding on the Record Date, provided that such approval is received on or
prior to October 31, 1998 (the "Termination Date"). If, however, sufficient
written consents have not been received by the Termination Date, the
Partnership reserves the right to extend the solicitation of written consents
made hereby, except that, under Delaware law, such solicitation may not be
extended beyond the date 60 days after the earliest dated consent received by
the Partnership. Any election to extend this consent solicitation will be made
by the Partnership by news release or other similar public announcement.
VOTING AND REVOCATION OF CONSENTS
Unitholders are being requested to indicate approval of the Transaction and
the Amendment by checking the appropriate boxes on the enclosed consent card
and executing the consent card. FAILURE TO CHECK ANY OF THE BOXES WILL, IF THE
CONSENT CARD HAS BEEN SIGNED, CONSTITUTE A VOTE "FOR" APPROVAL OF THE
TRANSACTION OR THE AMENDMENT, AS APPLICABLE. A complete description of the
Transaction and the Amendment have not been set forth on the Consent Card
itself due to space limitations. Nevertheless, signing and indicating approval
on the Consent Card will be deemed to be written consent to the approval of
the Transaction and the Amendment. In determining whether the Transaction and
the Amendment have received the requisite number of affirmative votes,
abstentions will have the same effect as a vote against the proposals.
A Unitholder who has executed and returned a consent card may revoke it at
any time prior to the receipt of consent cards representing a majority of
outstanding Units that vote "FOR" approval of the Transaction and the
Amendment by (i) executing and returning a written consent bearing a later
date or (ii) filing written notice of revocation with the General partner
stating that the consent is revoked.
4
<PAGE>
ABSENCE OF DISSENTERS' RIGHTS OF APPRAISAL; EFFECT OF VOTE FOR TRANSACTION
Unitholders are not entitled to dissenters' rights of appraisal under the
Delaware Revised Uniform Limited Partnership Act or the Partnership Agreement
in connection with the matters to be voted on in this request for written
consents.
A vote for the Transaction may preclude a Unitholder from subsequently
bringing suit against the Partnership or the General Partner in connection
with the Transaction.
SOLICITATION OF CONSENTS
Consents are being solicited hereby by the General Partner. The Partnership
will bear the cost of the solicitation of consents from the Unitholders. In
addition to solicitation by mail, directors, officers, employees and agents of
the General Partner may solicit consents from Unitholders in person, by
telephone or facsimile, or by other means of communication. Such directors,
officers, employees and agents will not be additionally compensated for such
solicitation but may be reimbursed for the reasonable out-of-pocket expenses
incurred in connection therewith.
The Partnership has retained D. F. King & Co., Inc. ("D.F. King") to assist
in the solicitation of consents, for which D. F. King will receive reasonable
and customary compensation, which is not anticipated to exceed $25,000, plus
out-of-pocket expenses.
THE PARTNERSHIP
Hotel Properties L.P. is a Delaware limited partnership (the "Partnership")
formed on September 24, 1987. Its Units are not listed on any exchange.
The General Partner of the Partnership is EHP/GP Inc. (formerly known as
Shearson EHP/GP Inc.), a Delaware corporation (the "General Partner"). The
General Partner is an indirect wholly-owned subsidiary of Lehman Brothers Inc.
("Lehman Brothers").
The Partnership was formed to acquire the Hotels from The Equitable Life
Assurance Society of the United States ("Equitable"). Each of the Hotels was
purchased subject to an operating lease (collectively, the "Operating
Leases"), pursuant to which the operation of each of the Hotels is under the
possession, management, supervision and control of Marriott Hotel Services,
Inc. ("Marriott"), a wholly-owned subsidiary of Marriott International Inc.
On June 3, 1988, the Partnership completed an offering of $34,647,000 of
depositary units of limited partnership interest ("Units," the holders of
which are referred to as "Unitholders") representing assignments of the
economic rights and benefits attributable to limited partnership interests in
the Partnership (the "Public Offering"). On the same day, the Partnership
acquired the Hotels for a total purchase price of $104,238,200. On June 28,
1995, the Partnership refinanced the original acquisition financing provided
by Equitable with new borrowings (the "Equitable Loan") from Equitable
totaling $82,469,417 ($79,938,000 in mortgage loans and a $2,531,417 revolving
line of credit), evidenced by a consolidated promissory note (the "Equitable
Note"). There was $78,332,542 outstanding under the Equitable Loan as of
December 31, 1997.
Pursuant to the terms of the Equitable Note, (a) principal and interest are
to be paid until June 2, 2000, at which time all outstanding principal and
accrued interest are due and payable, and (b) the outstanding principal may be
prepaid without a prepayment charge any time on or prior to June 1, 1998. The
Partnership's repayment of the Equitable Loan is secured by first mortgages on
each of the Hotels and by an assignment of leases and rents applicable to each
Hotel. After June 1, 1998, a prepayment penalty applies to the repayment in
full of the Equitable Note prior to maturity. The prepayment penalty will be
approximately $700,000 on June 2, 1998.
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THE TRANSACTION
OVERVIEW
If the Transaction is approved by Unitholders representing a majority of
outstanding Units, the Partnership intends to sell the Hotels to Marriott for
a purchase price in cash of $114 million, and Marriott will assume all of the
obligations of the Partnership with respect to the Operating Leases. See "THE
PURCHASE AND SALE AGREEMENT."
Upon completion of the Transaction, the General Partner estimates that
distributions to Unitholders will be approximately $37 million to $39 million,
or $10.57 to $11.14 per Unit, and distributions to the General Partner will be
approximately $370,000 to $390,000, reflecting the General Partner's 1%
economic interest in the Partnership. See "--Distributions."
BACKGROUND OF AND REASONS FOR THE TRANSACTION
The Partnership was formed in late 1987 with the expectation, as described
in the initial offering materials, that it would liquidate within 10 years
after investing the capital raised in the Public Offering completed in June
1988. Consistent with this expectation, in early 1997, the General Partner
began to explore the sale of the Hotels.
The commencement of this process coincided with improved conditions in the
United States hotel industry. During 1996, the industry benefited from a
healthy national economy coupled with a high level of consumer confidence.
According to Smith Travel Research ("STR"), a nationally recognized travel
research organization, the 1996 national hotel occupancy rate of 65.6% was the
highest recorded since 1982. The 1996 national average room rate ("ADR") was a
record high of $71.75, an increase of 6.6% over 1995. In addition, STR states
that industry profitability increased from $8.8 billion in 1995 to a record
$12.5 billion in 1996. These improvements led to increased hotel acquisition
activity and increased development of both limited and full service hotels,
with numerous full service hotel projects planned in major cities where
occupancies and rates are at all-time highs.
In June 1997, the General Partner determined to attempt to capitalize on the
strength of the hotel market. In reaching this decision, the General Partner
also took into consideration that certain substantial prepayment penalties
provided for under the Equitable Loan could be avoided if the Hotels were sold
and the Equitable Loan repaid by June 1, 1998. The General Partner did not
have the Hotels appraised. Rather, it analyzed the Hotels and their existing
leases, and then sought assistance in actively marketing the Hotels.
The General Partner evaluated several real estate brokerage firms to assist
in the sale of the Hotels and, in July 1997, selected Eastdil Realty Company,
L.L.C. ("Eastdil") based on its performance in marketing properties similar to
the Hotels. For its assistance, Eastdil will be paid, upon closing of the
Transaction, a fee equal to 1.25% of the purchase price up to $100 million,
plus 3% of the amount by which the purchase price exceeds $100 million, for a
total of $1,670,000 based on the $114 million purchase price. Approximately
one half of this fee will be paid to an affiliate of the General Partner for
its assistance in the marketing process. If the Transaction does not close,
Eastdil will be reimbursed for its accountable expenses up to $90,000.
Between July and October 1997, the General Partner and Eastdil collected
information relating to the Hotels and their respective markets and prepared
offering materials. Beginning in October 1997, Eastdil held preliminary
discussions with 265 potential qualified investors for the Hotels. Eastdil
began a formal marketing process on October 30, 1997, contacting 36 qualified
buyers in November and distributing offering materials.
In response to Eastdil's November 18, 1997 request for all qualified
investors to submit bid letters, the General Partner received approximately 6
written and verbal bids, the highest of which were an all-cash bid of $111
million and a mixed consideration bid with a face value of $126 million,
comprised of $80 million in cash, conditioned on obtaining financing, and $45
million in securities of an entity to be formed.
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All bidders who had submitted written bids were asked to submit revised
bids. The highest all-cash bidder increased its all-cash offer to $114 million
and the mixed consideration bidder raised its offer to $135 million, including
$75 million in cash, conditioned on obtaining financing, and $60 million in
securities of the entity to be formed. No higher bids were received.
The General Partner and Eastdil attempted to ascertain the ability of the
mixed consideration bidder to finance and complete the transaction it proposed
and to evaluate the securities offered. However, the bidder did not respond to
repeated requests to provide financial and other information, and Eastdil
expressed substantial concerns with respect to the likelihood that the
transaction proposed would actually be consummated. In particular, the mixed
consideration bidder had not furnished credible evidence of its ability to
provide the $75 million in cash. Further, the mixed consideration bidder was
preparing for its initial public offering, and therefore lacked the
transaction history and credibility in the real estate investment and capital
markets of the highest all-cash bidder.
After considering the advice of its counsel and Eastdil, the General Partner
determined to pursue the $114 million all-cash bid. Because of the research
and marketing efforts of Eastdil and the General Partner and based on the size
of the resulting bids, the General Partner did not obtain, nor felt it
necessary to obtain, a fairness opinion relating to the accepted bid of $114
million. On January 9, 1998, the General Partner and that bidder executed a
non-binding letter of intent pursuant to which they agreed to negotiate in
good faith an agreement to purchase the Hotels, subject to the right of first
refusal held by Marriott.
On that same day, the General Partner notified Marriott of the offer. On
February 6, 1998, Marriott notified the General Partner that it would exercise
its right of first refusal to purchase the Hotels.
Between February and April 1998, the General Partner and Marriott negotiated
the definitive Purchase and Sale Agreement, which was executed on April 23,
1998.
RECOMMENDATION OF THE GENERAL PARTNER
The General Partner has determined that the Transaction represents the best
course of action for, and that the Transaction is in the best interests of,
the Partnership and Unitholders. Accordingly, the General Partner has approved
the Transaction and recommends that the Unitholders use the enclosed consent
card to vote "FOR" approval of the Transaction.
In the course of reaching its determination to recommend the Transaction,
the General Partner consulted with its legal and financial advisors, and
considered the following factors:
Factors in Favor of the Transaction:
(i) the all-cash price offered for the Hotels;
(ii) Marriott's capitalization and its apparent ability to finance the
purchase price;
(iii) Marriott's history of completing acquisitions in the hotel industry;
(iv) the thoroughness of the marketing effort for the Hotels and the small
likelihood that a superior offer with a comparable probability of
closing the Transaction could be obtained;
(v) with respect to the competing, higher bid for the Hotels, the
substantial uncertainty as to the bidder's ability to finance or
complete a transaction in a timely way, if at all, and the substantial
uncertainty with respect to the value of the securities offered and the
bidder's ability to form the issuing entity;
(vi) the improved market for sale of full service hotels;
(vii) the improved operating performance of the Hotels;
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(viii) the opportunity to avoid prepayment penalties under the Equitable
Loan if the Hotels are sold and the Equitable Loan repaid by June 1,
1998; and
(xi) the Partnership's scheduled investment horizon of 10 years.
Factors Against the Transaction:
(i) the receipt of a higher, though substantially less certain, offer for
the Hotels; and
(ii) the fact that, following the sale of the Hotels, the Unitholders would
no longer be able to participate in any increase in value of the
Hotels or receive distributions of profits from their operations.
The General Partner consulted with its advisors and concluded, based on the
foregoing, that the factors favoring the Transaction outweighed those against
the Transaction, as set forth above. The foregoing discussion includes all of
the material factors considered by the General Partner. In view of the wide
variety of factors considered in connection with its evaluation of the
Transaction, the General Partner did not find it practical to, and did not,
quantify or otherwise attempt to assign relative weights to the foregoing
factors or determine that any factor was of particular greater importance.
Rather, the General Partner viewed its position and recommendation as being
based on the totality of the information presented to and considered by it.
In considering the recommendation of the General Partner with respect to the
Transaction, Unitholders should be aware that the General Partner and certain
of its affiliates may be deemed to have certain interests in addition to, or
potentially different from, the interests of Unitholders. Such interests had
no impact on the General Partner's decision to recommend the Transaction. See
"INTERESTS OF CERTAIN PERSONS IN THE TRANSACTION."
DISTRIBUTIONS
The General Partner estimates that amounts available for distribution to
Unitholders will be approximately $37 million to $39 million, or $10.57 to
$11.14 per Unit, and the amounts available for distribution to the General
Partner will be approximately $370,000 to $390,000, reflecting the General
Partner's 1% economic interest in the Partnership, assuming that the
Transaction is completed by June 1, 1998.
The net proceeds from the Transaction will be distributed 99% to the
Unitholders in proportion to the number of Units held by each Unitholder and
the remaining 1% to the General Partner until each Unitholder has received
from these payments an amount equal to any unpaid preferred return and his
capital contribution (less prior distributions with respect thereof from a
previous interim capital transaction). Any remaining net proceeds will
generally be distributed 94.12% to the Unitholders and 5.88% to the General
Partner.
The estimates of distributable amounts set forth above are based upon the
factors set forth below. THERE CAN BE NO ASSURANCES AS TO THE ACTUAL AMOUNTS
DISTRIBUTED OR AS TO THE AMOUNTS SET FORTH BELOW. ACTUAL AMOUNTS MAY DIFFER
MATERIALLY FROM THOSE SET FORTH BELOW.
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<PAGE>
ESTIMATED SOURCES AND USES OF PROCEEDS FROM THE TRANSACTION
(IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)
<TABLE>
<CAPTION>
SOURCES USES
- ------- --------
<S> <C>
Purchase Price.................................................... $114,000(1)
Cash generated from operations, including cash on hand............ $ 5,900(2)
--------
Total Sources..................................................... $119,900
========
Repayment in full of Equitable Note(3)............................ $ 78,290
Estimated costs and expenses of the Transaction and other obliga-
tions of the Partnership(2)(4)................................... 3,610
--------
Total Uses........................................................ $ 81,900
========
Estimated Net Distributable Amount (2)(5)......................... 38,000
Estimated Distribution to the General Partner..................... $ 380
Estimated Distribution to the Unitholders......................... $ 37,620
Estimated Total Distribution per $10 Unit (6)..................... $ 10.86
========
</TABLE>
- --------
(1) Assumes that no adjustments to the Purchase Price are made pursuant to the
Purchase and Sale Agreement.
(2) Represents the midpoint of the expected range of these amounts.
(3) Reflects the approximate outstanding balance as of May 31, 1998 and
assumes that any interest payments made after such date would reduce cash
generated from Partnership operations.
(4) Reflects the General Partner's current estimate of closing costs of the
Transaction, together with anticipated expenses in connection with the
eventual dissolution and liquidation of the Partnership, including a
reserve for ascertained but as yet unpaid Partnership liabilities,
estimated Partnership liabilities and contingent or unforeseen Partnership
liabilities (the "Reserve"). The General Partner does not believe that the
amount of the Reserve to be established will significantly exceed the
amount of the foregoing liabilities and any additional costs of
administering the Partnership. However, it is possible that the amount of
the Reserve may be greater or less than the ultimate amount of such
liabilities and costs, particularly if liquidation of the Partnership is
delayed. If the General Partner determines that the cost of distributing
any residual funds from the Reserve would exceed the value of such
residual, the General Partner will retain any such residual.
(5) The actual amount of cash available for distribution will vary
substantially depending upon, among other things, the timing of the
dissolution, actual results of operations for the period prior to
dissolution and the amount of interest that will accrue on the Equitable
Note following May 31, 1998.
(6) Assumes 3,464,700 Units issued and outstanding and reflects the $10 per
Unit price paid by investors in the Partnership's Public Offering.
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Set forth below is a summary of all per Unit distributions previously made
by the Partnership:
<TABLE>
<CAPTION>
DOLLAR AMOUNT
DISTRIBUTED
PER $10 UNIT*
YEAR ENDING DECEMBER 31, -------------
<S> <C>
1987............................................................. $ --
1988............................................................. .46
1989............................................................. .83
1990............................................................. .39
1991............................................................. .43
1992............................................................. .45
1993............................................................. .45
1994............................................................. .19
1995............................................................. --
1996............................................................. .40
1997............................................................. --
-----
Total............................................................ $3.60
=====
</TABLE>
- --------
* Represents the $10 per Unit price paid by investors in the Partnership's
Public Offering.
The General Partner expects that the Partnership will be dissolved and
liquidated in 1998. Any liquidating distribution will be subject to various
laws for the protection of the Partnership's creditors and could be subject to
claims made by them after the liquidation. Any known creditors will be
satisfied prior to liquidation.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The material Federal income tax issues associated with the Unitholders'
investment in the Partnership have generally been addressed in the
Partnership's Prospectus, dated November 12, 1987, relating to the Public
Offering. The following is a summary of the material Federal income tax
consequences of the Transaction to individual Unitholders, but it is not
intended as personal tax advice. This summary is based on the Federal income
tax law currently in effect, which is subject to change, possibly with
retroactive effect. Except to the limited extent described below, this summary
does not discuss all aspects of Federal income taxation that may be important
to particular Unitholders in light of their individual investment
circumstances, including certain types of holders subject to special tax rules
(e.g., corporations, financial institutions, broker-dealers, insurance
companies, partnerships, tax-exempt organizations and foreign taxpayers). In
addition, except to the limited extent described below, this summary does not
address state, local or foreign tax consequences of the Transaction. No
rulings have been or will be requested from the Internal Revenue Service (the
"Service"), and no opinions have been or will be provided by counsel to the
Partnership, with respect to any of the matters discussed herein. Moreover,
because the tax treatment of certain aspects of the Transaction is unclear
under current law, there can be no assurance that the Service would not take
positions contrary to those described below and that a court would not sustain
the Service's position, in which case a Unitholder may realize different tax
consequences. UNITHOLDERS ARE URGED TO CONSULT THEIR TAX ADVISORS REGARDING
THE SPECIFIC FEDERAL, STATE, LOCAL AND FOREIGN INCOME AND OTHER TAX
CONSEQUENCES OF THE TRANSACTION.
Gain On Sale
The Transaction will constitute a taxable event and will result in the
Partnership and the Unitholders recognizing gain, a portion of which will be
ordinary income from the recapture of depreciation, as described below. The
aggregate amount of the Partnership's gain from the Transaction will be equal
to the excess of (a) the amount of cash received by the Partnership plus the
amount of any indebtedness to which the Hotels are subject that is discharged
or assumed by the transferee as a result of the Transaction, including the
Equitable Note (the "Amount Realized") over (b) the Partnership's adjusted tax
basis in the Hotels at the time of the Transaction.
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Depreciation Recapture. In general, because the Partnership elected to take
depreciation deductions with respect to the real property as "section 1245
recovery property" on an accelerated basis, the depreciation deductions on the
real property are required to be recaptured as ordinary income. In addition, a
taxpayer must generally recapture as ordinary income the gain on the sale of
personal property.
Section 1231 Gain. Except with respect to the portions of the gain that are
treated as ordinary income, as discussed herein, the gain recognized by the
Partnership is expected to constitute "Section 1231" gain. Each Unitholder
will aggregate its "Section 1231" gains from all sources and its "Section
1231" losses from all sources, including its allocable share of such gains and
losses recognized by the Partnership. To the extent that a Unitholder's
"Section 1231" gains exceed its "Section 1231" losses in a taxable year, such
gains and losses generally will be treated as long-term capital gains or
losses, as the case may be. To that extent a Unitholder's "Section 1231" gains
do not exceed its "Section 1231" losses, such gains and losses will be treated
as ordinary income and losses.
Cash Distributions
The net proceeds from the Transaction will be distributed 99% to the
Unitholders and 1% to the General Partner. Although income and gain will be
allocated to the Unitholders as a result of the Transaction, no gain will be
recognized by a Unitholder as a result of the distribution of proceeds of the
Transaction, except to the extent that the amount of cash distributed exceeds
a Unitholder's adjusted tax basis in his Units immediately before the
distribution. A Unitholder with an adjusted tax basis remaining in its Units
following the cash distributions will recognize a capital loss (long-term or
short-term depending on the Unitholder's holding period) that can be used to
offset "Section 1231" gains that are not treated as ordinary income (or any
other capital gains from other sources).
Passive Activity Losses
Upon the consummation of the Transaction, Unitholders may generally use all
current and previously suspended losses from the Partnership, along with any
other current or suspended passive losses, to offset income and gain
recognized as a result of the Transaction and the liquidation of the
Partnership without regard to the passive activity limitations. To the extent
that a Unitholder's previously suspended losses from the Partnership exceed
the income and gain recognized as a result of the Transaction, such previously
suspended losses may also be used by the Unitholder to offset any other
income.
California and Missouri Income Taxes
Unitholders may also be subject to state or local taxes with respect to the
gain from the Transaction, and should consult their tax advisors regarding the
applicability of any such taxes. The State of California generally requires
partnerships to withhold California state income taxes at the rate of 7% from
distributions to nonresident partners (including nonresident individuals,
estates and trusts, and partnerships and corporations that do not have a
permanent place of business in California) that are attributable to such
partners' California source income. Based on projections, the Partnership has
determined that withholding generally will be required on the portion of the
distributions arising from the Transaction that is attributable to the sale of
the Los Angeles Hotel. Any amount withheld from distributions made to a
nonresident Unitholder may be claimed as a credit against, or refunded if in
excess of, such Unitholder's California income tax liability. The California
nonresident withholding requirement does not apply to partners who are
insurance companies, IRAs, Keoghs, other tax-exempt entities or deemed to be
California residents. Unitholders who are not residents of California should
consult their tax advisors regarding the filing of nonresident tax returns in
the State of California and any applicable tax credit that may be available in
their state.
The State of Missouri also generally requires partnerships to withhold
Missouri state income tax at a rate of 6% on distributions attributable to
Missouri-source income made to partners who are nonresident individuals.
11
<PAGE>
Based on projections, the Partnership has determined that withholding
generally will be required on the portion of the distributions arising from
the Transaction that is attributable to the sale of the St. Louis Hotel and
the Tan-Tar-A Hotel. If the amount withheld with respect to distributions to a
nonresident individual partner exceeds such partner's Missouri income tax
liability, such partner may file a claim for refund with Missouri tax
authorities. The Missouri nonresident withholding requirement only applies to
partners who are individuals. Individual Unitholders who are not residents of
Missouri should consult their tax advisors regarding the Missouri withholding
obligations and the availability of a tax credit in their state of residence.
Tax-Exempt Unitholders
Tax-exempt organizations, including employee benefit plans, although not
generally subject to Federal income tax, are subject to tax on certain income
derived from a trade or business carried on by the organization that is
unrelated to its exempt activities. Such "unrelated business taxable income"
("UBTI") generally includes gain from the sale of "debt-financed properties"
(as defined under Section 514 of the Internal Revenue Code of 1986, as
amended). Because the Hotels, as held by the Partnership, are considered to be
debt-financed properties for Federal income tax purposes, gain from the sale
thereof generally will constitute UBTI to tax-exempt Unitholders. Accordingly,
tax-exempt Unitholders should consult their tax advisors regarding the
application of the UBTI rules in connection with the Transaction.
Estimated Taxable Gain and Income
Based upon the description of the Transaction contained in this Proxy
Statement and assuming the Transaction is completed by June 1, 1998, the
Partnership's independent accountants have advised the Partnership that
Unitholders will recognize gain for Federal income tax purposes in 1998 of
approximately $5.22 per Unit, net of syndication costs. A portion of the gain,
approximately $.76 per Unit, will be characterized as ordinary income as a
result of the recapture of prior depreciation deductions. The balance of such
gain is expected to constitute "Section 1231" gain, which should generally be
treated as long-term capital gain.
THE ESTIMATES OF TAXABLE INCOME AND GAIN PROVIDED HEREIN ARE HYPOTHETICAL
AMOUNTS BASED UPON A NUMBER OF ASSUMPTIONS THAT MAY NOT BE CORRECT FOR ANY
GIVEN UNITHOLDER, ARE PRELIMINARY AND ARE FOR ILLUSTRATIVE PURPOSES ONLY.
THESE ASSUMPTIONS INCLUDE THE SALE DATE, ESTIMATED CLOSING COSTS, THE CREDIT
TO THE BUYER FOR REPLACEMENT RESERVES AND ACTUAL OPERATING RESULTS THROUGH
SALE. THE COMPUTATION ASSUMES SELLING COSTS AT 2% OF THE SALES PRICE,
REPLACEMENT RESERVE CASH BALANCES EQUAL TO THAT AT DECEMBER 31, 1997 AND
OPERATIONS COMPARABLE TO THE FIRST FIVE MONTHS OF 1997. THUS, THE ACTUAL
INCOME AND GAIN RECOGNIZED BY ANY UNITHOLDER CANNOT BE DETERMINED WITH
CERTAINTY, IS LIKELY TO VARY MATERIALLY FOR ANY SPECIFIC UNITHOLDER AND MAY BE
SIGNIFICANTLY GREATER OR LESS THAN THAT DESCRIBED HEREIN. RULINGS AND OPINIONS
HAVE NOT AND WILL NOT BE REQUESTED FROM THE INTERNAL REVENUE SERVICE OR
PROVIDED BY COUNSEL TO THE PARTNERSHIP WITH RESPECT TO THE MATTERS DISCUSSED
HEREIN. CONSEQUENTLY, UNITHOLDERS ARE STRONGLY URGED TO CONSULT THEIR TAX
ADVISORS REGARDING THE TAX CONSEQUENCES OF THE TRANSACTION IN LIGHT OF THEIR
PARTICULAR CIRCUMSTANCES AND INCOME TAX SITUATION.
ACCOUNTING TREATMENT
Under generally accepted accounting principles, the Transaction will result
in a gain for the Partnership as determined by the net sales proceeds less the
book basis of the real estate. Net sales proceeds are derived by subtracting
direct costs to dispose of the Hotel from the agreed upon gross sales price.
The agreed upon gross sales price for the Hotels has been determined to be
$114,000,000 in cash. The book basis of the real estate is the historical
acquisition cost of the Hotel, plus capital additions, less accumulated
depreciation through December 31, 1997. In accordance with generally accepted
accounting principles, the Partnership has classified the real estate as held
for sale as of June 30, 1997, thus, triggering the cessation of depreciation
expense.
12
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THE PURCHASE AND SALE AGREEMENT
The following is a summary of material provisions of the Purchase and Sale
Agreement, a copy of which is attached hereto as Annex A and incorporated
herein by reference. This summary is qualified in its entirety by reference to
the Purchase and Sale Agreement, and Unitholders should read that agreement
carefully in its entirety. Capitalized terms used but not defined in this
Proxy Statement shall have the meanings set forth in the Purchase and Sale
Agreement and are used herein with the same meanings.
THE PURCHASE AND SALE
The Purchase and Sale Agreement provides that for a total purchase price of
$114,000,000 the Partnership will (a) sell to Marriott all of its right, title
and interest in and to the real property on which the Hotels are situated
(including the Hotels) and the personal property of the Partnership used in
connection with the Partnership's operation and maintenance of the Hotels, and
(b) assign (and Marriott will assume) all of the Partnership's right, title
and interest in intangibles owned by the Partnership and necessary for its
operation of the Hotels, the Operating Leases and the ground leases relating
to the Tan-Tar-A Hotel (the "Tan-Tar-A Ground Leases").
Marriott has placed $1,140,000 in escrow as a deposit, refundable only under
certain circumstances described below. The balance of the Purchase Price,
subject to any adjustments and prorations in the Purchase and Sale Agreement,
will be paid by Marriott to the Partnership upon closing of the Transaction.
The Partnership will pay the cost of removing all title exceptions that are
not Permitted Exceptions. Marriott will pay for (a) the cost of the owner's
title insurance policies to be purchased by Marriott in connection with its
purchase of the Hotels (the "Owner's Title Policies") and all endorsements to
the Owner's Title Policies, (b) the cost of the Surveys and reasonable
certification thereto, (c) the charges for filing and recording the conveyance
documents, (d) all transfer fees and costs relating to the assignment and
assumption of the Operating Leases and the Tan-Tar-A Ground Leases, (e) all
county and city documentary and other transfer taxes, and (f) all sales, use
and other taxes applicable to the transfer of the Hotels to Marriott. Except
as noted, and subject to certain specified exceptions, the Partnership and
Marriott shall each bear their own expenses in connection with the
Transaction. Should the Partnership terminate the Purchase and Sale Agreement
due to a material uncured breach by Marriott, the Partnership may retain the
Deposit, along with any accrued interest, as liquidated damages. In such
event, Marriott will also bear all escrow and title company cancellation
charges. Such liquidated damages shall be the Partnership's exclusive remedy
for Marriott's material uncured breach of the Purchase and Sale Agreement.
PRORATIONS AND APPORTIONMENTS
Rent under the Operating Leases for the final period in which the Closing
occurs shall be prorated between the Partnership and Marriott as of the
Closing Date. Marriott will deliver to the Partnership the original Promissory
Note evidencing a loan incurred by the Partnership from Marriott to fund its
share of certain renovations to the St. Louis Hotel. Marriott shall receive a
$700,000 credit if the Transaction is consummated on or before June 1, 1998.
Marriott shall be entitled to the Partnership's interest in (a) the then
current balance in the respective Escrow Improvement Fund under each of the
Operating Leases (as such term is defined in the Operating Leases); (b) with
respect to the St. Louis Lease and the Los Angeles Lease, the current balance
in the Supplemental Escrow Improvement Fund (as such term is defined in such
leases), and (c) with respect to the Nashville Lease and the Tan-Tar-A Ground
Leases, the Working Capital (as such term is defined in such Leases) to the
extent previously advanced to Buyer.
REPRESENTATIONS AND WARRANTIES
The Purchase and Sale Agreement provides that Marriott is purchasing the
Hotels from the Partnership with limited representations and warranties on an
"as is, where is" basis, "with all faults." The Partnership and Marriott are
making customary representations and warranties regarding their organization
and authority to execute and deliver all necessary documents and the
enforceability thereof. In addition, the Partnership is making certain
additional customary representations and warranties regarding the Operating
Leases, the Tan-Tar-A Ground Leases, other contracts relating to the Hotels,
violations of law, legal proceedings, pending zoning changes and condemnation
actions, permits and certain liens.
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None of the Partnership's representations and warranties shall survive
closing. Prior to the closing, neither the Partnership nor Marriott shall have
any right to pursue remedies against the other for any misrepresentation or
breach of warranty unless and until the claiming party's actual damages in
respect thereof exceed $25,000 (the aforesaid amount being a threshold for
enforcement and not a deductible from liability).
TITLE
The issuance of the Owner's Title Policies in the amount of the Purchase
Price by the Title Company shall be conclusive evidence of delivery of title
acceptable to Marriott unless the representations, warranties and covenants in
the deeds conveying title are violated. In such case, Marriott's first
recourse for such a violation is to enforce Marriott's rights under the
Owner's Title Policies. The Partnership shall be liable for such a violation
if the Title Company either denies Marriott's claim or makes title proceeds
available to Marriott and such title proceeds are less than the actual damages
incurred by Marriott as a result of such violation. The foregoing provisions
shall survive Closing.
CONDITIONS PRECEDENT
In addition to customary conditions precedent to Closing, the Partnership
has agreed to remove specified encumbrances on title appearing on preliminary
title reports (the "PTRs") to each Hotel. Marriott has agreed to accept
certain other matters of title reflected on the PTRs as well as the Permitted
Exceptions. The Purchase and Sale Agreement also requires the Partnership to
solicit the approval of the Unitholders for the Transaction, and to deliver to
the Escrow Holder on or before May 15, 1998, a notice of the vote obtained.
ASSIGNMENT
Marriott may not sell, assign, encumber, convey or otherwise transfer
(collectively, "Transfer") its rights and obligations under the Purchase and
Sale Agreement without the Partnership's consent, except to Host Marriott
Corporation or any subsidiary or affiliate of Marriott, or any combination of
them, on a Hotel by Hotel basis. No such Transfer shall release Marriott of
its liability to perform the obligations of Buyer under the Purchase and Sale
Agreement.
RISK OF LOSS; CONDEMNATION
The Partnership shall retain the entire risk of loss or damage by
earthquake, flood, landslide, fire, hurricane, tornado or other casualty until
the Closing. If one or all of the Hotels sustain damage that in the reasonable
opinion of Marriott materially interferes or would materially interfere with
the economic operation or use of the Hotels, then Marriott may terminate the
Agreement or complete the Transaction and receive all insurance proceeds in
respect of such damages.
If one or all of the Hotels is taken by condemnation or eminent domain (or
becomes the subject of a pending taking that has not yet been consummated),
Marriott shall have the right to terminate the Purchase and Sale Agreement if,
in Marriott's reasonable opinion, such taking or pending taking materially
interferes or would materially interfere with the economic operation of the
Hotels. If such a taking or pending taking occurs but Marriott elects not to
terminate, the Partnership shall assign to Marriott all of its right, title
and interest in any condemnation award, with no adjustment to the Purchase
Price being made in respect thereof.
TERMINATION
The Purchase and Sale Agreement automatically terminates if the Partnership
notifies Marriott that the Transaction is not approved by the Unitholders. If
neither approval nor disapproval of the Transaction has been obtained from the
Unitholders by May 15, 1998, then the Purchase and Sale Agreement may be
terminated by either the Partnership or Marriott. Upon any such termination,
the Escrow Holder has been instructed to return the Deposit to Marriott, and
the Partnership shall be obligated to reimburse Marriott for its third party
costs incurred in connection with the Purchase and Sale Agreement up to a
maximum amount of $50,000.
14
<PAGE>
The Purchase and Sale Agreement may also be terminated by either the
Partnership or Marriott in the event of a material uncured breach of the
Purchase and Sale Agreement by the party. If a non-breaching party elects to
terminate as a result of a material uncured breach by the other party, the
Escrow Holder has been instructed to pay the Deposit to the non-breaching
party.
If the Purchase and Sale Agreement is terminated under certain other
circumstances (including a material casualty or condemnation affecting the
Hotel) or by reason of the failure of any material conditions precedent to
either the Partnership's or Marriott's obligation to close the Transaction
through no fault of either party, the Escrow Holder has been instructed to
return the Deposit to Marriott, and the Purchase and Sale Agreement shall be
of no further force or effect, except for those provisions that specifically
survive such termination.
INTERESTS OF CERTAIN PERSONS IN THE TRANSACTION
In considering the recommendation of the General Partner with respect to the
Transaction, Unitholders should be aware that the General Partner and certain
of its affiliates may be deemed to have certain interests in the Transaction
that are in addition to or potentially different from the interests of
Unitholders.
GENERAL PARTNER
Pursuant to the Partnership Agreement, the General Partner holds a 1%
interest in each item of Partnership income, gain, loss, deduction or credit.
Upon completion of the Transaction, the General Partner will receive
liquidating distributions of approximately $370,000 to $390,000, reflecting
the General Partner's 1% economic interest in the Partnership. See "THE
TRANSACTION--Distributions." In addition, an affiliate of the General Partner
may receive approximately one half of the real estate commission payable to
Eastdil for its assistance in the marketing of the Hotels, which fee could be
as much as $818,300.
D. F. KING
The Partnership has retained D. F. King to assist in the solicitation of
proxies, for which D. F. King will receive reasonable and customary
compensation, which is not anticipated to exceed $25,000, plus out-of-pocket
expenses.
15
<PAGE>
UNAUDITED PRO FORMA FINANCIAL DATA
The following unaudited pro forma financial information gives effect to the
Transaction as though it had closed on December 31, 1997. The information is
presented for illustrative purposes only, and therefore, is not necessarily
indicative of the operating results and financial position that might have
been achieved had the Transaction occurred as of an earlier date, nor are they
necessarily indicative of operating results and financial position that may
occur in the future. The sale price of the Hotels is $114,000,000 in cash. The
costs to sell the Hotels as of June 30, 1998 are anticipated to be
approximately $2,280,000. The Partnership will use a portion of the proceeds
from the sale to repay the mortgage loan payable in full, estimated to be
approximately $78.3 million as of December 31, 1997. The remaining cash in the
Partnership is assumed to be distributed in accordance with the Partnership
Agreement.
<TABLE>
<CAPTION>
PRO FORMA
DECEMBER 31, PRO FORMA DECEMBER 31,
1997 ADJUSTMENTS 1997(F)
------------ ------------- ------------
<S> <C> <C> <C>
ASSETS
Real estate held for disposition... $101,883,177 $(101,883,177)(a) $ 0
Cash and cash equivalents.......... 3,334,906 2,157,625 (e) 38,879,989
111,720,000 (a)
(78,332,542)(b)
Restricted cash.................... 938,376 (938,376)(a) 0
Restricted cash--loan reserve...... 2,535,447 (2,535,447)(e) 0
Due from hotel managers, net....... 623,501 (623,501)(a) 0
Replacement reserve receivable..... 1,783,963 (1,783,963)(e) 0
Rent receivable.................... 454,951 (454,951)(e) 0
Deferred charges--refinancing
costs, net of accumulated
amortization of $813,626 in 1997.. 813,626 (813,626)(d) 0
------------ ------------- -----------
TOTAL ASSETS....................... $112,367,947 $ (73,487,958) $38,879,989
============ ============= ===========
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accounts payable and accrued
expenses........................ $ 72,916 $ 72,916
Due to affiliates................ 40,000 40,000
Mortgage loans payable........... 78,332,542 $ (78,332,542)(b) 0
Mortgage loans interest payable.. -- 0
Refinancing fee payable.......... 412,500 (412,500)(e) 0
Distributions payable............ -- 0
Deferred management fees......... 4,187,505 (4,187,505)(c) 0
Deferred interest payable........ 1,849,186 (1,849,185)(c) 0
Promissory notes payable......... 420,273 (420,273)(e) 0
------------ ------------- -----------
Total liabilities.............. $ 85,314,921 $ (85,202,005) $ 112,916
============ ============= ===========
PARTNERS' CAPITAL:
$ 333,875 (a)
3,180 (c)
General Partner.................... $ 58,752 (8,136)(d) $ 387,671
Limited Partners (3,464,700 limited 6,157,108 (a)
partnership units authorized, 6,033,510 (c)
issued and outstanding)........... 26,994,274 (805,490)(d) 38,379,402
------------ ------------- -----------
Total Partners' Capital............ 27,053,026 11,714,047 38,767,073
------------ ------------- -----------
TOTAL LIABILITIES AND PARTNERS'
CAPITAL........................... $112,367,947 $ (73,487,958) $38,879,989
============ ============= ===========
</TABLE>
16
<PAGE>
The pro forma balance sheet as of December 31, 1997 reflects the assumed
sale of the four Hotels and the liquidation of the Partnership on December 31,
1997. The sale price of the Hotels is $114,000,000 in cash, subject to certain
adjustments. The cost to sell the Hotels as of June 30, 1998 are anticipated
to be approximately $2,280,000. The Partnership will use a portion of the
proceeds from the sale to repay the mortgage loan payable in full, which is
$78,332,542 as of December 31, 1997. The remaining cash in the Partnership is
assumed to be distributed in accordance with the Partnership Agreement. See
accompanying Notes to the Pro Forma Adjustments.
Notes to the Pro Forma Adjustments:
(a) To record the sale of the Hotels reflecting the removal of the property
held for disposition and related deferred charges, the receipt of net sale
proceeds, and the allocation of the gain to the General Partner and
Unitholders as follows:
<TABLE>
<S> <C>
Sales price................................................ $ 114,000,000
Closing costs.............................................. 2,280,000
-------------
Net Cash Proceeds.......................................... 111,720,000
-------------
Property held for disposition.............................. 101,883,177
Restricted Cash............................................ 938,376
Due from Hotel Managers.................................... 623,501
Replacement Reserve Receivable............................. 1,783,963
-------------
Gain on Sale............................................... $ 6,490,983
=============
Allocated as follows:
Unitholders................................................ $ 6,157,108
General Partner............................................ 333,875
-------------
$ 6,490,983
=============
</TABLE>
The allocation of gain to the General Partner is based upon their
estimated share of distributions from the sale.
(b) To reflect the payment of mortgage indebtedness, pursuant to the
agreements discussed herein, as follows:
<TABLE>
<S> <C>
Mortgage Loan Payable....................................... $ 78,332,542
------------
$ 78,332,542
============
</TABLE>
(c) To reflect the forgiveness and related allocation to the General
Partner and Unitholders as follows:
<TABLE>
<S> <C>
Deferred Management Fees..................................... $ 4,187,505
Deferred Interest Payable.................................... 1,849,185
-----------
$ 6,036,690
===========
Allocated as follows:
Unitholders.................................................. $ 6,033,510
General Partner.............................................. 3,180
-----------
$ 6,036,690
===========
</TABLE>
(d) To reflect the write-off of deferred charges associated with the
mortgages totaling $813,626 and the related allocation to the General
Partner and Unitholders
<TABLE>
<S> <C>
Unitholders..................................................... $ 805,490
General Partner................................................. 8,136
---------
$ 813,626
=========
</TABLE>
17
<PAGE>
(e) To reflect the collection of rent receivable and other receivables from
hotel managers, the receipt of the Partnership's portion of the replacement
reserve from Marriott, the satisfaction of obligations payable from the
replacement reserve, and the receipt of restricted cash.
(f) The remaining cash, net of accounts payable and accrued expenses and
due to affiliates, will be distributed to the General Partner and
Unitholders in accordance with the ending capital balances as follows:
<TABLE>
<S> <C>
General Partner.............................................. $ 387,671
Unitholders.................................................. 38,379,402
------------
$ 38,767,073
============
</TABLE>
18
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial information has been derived from the
financial statements of the Partnership. The financial statements as of
December 31, 1997, 1996, 1995, 1994 and 1993 and for each of the five years in
the period ended December 31, 1997, have been audited by Coopers & Lybrand
L.L.P., independent auditors, and are included elsewhere in this Proxy
Statement. The selected financial information set forth below should be read
in conjunction with the financial statements, the related notes and
"Managements' Discussion and Analysis of Financial Condition and Results of
Operations" appearing elsewhere in this Proxy Statement.
<TABLE>
<CAPTION>
FOR THE PERIODS ENDED DECEMBER 31,
-----------------------------------------------------------------
1997 1996 1995 1994 1993
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Rental income from
operations................ $ 11,127,581 $ 10,350,982 $ 10,155,725 $ 9,860,623 $ 9,652,455
Replacement escrow......... 5,694,279 5,557,759 5,219,071 5,021,649 4,898,950
Interest................... 439,230 416,202 365,855 227,886 144,584
------------ ------------ ------------ ------------ ------------
Total Income............. $ 17,261,090 $ 16,324,943 $ 15,740,651 $ 15,110,158 $ 14,695,989
Total Assets at December
31........................ $112,367,947 $109,954,205 $108,887,742 $108,853,719 $109,693,913
Mortgage loans payable at
December 31............... 78,332,542 80,239,491 81,714,517 80,438,000 80,438,000
Revolving credit loans
payable at December 31.... -- -- -- 2,531,417 2,531,417
Net income (loss)(1)....... 5,875,244 1,922,133 274,859 (1,099,424) (1,215,178)
Net income (loss) per
Unit(2)................... 1.68 .55 .05 (.31) (.35)
Cash distributions declared
per Unit(2).................. -- .40 -- .19 .45
</TABLE>
- --------
(1) Includes non-cash items such as depreciation, amortization, deferred asset
management fees and a one-time write off of undepreciated personal
property of $357,819 in 1993, replaced during renovations.
(2) There are 3,464,700 Units outstanding.
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
On June 28, 1995, the Partnership refinanced and amended its $80,438,000
mortgage loans payable and the $2,531,417 revolving credit loans payable with
Equitable, and terminated its Asset Management Agreement with Equitable Real
Estate Investment Management, Inc. ("EREIM"). The existing loan was
consolidated into the Equitable Loan totaling $82,469,417. The Equitable Loan
is collateralized by four separate deeds of trust with respect to the Hotels
and has a term of five years.
As a condition of the Equitable Loan, the Partnership entered into an escrow
agreement with Equitable requiring the Partnership to provide additional
collateral for the Equitable Loan (the "Loan Reserve"). As of December 31,
1997, the Loan Reserve balance was maintained at $2.5 million, and there were
no defaults on the Equitable Loan. The Loan Reserve may be used by the
Partnership to meet Marriott's request for additional funds for furniture,
fixtures and equipment ("FF&E") or building additions or expansions in excess
of those available in the Hotels' reserve accounts. In each case, Marriott is
obligated to contribute a portion of such funds.
In view of the anticipated sale of the Hotels, the Partnership's real estate
has been recorded at cost, less accumulated depreciation and amortization at
December 31, 1997 on the Partnership's Balance Sheet as "Real estate held for
disposition." Real estate held for disposition at December 31, 1997 was
$101,883,177. Upon reclassification, depreciation expense is no longer
recorded.
The Partnership's cash balance is invested in an interest-bearing account
and is used as a working capital reserve for operating expenses, debt service
and Partnership liabilities. At December 31, 1997, the Partnership had cash
and cash equivalents of $3,334,906, compared to $3,590,188 at December 31,
1996. The decrease is due to cash used for investing and financing activities,
primarily due to the distribution paid to limited partners on February 14,
1997, the timing of debt service payments and additions and replacements made
at each of the Hotels.
A reserve account for each of the Hotels has been established to cover
certain costs of improvements, replacements, refurbishments and renewals, as
well as FF&E upgrades. For the Los Angeles, St. Louis and Tan-Tar-A Hotels,
the reserve is maintained on behalf of the Partnership at each Hotel and is
classified as "Replacement reserve receivable" on the Partnership's balance
sheet. Replacement reserve receivable decreased from $3,426,722 at December
31, 1996 to $1,783,963 at December 31, 1997 due to expenditures exceeding
contributions to the reserve. For the Nashville Hotel, the reserve is held by
the Partnership and is classified as "Restricted cash" on the Partnership's
balance sheet. Restricted cash decreased to $938,376 at December 31, 1997,
compared to $1,297,810 at December 31, 1996 as a result of expenditures
exceeding contributions to the reserve. Rent receivable decreased to $454,951
at December 31, 1997, compared to $488,415 at December 31, 1996 due to the
timing of receipt of payments. Deferred charges-refinancing costs decreased to
$813,626 at December 31, 1997, compared to $1,139,076 at December 31, 1996,
due to the scheduled amortization of the Equitable Loan. Accounts payable and
accrued expenses decreased to $72,916 at December 31, 1997, compared to
$85,067 at December 31, 1996 due to the timing of payments for legal and
administrative expenses. Due to affiliates increased to $40,000 at December
31, 1997, compared to $1,000 at December 31, 1996, primarily due to
administrative reimbursement accruals due through December 31, 1997. Such
expenses were not reimbursable in prior periods.
On October 18, 1996, the Partnership entered into a loan agreement and
executed a promissory note in an amount up to $1,100,000 (the "Line of
Credit") with Marriott International Capital Corporation (the "Lender"). The
purpose of such financing was to provide the Partnership with the required
capital to implement certain upgrades to FF&E and to make certain non-
structural repairs and renovations (collectively, the "Renovations") at the
St. Louis Hotel. The Lender will fund to the Partnership from time-to-time
amounts necessary (up to the maximum amount of the Line of Credit) to complete
the Renovations at the St. Louis Hotel. The Line of Credit is unsecured and
non-recourse to the Partnership. During 1997, the Partnership borrowed
$1,100,000 under the Line of Credit and funded the replacement reserve to make
the Renovations (the "Replacement Reserve") .
20
<PAGE>
The Partnership has directed Marriott, the St. Louis Hotel's tenant, to make
payments on behalf of the Partnership solely from the St. Louis Hotel's FF&E
Replacement Reserve account in an amount equal to $61,986 per period
commencing with the second accounting period in fiscal 1997 until the maturity
of the Line of Credit. The Line of Credit bears interest at a rate of 9% per
annum on all outstanding amounts and can be prepaid by the Partnership without
premium or penalty. Marriott will fund all interest payments into the FF&E
Replacement Reserve account from Marriott's own funds prior to making any
interest payments to the Lender. Consequently, the payment from the tenant
will offset the interest as if this were an interest-free loan to the
Partnership. The Partnership made principal payments on the Line of Credit
from the Replacement Reserve totaling $679,727 during 1997, leaving a balance
due of $420,273 as of December 31, 1997.
At December 31, 1997, mortgage loans interest payable was $0, compared to
$601,796 at December 31, 1996. The decrease is due to a difference in the
timing of interest payments.
Prior to 1994, cash distributions were paid on a quarterly basis from net
cash flow provided by operating activities to Unitholders based on the
seasonal performance of the Hotels. The General Partner suspended the payment
of cash distributions in the fourth quarter of 1994. This action was taken in
order to increase Partnership cash reserves to provide for the various costs
of securing replacement financing related to the maturity of the Partnership's
outstanding indebtedness in June 1995. Distributions remained suspended
through 1996 in order for the Partnership to meet certain requirements under
the terms of the Equitable Loan. Due to the satisfaction of such requirements,
and improved operations during 1996 at both the Partnership and Hotel levels,
a cash distribution in the amount of $0.40 per Unit was paid to Limited
Partners on February 14, 1997 from the Partnership's operations during the
prior year. The distribution was paid to Limited Partners of record as of each
month-end in 1996. This represented a one-time distribution of 1996 annual
cash flow and did not indicate the reinstatement of regular cash
distributions. The General Partner expects to distribute the proceeds from the
anticipated sale of the Hotels to limited partners in accordance with the
terms of the Partnership Agreement.
Other than from a sale of the Hotels, the primary source of ongoing cash and
liquidity is from rental revenue under the operating leases and the
Partnership's cash reserves. The Partnership knows of no trends, demands,
commitments, events or uncertainties, other than the Partnership's cash
requirements pursuant to the terms of the Equitable Loan, that will result in
or that are reasonably likely to result in the Partnership's liquidity
increasing or decreasing in any material way, other than the normal seasonal
fluctuation in hotel operations which, in turn, causes fluctuations in rental
income throughout the year.
RESULTS OF OPERATIONS
1997 versus 1996
The Partnership generated net income of $5,875,244 for the year ended
December 31, 1997, compared to net income of $1,922,133 for the year ended
December 31, 1996. The increase is due to an increase in total income and a
decrease in total expenses, primarily depreciation. After adding back the non-
cash items of depreciation and amortization and subtracting the amount of
rental income from the FF&E replacement escrow, the Partnership had adjusted
net operating income of $4,031,529 for the year ended December 31, 1997,
compared with $3,283,994 for the year ended December 31, 1996, reflecting
improved operational activity.
Total income for the year ended December 31, 1997 was $17,261,090, compared
with $16,324,943 for the year ended December 31, 1996. The increase is due to
higher rents from operating profit earned at the Hotels, higher rents from
replacement escrow, and higher interest and other income. Rent from
replacement escrow, which is calculated as a percentage of the Hotels' gross
revenues, was $5,694,279 for the year ended December 31, 1997, compared with
$5,557,759 for the year ended December 31, 1996. Interest income totaled
$439,230 for the year ended December 31, 1997, compared with $416,202 for the
year ended December 31, 1996. The increase is primarily attributable to higher
operating and restricted cash balances during the 1997 periods.
Net cash provided by operating activities was $3,444,067 for the year ended
December 31, 1997, compared with $4,056,348 for the year ended December 31,
1996. The decrease primarily is due to the prepayment during the 1997 period
of mortgage loan interest payable of $601,796.
21
<PAGE>
Net cash used for investing activities was $811,664 for the year ended
December 31, 1997, compared with $0 for the year ended December 31, 1996. The
change is primarily due to capital expenditures at the four Hotels exceeding
replacement escrow revenue from the Hotels for the 1997 period.
Net cash used for financing activities was $2,887,685 for the year ended
December 31, 1997, compared with $1,470,725 for the year ended December 31,
1996. The increase primarily is due to an increase in the principal payments
on the mortgage loans during the 1997 period and the payment of a cash
distribution to the partners in February 1997.
Total expenses for the year ended December 31, 1997 were $11,385,846,
compared with $14,402,810 for the year ended December 31, 1996. The decrease
is due primarily to lower interest expense and depreciation and amortization
expense, which were partially offset by higher general and administrative
expenses and professional fees. Interest expense decreased to $7,137,238,
compared with $7,288,757 for the year ended December 31, 1996, due to the
scheduled amortization of the Equitable Loan. Depreciation and amortization
expenses for the year ended December 31, 1997 were $3,850,564, compared with
$6,919,620 for the year ended December 31, 1996. The decrease is due primarily
to the Hotels no longer being depreciated as a result of being classified as
"Real estate held for disposition" as of June 30, 1997. General and
administrative expenses for the year ended December 31, 1997 were $272,242,
compared with $122,397 for the year ended December 31, 1996. During the 1997
period, certain expenses incurred by the General Partner, its affiliates and
an unaffiliated third party service provider in servicing the Partnership,
which were voluntarily absorbed by affiliates of the General Partner in prior
periods, were reimbursable to the General Partner and its affiliates. To a
lesser extent, the increase is due to expenses relating to the sale of the
Hotels. Professional fees totaled $125,802 for the year ended December 31,
1997, compared with $72,036 for the year ended December 31, 1996. The increase
is due primarily to higher expenses relating to engineering studies performed
at the Hotels during 1997 and higher legal accruals.
The following table summarizes the Hotels' performance for the period from
January 1 to December 31 of the indicated years:
<TABLE>
<CAPTION>
1997 1996 % CHANGE
------------- ------------- --------
<S> <C> <C> <C>
Weighted Average Occupancy............... 75.2% 79.6% (5.5)
Weighted Average Room Rate............... $ 96.65 $ 87.99 9.8
Total Hotel Sales........................ $ 120,908,961 $ 118,131,587 2.4
Hotel Operating Profit................... $ 21,344,582 $ 18,785,538 13.6
Rent Earned by the Partnership........... $ 11,127,581 $ 10,350,982 7.5
</TABLE>
1996 versus 1995
For the year ended December 31, 1996, net cash provided by operating
activities was $4,056,348, compared with $2,603,536 for the year ended
December 31, 1995. The increase is primarily due to the increase in net income
in 1996. The Partnership generated net income of $1,922,133 for the year ended
December 31, 1996, compared with net income of $274,859 for the year ended
December 31, 1995. The increase is due to an increase in rental operating
profit, replacement escrow and interest income, as well as a decrease in total
expenses. After adding back the non-cash items of depreciation and
amortization and subtracting the amount of rental income from the FF&E
replacement escrow, the Partnership had adjusted net operating income of
$3,283,994 for the year ended December 31, 1996, compared with $2,052,968 for
the year ended December 31, 1995.
Total income for the year ended December 31, 1996 was $16,324,943, compared
with $15,740,651 for the year ended December 31, 1995. The increase is due to
higher rents from operating profit earned at the St. Louis and Los Angeles
Hotels, higher rent from replacement escrow and, to a lesser extent, higher
interest income. Rent from replacement escrow, which is calculated as a
percentage of the Hotels' gross revenues, increased to $5,557,759 for the year
ended December 31, 1996, compared to $5,219,071 for the year ended December
31, 1995. The increase is due to higher gross revenues at the St. Louis and
Los Angeles Hotels. Interest income totaled $416,202 for the year ended
December 31, 1996, compared to $365,855 for the year ended December 31, 1995.
The increase is primarily attributable to higher loan reserve and restricted
cash balances in 1996.
22
<PAGE>
Total expenses for the year ended December 31, 1996 were $14,402,810,
compared to $15,465,792 for the year ended December 31, 1995. The decline is
due primarily to decreases in interest expense, depreciation and amortization,
general and administrative expenses and asset management fees, which were
partially offset by an increase in professional fees. Asset management fees
were eliminated as a result of the termination of the Asset Management
Agreement upon refinancing. Interest expense decreased to $7,288,757 for the
year ended December 31, 1996, compared to $7,975,815 for the year ended
December 31, 1995. The decrease is due to the terms of the Equitable Loan that
require principal amortization and a lower interest rate than the original
mortgage loan. The decrease also is due to the consolidation of the previous
revolving credit loans into the Equitable Loan and termination of interest
accruals on the unpaid fees due under the Asset Management Agreement. General
and administrative expenses totaled $122,397 for the year ended December 31,
1996, compared with $148,466 for the year ended December 31, 1995. The
decrease is due primarily to the 1995 payment of the Los Angeles Commercial
Rent Tax, which was partially offset by higher Partnership accounting and
administrative expenses being recognized in 1996. Professional fees totaled
$72,036 for the year ended December 31, 1996, compared to $55,803 for the year
ended December 31, 1995. The increase is due primarily to engineering
consulting services associated with the room renovations at the St. Louis
Hotel.
The following table summarizes the Hotels' performance for the period from
January 1 to December 31 of the indicated years:
<TABLE>
<CAPTION>
1996 1995 % CHANGE
------------- ------------- --------
<S> <C> <C> <C>
Weighted Average Occupancy............... 79.6% 76.7% 3.8
Weighted Average Room Rate............... $ 87.99 $ 85.19 3.3
Total Hotel Sales........................ $ 118,131,587 $ 110,709,040 6.7
Hotel Operating Profit................... $ 18,785,538 $ 17,144,830 9.6
Rent Earned by the Partnership........... $ 10,350,982 $ 10,155,725 1.9
</TABLE>
23
<PAGE>
THE HOTELS
GENERAL
The four Hotels were purchased on June 3, 1988 from Equitable. The Hotels
are: the Los Angeles Airport Marriott Hotel, Los Angeles, California, the St.
Louis Airport Marriott Hotel, St. Louis, Missouri, the Nashville Air Hotel,
Nashville, Tennessee, and the Tan-Tar-A Hotel, Lake of the Ozarks, Missouri.
Each of the Hotels is leased to, and operated by, Marriott pursuant to the
Operating Leases.
Operating conditions for hotels nationwide remained strong during 1997, as
average daily room rates increased and average occupancy levels remained
stable. For the year ended December 31, 1997, market analysts STR reported
that average occupancy and daily room rates for U.S. hotels were 64.5% and
$75.16, respectively, compared with 65.0% and $70.81, respectively, for 1996.
The combined operating results at the Partnership's Hotels during 1997 were
reflective of these strong industry conditions. Although the Hotels are
affected by conditions specific to the market in which each operates, their
performance as a whole improved over last year.
The following table summarizes certain data for each of the hotels:
<TABLE>
<CAPTION>
LOS ANGELES ST. LOUIS NASHVILLE TAN-TAR-A
HOTEL HOTEL HOTEL HOTEL
----------------- --------------- ------------------ ------------------
<S> <C> <C> <C> <C>
Location................ 5855 West Century I-70 at Lambert 600 Marriott Drive Lake of the Ozarks
Los Angeles, CA Int'l Airport Nashville, TN State Road KK
St. Louis, MS Osage Beach, MS
Number of Guest Rooms... 1,012 601 399 365*
Hotel built in.......... 1957 1972 1981 1960 through 1980
Acquired by
Partnership............ June 3, 1988 June 3, 1988 June 3, 1988 June 3, 1988
Total Renovation
Expenditures since
acquired by
Partnership............ $17,909,977 $10,034,387 $6,067,691 $13,897,449
1997 Average Occupancy
Rate................... 71.6% 79.9% 78.3% 74.9%
1997 Average Room Rental
Rate................... $ 100.74 $ 84.54 $ 106.89 $ 95.41
1997 Average Revenue per
Available Room......... $ 72.13 $ 67.55 $ 83.69 $ 71.46
</TABLE>
- --------
* Marriott also manages approximately 610 private estates under agreements
with the individual owners, bringing the total number of available guest
units to 975.
THE TAN-TAR-A HOTEL
The Tan-Tar-A Hotel is a full-service resort consisting of 26 buildings
located on Lake of the Ozarks in Osage Beach, Missouri. It is situated on two
parcels of land extending over a total of 150 acres with approximately 5,000
feet of shoreline. In addition to managing the Tan-Tar-A Hotel's 365 operating
guest rooms, Marriott also manages approximately 610 private estates under
agreements with the individual owners, bringing the total number of available
guest units to 975. The Tan-Tar-A Hotel features extensive recreational
amenities, including a health club, tennis courts, swimming pools,
comprehensive water sports facilities and 27 holes of golf. Additionally, the
hotel offers a wide array of food and beverage options, including Burger King,
Sbarro's, four TCBY outlets and a main restaurant featuring indoor/outdoor
dining and a hunting lodge atmosphere. There are also eight lounges, a number
of banquet areas and ballrooms, and several retail and gift shops.
Operations at the Tan-Tar-A Hotel improved in 1997 compared with the
previous year. Despite facing additional competition during 1997, the Tan-Tar-
A Hotel posted increases in both average occupancy and room rate, resulting in
a 4% increase in the hotel's total sales. This improvement, combined with the
containment of expenses, led to a 10% increase in hotel operating profit and a
6% increase in rent from operating profit.
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Historically, the resort has faced limited competition in its market. There
is only one other full-service resort hotel in the vicinity and the General
Partner believes that the Tan-Tar-A Hotel offers a higher quality product.
Although there are several additional hotels and motels located in the area,
in the past they have not been perceived as being directly competitive with
the Tan-Tar-A Hotel due to disparities in markets served, quality of
facilities, rate structure, location and/or lack of affiliation with a major
hotel chain. Over the last few years, however, certain new and expanded
limited service hotels have gained market share. Even with this additional
competition, the Tan-Tar-A Hotel maintains its dominant position.
THE NASHVILLE HOTEL
The Nashville Airport Marriott Hotel is located approximately two-and-one-
half miles north of the Nashville Airport. The Nashville Hotel has 399 rooms
and features extensive amenities, including a health club, tennis courts, a
game room and an indoor/outdoor swimming pool with a poolside entertainment
area and barbecue pit. The Nashville Hotel's food and beverage facilities
consist of a full-service restaurant and lounge, and the banquet facilities
include two ballrooms and several meeting rooms which can accommodate up to
1,500 people. The hotel's main ballroom, the Capital Ballroom, was renovated
during 1997. The improvements consisted of the installation of new lighting
and "air walls" to control the noise level between rooms, and were funded out
of the hotel's reserve for FF&E.
The sustained strength of the Nashville hospitality market has encouraged
significant development over the last few years. Even with the increased room
supply, however, the Nashville market remained strong during 1997, as average
occupancy for the city's hotels remained stable and the average daily room
rate increased. For the year ended December 31, 1997, STR reported that the
average occupancy and average daily room rate for Nashville hotels were 66.8%
and $73.20, respectively, compared with 67.3% and $69.21, respectively, for
the year ended December 31, 1996. The Partnership's hotel maintains a
prominent position in its local market, posting a 3.4% increase in occupancy,
a 3.5% increase in average daily room rates and a 4.9% increase in total hotel
sales in 1997 over 1996. The higher sales, combined with management's efforts
to contain operating expenses, resulted in a 13.8% improvement in hotel
operating profit and a 13.2% increase in rent from operating profit in 1997
relative to 1996.
There are nine hotels that compete to varying degrees with the Nashville
Hotel. Although the supply of rooms continues to increase in the Nashville
market, the General Partner believes that the impact on the hotel will remain
minimal, due to the disparities in markets served, quality of facilities, rate
structure, location and/or lack of affiliation with a major hotel chain.
THE ST. LOUIS HOTEL
The St. Louis Airport Hotel is a 601-room hotel located on Pear Tree Lane
directly across from the Lambert International Airport in St. Louis, Missouri.
The St. Louis Hotel originally opened in 1972 with a total of 423 rooms, and
in 1981, added 179 rooms with the completion of the east tower. Guests at the
St. Louis Hotel enjoy extensive amenities, including indoor and outdoor
swimming pools, two lighted tennis courts and a health facility with a
whirlpool and sauna. Food and beverage facilities include a rooftop JW's
Steakhouse, a full-service restaurant and two lounges. Additionally, there are
two major ballrooms that can accommodate up to 2,100 people. Soft-goods
renovations were completed during the first quarter of 1997 on the remaining
rooms that had not been refurbished during 1996. These improvements were
funded from a line of credit provided to the Partnership by Marriott
International Capital Corporation (the "Line of Credit"). During the first
quarter of 1997, the Partnership borrowed $1,100,000 under the Line of Credit
and funded the hotel's FF&E to make the renovations. The Line of Credit is to
be repaid solely from the hotel's FF&E. During 1997, principal payments on the
Line of Credit from the hotel's FF&E totaling $679,727 were made.
Operating conditions for hotels in St. Louis remained strong during 1997.
STR reported that for the year ended December 31, 1997, the average occupancy
and room rates for the city's hotels were 63.1% and $68.80, respectively,
compared with 64.9% and $65.98, respectively, in 1996. The St. Louis Hotel
posted similar
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<PAGE>
improvement, as stable average occupancy and a 4.6% increase in the average
daily room rate led to a 1.5% increase in total sales. This improvement,
coupled with the containment of expenses, resulted in a 5.8% increase in hotel
operating profit and a 2.9% increase in rent from operating profit.
The Partnership has identified six hotels in the St. Louis Airport market
that currently compete directly with the St. Louis Hotel. Two other Marriott
hotels are also located in the greater St. Louis area, which, due to their
affiliation with Marriott, compete to a certain degree with the Partnership's
hotel. During 1997, a new 400-room hotel and casino opened, however, it has
had minimal impact on the Partnership's hotel. Although there are many
additional hotels in the St. Louis market, they are not considered to be
directly competitive with the Partnership's hotel due to disparities in
markets served, quality of facilities, rate structure, location and/or lack of
affiliation with a major hotel chain.
THE LOS ANGELES HOTEL
The Los Angeles Airport Marriott is a 1,010-room convention-type hotel that
opened in 1973. The Los Angeles Hotel is situated on Century Boulevard, just
one-half mile east of the entrance to the Los Angeles International Airport.
Amenities offered at the Los Angeles Hotel include a health club with a sauna
and a game room, an outdoor swimming pool and a hydrotherapy pool. The Los
Angeles Hotel also features two full-service restaurants, a sports bar/lounge,
a gourmet coffee shop and a lobby and pool lounge. Banquet and meeting
facilities can accommodate more than 2,000 people. A soft-goods renovation of
all guest rooms was completed during the third quarter of 1997. These
improvements included the replacement of carpeting, draperies, bedspreads and
other soft-goods, and were funded out of the hotel's FF&E reserve.
The operating environment for hotels in the Los Angeles Airport hotel
submarket continued to strengthen during 1997. STR reported that for the year
ended December 31, 1997, average occupancy and room rates for hotels in the
Los Angeles Airport submarket increased to 74.5% and $66.69, compared to 73.5%
and $61.00, respectively, for 1996. The overall performance of the
Partnership's hotel also improved. The average daily room rate increased by
approximately 16%, which offset an anticipated 9% decrease in the average
occupancy rate, and as result, total hotel sales were largely unchanged in
1997 compared with 1996. Even with flat sales, a 2% reduction in total hotel
expenses led to a 18.6% improvement in hotel operating profit and a 6.4%
increase in rent paid to the Partnership.
There are seven hotels in the Los Angeles Airport submarket that compete to
varying degrees with the Partnership's hotel, including a 750-room Westin
Hotel at the Airport that was formerly known as a Doubletree. One competitor,
located three miles south of the airport in Manhattan Beach, was owned until
August 1997 by a limited partnership that was sponsored by an affiliate of the
General Partner. While there are several additional hotels in the market area,
due to disparities in markets served, quality of facilities, rate structure,
location and/or lack of affiliation with a major hotel chain, they are not
considered to be directly competitive with the Partnership's hotel.
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<PAGE>
THE OPERATING LEASES
The following summary of material provisions of the Operating Leases is
qualified in its entirety by reference to the Operating Leases. Capitalized
terms used but not defined in this Proxy Statement have the meanings set forth
in the Operating Leases and are used herein with the same meanings.
The Partnership purchased the Hotels subject to individual operating leases
relating to each of the Hotels (respectively, the "Tan-Tar-A Lease," the
"Nashville Lease," the "St. Louis Lease" and the "Los Angeles Lease," which
are individually referred to herein as an "Operating Lease" and are
collectively referred to herein as the "Operating Leases"). Pursuant to the
Operating Leases, the operation of each of the Hotels is under the control of
Marriott.
THE TAN-TAR-A LEASE
The Tan-Tar-A Hotel was purchased subject to an operating lease with The
Marriott Corporation, which was assumed by the Partnership. In 1993, the
Marriott Corporation assigned its interest in the lease to its wholly-owned
subsidiary, Marriott Hotel Services, Inc. The lease, which had a remaining
term of 17 years as of June 3, 1988, expires December 30, 2005 and contains
five 10-year renewal options by Marriott.
Rent payable under the lease equals 60% of the Operating Profit (as defined
in the lease), provided that if (i) 60% of the Operating Profit is less than
the Landlord's First Priority (as defined in the lease), rent shall be
increased by the difference, from up to 80% of the Operating Profit, or (ii)
if 60% of the Operating Profit is greater than the Landlord's Second Priority
(as defined in the lease), rent shall be reduced by 25% of such excess, but
rent shall not be less than 50% of the Operating Profit.
THE NASHVILLE LEASE
The Nashville Hotel was purchased subject to an operating lease with The
Marriott Corporation, which was assumed by the Partnership. In 1993, the
Marriott Corporation assigned its interest in the lease to its wholly-owned
subsidiary, Marriott Hotel Services, Inc. The Nashville Hotel's lease had a
remaining term of 18 years as of June 3, 1988, expires December 29, 2006 and
contains five 10-year renewal options by Marriott.
Rent payable under the lease equals 60% of the Operating Profit (as defined
in the lease), provided that if (i) 60% of the Operating Profit is less than
the Landlord's First Priority (as defined in the lease), rent shall be
increased by the difference, from up to 80% of the Operating Profit, or (ii)
if 60% of the Operating Profit is greater than the Landlord's Second Priority
(as defined in the lease), rent shall be reduced by 25% of such excess, but
rent shall not be less than 50% of the Operating Profit.
THE ST. LOUIS LEASE
The St. Louis Hotel was purchased subject to an operating lease with The
Marriott Corporation, which was restated on June 2, 1988, and provides for a
term expiring on July 25, 2003, and five 10-year renewal options by Marriott.
In 1993, the Marriott Corporation assigned its interest in the lease to its
wholly-owned subsidiary, Marriott Hotel Services, Inc.
Rent payable under the lease equals the greater of (i) 50% of the Operating
Profit (as defined in the lease) up to a maximum of $1,352,500 plus an amount
equal to a 10% return on all of the Landlord's Additional
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<PAGE>
Contributions and Additional Building Contributions (as defined in the lease)
provided that if, in any year, 50% of the Operating Profit exceeds $1,352,500
plus such 10% return, then Marriott must pay additional rent equal to one-half
of the excess, or (ii) if 50% of the Operating Profit is insufficient to pay
the sum of $1,217,250 plus a 9% return on all of the Landlord's Additional
Contributions and Additional Building Contributions, then Marriott must pay
$1,217,250, plus an amount equal to a 9% return on all of the Landlord's
Additional Building Contributions to the extent of up to 100% of Operating
Profit.
THE LOS ANGELES LEASE
The Los Angeles Hotel was purchased subject to an operating lease with The
Marriott Corporation, which was restated on June 2, 1988, and provides for a
term expiring on July 25, 2003 and five 10-year renewal options by Marriott.
In 1993, the Marriott Corporation assigned its interest in the lease to its
wholly-owned subsidiary, Marriott Hotel Services, Inc.
Rent payable under the Lease equals the greater of (i) 50% of Operating
Profit (as defined in the lease) up to a maximum of $3,626,183 plus an amount
equal to a 10% return on all of the Landlord's Additional Contributions and
Additional Building Contributions (as defined in the lease), provided that if,
in any year, 50% of the Operating Profit exceeds $3,626,183 plus such 10%
return, then Marriott must pay additional rent equal to one-half of the
excess, or (ii) if 50% of the Operating Profit is insufficient to pay the sum
of $3,626,183, plus a 9% return on all of the Landlord's Additional
Contributions and Additional Building Contributions, then Marriott must pay up
to $3,626,183, plus an amount equal to a 9% return on all of the Landlord's
Additional Contributions and Additional Building Contributions to the extent
of up to 100% of Operating Profit.
WORKING CAPITAL UNDER THE HOTEL LEASES
The St. Louis and Los Angeles Leases require Marriott to provide all funds
necessary to provide the respective Hotels with adequate levels of working
capital and that Marriott will retain ownership of the working capital
throughout the lease term and upon termination thereof. Equitable advanced
Marriott $850,000 of working capital for the Tan-Tar-A Property and $480,000
of working capital for the Nashville Property. These working capital advances
shall be paid over to the owner by Marriott (without interest) after
termination of the respective Operating Lease. Marriott is obligated under
each of the Tan-Tar-A and Nashville Leases to provide any additional funds
necessary to maintain working capital and inventories at levels reasonably
determined by Marriott to be necessary for the operational requirements of
each such Property.
REPAIRS AND MAINTENANCE
Marriott is required under each of the Operating Leases to maintain the
respective Hotels in good repair and condition and in conformity with
applicable laws and regulations. Marriott is authorized to perform routine
maintenance, repairs and minor alterations, the cost of which can be expensed
under generally accepted accounting principles and which it deems necessary or
desirable. The cost of such maintenance, repairs and alterations is to be
treated as a deduction from Gross Revenues in determining Operating Profits
and is to be paid by Marriott out of Gross Revenues.
ESCROW IMPROVEMENT FUND AND SUPPLEMENTAL ESCROW IMPROVEMENT FUND UNDER THE ST.
LOUIS AND LOS ANGELES LEASES
Marriott is required under both the Los Angeles and St. Louis Leases to
establish in respect of each fiscal year a reserve account on each of the
Property's books of account to cover the cost of all improvements,
replacements, refurbishments and renewals to each Property and to their FF&E.
This reserve is to be established by deducting from Gross Revenues an amount
equal to 4.5% of Gross Revenues in each fiscal year. All such deductions from
Gross Revenues up to 3% thereof, plus the proceeds from the sale of any FF&E
no longer necessary for the operation of each Property is to be placed in a
separate non-interest-bearing account (the "Escrow Improvement Fund") for each
of the St. Louis and Los Angeles Hotels. The 1.5% deduction in excess
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<PAGE>
of 3% of Gross Revenues shall be deposited in a separate interest-bearing
account (the "Supplemental Escrow Improvement Fund") for each of the St. Louis
and Los Angeles Hotels. Both the St. Louis and Los Angeles Leases provided
that Marriott is not required to make such deposits to the extent that they
would cause or contribute to an operating loss or if the combined balance in
the Escrow Improvement Fund and the Supplemental Escrow Improvement Fund
exceed the sum of 3% of the Gross Revenues for the subject Property for the
previous three fiscal years. Each of the St. Louis and Los Angeles Leases
provide that all amounts deposited in the Escrow Improvement Fund and in the
Supplemental Escrow Improvement Fund (including interest thereon) shall at all
times belong to the Partnership. However, balances in the Escrow Improvement
Fund are available for inclusion in compensating balance accounts maintained
by Marriott.
ESCROW IMPROVEMENT FUND UNDER THE NASHVILLE AND TAN-TAR-A LEASES
Both the Nashville and Tan-Tar-A Leases require Marriott to maintain an
"Escrow Improvement Fund" to cover the costs of FF&E replacement for the
subject Property and certain non-routine repairs and maintenance for the
subject Property (such as exterior and interior painting and resurfacing). For
both the Nashville Property and the Tan-Tar-A Property, an amount equal to 5%
of Gross Revenues shall be deposited by Marriott each fiscal year in the
respective Escrow Improvement Fund. These deposits are to be deducted from
Gross Revenues in determining Operating Profit. However, Marriott has no
obligation to make such deposits into the Escrow Improvement Fund for each
Property if such funding would create or contribute to an operating loss in
any fiscal year for such Property or if the amount escrowed in the Escrow
Improvement Fund for such Property exceeds 4% of aggregate Gross Revenues for
such Property for the previous three fiscal years. In addition to the
foregoing deposits, the proceeds of the sale of any FF&E no longer necessary
for the operation of the subject Property are to be deposited into such
Property's Escrow Improvement Fund. The Escrow Improvement Funds for the
Nashville and Tan-Tar-A Hotels will be held by the Partnership. The
Partnership must disburse funds held in the Escrow Improvement Fund for the
above-described expenditures upon Marriott's request. All amounts deposited in
either such Escrow Improvement Fund shall belong to the Partnership. Both the
Nashville and Tan-Tar-A Leases provide that any amount remaining in an Escrow
Improvement Fund upon termination of the Operating Lease to which it relates
will be transferred to Operating Profit, unless the termination is a result of
Marriott's default. These funds transfer with the Nashville and Tan-Tar-A
Hotels upon sale.
SUBSTITUTIONS, RENEWALS, REPLACEMENTS AND IMPROVEMENTS
Marriott is entitled under each Operating Lease to make such substitutions
and replacements of, or renewals to, FF&E as well as such alterations,
improvements, renewals and replacements to the buildings of the respective
Hotels as it deems necessary up to the balance in the Escrow Improvement Fund
for such Property and then (in the case of the Los Angeles and St. Louis
Hotels) and only to the extent that the Escrow Improvement Fund for such
Property is not sufficient for such purposes, up to the balance in the
Supplemental Escrow Improvement Fund for such Property. Such improvements,
alterations, repairs, replacements or renewals paid for from proceeds of
either the Escrow Improvement Fund or the Supplemental Escrow Improvement Fund
shall upon acquisition or installation become the property of the Partnership.
Any such expenditures out of the Escrow Improvement Fund (in the case of the
Los Angeles and St. Louis Hotels) or the Supplemental Escrow Improvement Fund
must be in accordance with annual equipment estimates and building estimates
prepared by Marriott and submitted to the Partnership for each Property.
Expenditures not contemplated by the equipment estimate or the building
estimate cannot be undertaken without the Partnership's prior written consent
(which cannot be unreasonably withheld), except that Marriott is authorized
under each Operating Lease to make expenditures not contemplated by the
estimates in certain generally unforeseeable circumstances specified in the
Operating Leases.
ADDITIONAL CONTRIBUTIONS TO ESCROW IMPROVEMENT FUND
If in any fiscal year the amount in the Escrow Improvement Fund and (in the
case of the Los Angeles and St. Louis Hotels) the Supplemental Escrow
Improvement Fund for a given Property is insufficient to pay for the cost of
replacements of FF&E, as well as alterations, repairs, improvements and
refurbishments of the subject
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<PAGE>
Property building (but not an expansion or addition thereof) that in
Marriott's reasonable opinion are necessary to keep such Property in a first-
class modern condition comparable to Marriott's standards, the Partnership
may, if requested by Marriott, make an additional contribution to the Escrow
Improvement Fund for such Property ("Landlord's Additional Contribution"). The
Los Angeles and St. Louis Leases provide that any such Landlord's Additional
Contribution to the Escrow Improvement Fund is to be matched by an equal
contribution by Marriott, while the Nashville and Tan-Tar-A Leases provide
that Marriott is to make a contribution to such Escrow Improvement Fund equal
to 60% of the Landlord's Additional Contribution to such fund. Any requests by
Marriott for a Landlord's Additional Contribution must be accompanied by
documents and data describing the scope and the estimated cost of the proposed
improvements, replacements, refurbishments and/or renewals along with a good
faith justification as to the requirement for such Landlord's Additional
Contribution. The Partnership has 90 days following the receipt of the above
data and justification to determine if it wishes to make the Landlord's
Additional Contribution. Each of the Operating Leases grants Marriott a right
to acquire the Property in question if the Partnership determines not to make
such Landlord's Additional Contribution, such right being described below.
Additional Contributions to the Escrow Improvement Fund (whether made by
Marriott or the Partnership) are not treated as a Deduction in determining
Operating Profit.
ADDITIONAL CONTRIBUTION FOR BUILDING ADDITIONS OR EXPANSIONS
Each of the Operating Leases gives Marriott the right to request that the
Partnership make financial contributions (an "Additional Building
Contribution") for expanding or making additions to the subject Hotels if in
Marriott's reasonable opinion the economical operation and profitability
thereof would be improved by such expansion or addition. When requesting such
an Additional Building Contribution the Hotel Manger is required to submit to
the Partnership for its review documents and data describing the size and
scope of the proposed addition or expansion, Marriott's estimate as to the
cost thereof, and economic and financial information in support of its opinion
that the addition or expansion will improve such Property's economical
operation and profitability. The Los Angeles and St. Louis Leases provide that
any Additional Building Contribution made by the Partnership is to be matched
on an equal basis by Marriott, while the Nashville and Tan-Tar-A Leases
provide that Marriott is to make a contribution equal to 60% of the
Partnership's Additional Building Contribution. The Partnership has ninety
days after receipt of the foregoing information in which to elect whether to
make the requested Additional Building Contribution. If the Partnership
determines not to make such Additional Building Contribution, then Marriott
has the right to acquire the Property in question on the terms described
below.
INSUFFICIENT ADDITIONAL CONTRIBUTIONS--MARRIOTT'S RIGHT TO REPURCHASE
Each Operating Lease provides that if the Partnership elects not to make a
Landlord's Additional Contribution or an Additional Building Contribution
(both as described above) within 90 days, Marriott is entitled to either make
such addition or expansion with its own funds or purchase the Property in
question at a price equal to the following: (A) through June 30, 1988, the
repurchase price is $14,877,500 for the St. Louis Property and $40,425,000 for
the Los Angeles Property; (B) through November 17, 1991, the repurchase price
is $23,650,000 for the Nashville Property; and (C) through August 7, 1990, the
repurchase price is $16,500,000 for the Tan-Tar-A Property. Thereafter, the
repurchase price for each Property shall be increased under each Operating
Lease each lease year by 1% of the initial purchase price paid by Equitable
for such Property so that by the 25th lease year of each Operating Lease and
for each lease year thereafter the repurchase price for each Property shall be
equal to 125% of the initial purchase price paid by Equitable. The Nashville
and Tan-Tar-A Leases provide that the foregoing repurchase prices for the
Nashville and Tan-Tar-A Hotels shall be increased by an amount equal to all
Landlord's Additional Contributions and all Additional Building Contributions
made to such date by Equitable or the Partnership. No such amounts are
included in the above figures. All of the Operating Leases provide that all
closing costs, expenses and fees incurred in repurchasing a hotel will be
borne by Marriott.
OWNERSHIP OF REPLACEMENTS
Each Operating Lease provides that all changes, repairs, alterations,
improvements, renewals and replacements paid for with funds deposited in
either the Escrow Improvement Fund or (in the case of the Los
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Angeles and St. Louis Hotels) the Supplemental Escrow Improvement Fund shall
be the sole and exclusive property of the Partnership. The Partnership and
Marriott are entitled to depreciation rights with respect to any changes,
repairs, alterations, additions, improvements, renewals or replacements paid
for with their respective Additional Contributions and Additional Building
Contributions. However, Marriott has the right under the Operating Leases to
make the allocation as to which specific assets or classes of assets have been
purchased for the account of the Partnership and which have been purchased for
the account of Marriott with their respective Additional Contributions or
Additional Building Contributions. Marriott is entitled to full depreciation
rights with respect to such changes, repairs, alterations, additions,
improvements, renewals or replacements for which it has paid entirely with its
own funds. Each Operating Lease provides that at termination, other than by
any default of Marriott thereunder, the Partnership must reimburse Marriott
for the then net book value of any assets funded by Marriott's Additional
Contributions and Additional Building Contributions.
HOTEL ACCOUNTS, EXPENDITURES
All funds derived from the operation of each of the Hotels are to be
deposited by Marriott in hotel bank accounts designated by the Hotel Manger
and reasonably approved by the Partnership. Marriott is not required under any
of the Operating Leases to make any advance or payment to or for the account
of the Partnership, and Marriott shall not be obligated to incur any liability
or obligation for the Partnership's account that is an obligation of the
Partnership under the respective Operating Leases without assurances that
necessary funds for the discharge thereof will be provided by the Partnership.
OPERATING LOSSES
Any negative Operating Profits shall be for the sole account of Marriott
under each of the Operating Leases.
USE OF THE HOTELS
Marriott is required by the Operating Leases to use each of the Hotels
solely for the operation of a hotel under first class standards comparable to
those prevailing in other comparable hotels owned, operated, leased or managed
by Marriott under the "Marriott" name in the United States and for all
activities in connection therewith that are customary and usual to such an
operation. Marriott may not discriminate against any of the Hotels and is
required to operate them with the same degree of expertise accorded to all of
the Hotels in Marriott's hotel system. Each of the Operating Leases gives
Marriott the right to terminate upon 60 day's written notice to the
Partnership in the event of a withdrawal or revocation of any material license
or permit required for Marriott's performance under such Operating Lease where
the revocation is due to circumstances beyond Marriott's control and/or where
the circumstances for such revocation did not arise due to Marriott's action
or fault.
CHAIN SERVICES
Each of the Operating Leases requires Marriott to furnish to the Hotels
certain services ("Chain Services") that are furnished generally on a central
or regional basis to other hotels that Marriott owns, leases or manages in the
United States under the "Marriott" name and that benefit each such Property.
Chain Services include (i) national sales office services, central training
services, central advertising and promotion, Marriott's national reservation
system and the Marriott's computer payroll and accounting services and (ii)
such additional central or regional services as may from time to time be
furnished for the benefit of the hotels which Marriott owns, leases or manages
in the United States under the "Marriott" name or in substitution for services
now performed at individual hotels that may be more efficiently performed on a
group basis. All of the Operating Leases provide that neither Marriott nor any
of its affiliates shall charge or receive any profit for providing Chain
Services. Costs and expenses incurred in the provision of such Chain Services
are to be allocated on a fair and equitable basis among all hotels that
Marriott owns, leases or manages under the "Marriott" name in the United
States receiving such Chain Services. Each of the Operating Leases provides
that each Property's respective share of the costs and expenses incurred by
Marriott in providing such Chain Services will be a Deduction from Gross
Revenues in computing Operating Profit.
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DAMAGE AND REPAIR
Each of the Operating Leases requires the repairing or replacing of any
portion of any hotel damaged or destroyed by fire, casualty or other cause,
but only to the extent that proceeds from the insurance described above are
sufficient to do so. The St. Louis and Los Angeles Leases place the repair
obligation on the Partnership, while the Nashville and Tan-Tar-A Leases place
the repair obligation on Marriott. If any of the Hotels is destroyed or
substantially damaged within the last two fiscal years of the then remaining
term of the respective Operating Lease, the damaged or destroyed Property is
to be repaired or replaced only if Marriott exercises or firmly commits itself
to exercise its option to extend the term of such Operating Lease for the next
renewal term. In the event that damage or destruction to the St. Louis or Los
Angeles Hotels materially and adversely affects the operation thereof and the
Partnership fails to promptly commence and complete the repairing, rebuilding
or replacement of the same, Marriott, at its option, may either elect to
undertake such work for the Partnership's account or terminate the related
Operating Lease for the damaged or destroyed Property upon 60 days' written
notice from the date of destruction. In the event that the rebuilding or
repairing of a damaged Property is prevented by virtue of the application of
law or if Marriott fails to exercise its option to extend the term of any
Operating Lease in connection with a Property that has been substantially
damaged or destroyed during the final two fiscal years of an initial or
renewal term thereof, Marriott is entitled to receive a share of the insurance
proceeds as reimbursement for the value of its leasehold. In no event,
however, is the Partnership to receive less than the Partnership's net book
value for such Property.
ASSIGNMENT
Each Operating Lease provides that neither the Partnership nor Marriott may
assign or transfer its interest in any of the Operating Leases without the
prior written consent of the other party, except that Marriott may assign its
interests in any Operating Lease to any of its affiliated companies and it may
sublease shops and grant concessions at any of the Hotels. The Los Angeles and
St. Louis Leases provide that an assignment by either the Partnership or
Marriott of its interests under such Operating Lease shall relieve the
assigning party from its obligations under such Operating Lease. The Nashville
and Tan-Tar-A Lease provide that the Partnership shall be relieved of its
obligations under such Operating Lease upon an assignment by the Partnership,
but Marriott shall be relieved of its obligations upon an assignment by
Marriott only with the consent of the Partnership. Each Operating Lease
contains language to the effect that nothing therein shall prevent the
conditional assignment thereof as security for any mortgage that Marriott
approves on the related Property or the transfer of the Operating Lease in
connection with a merger or consolidation or a sale of all or substantially
all of the assets of either the Partnership or Marriott.
MARRIOTT'S RIGHT OF FIRST REFUSAL
If the Partnership receives an offer to purchase any of the Hotels and
desires to accept the same, it must give notice of such offer to Marriott.
After the receipt of such notice, Marriott may elect to purchase the Property
at the same price and upon the same terms and conditions as those set forth in
the written notice from the Partnership to Marriott. Alternatively, Marriott
may elect to terminate the Operating Lease if, in Marriott's reasonable
judgment, (a) the proposed purchaser (directly or indirectly) owns any
interest in any lodging facilities, restaurants or other facilities that are
in competition with similar facilities of Marriott, (b) the proposed purchaser
is not of adequate financial stature, or (c) the proposed purchaser is of bad
character and reputation. In the event that Marriott elects to terminate the
Operating Lease, the Partnership is obligated to reimburse it for the net book
value of Marriott's investments made pursuant to those sections of the
Operating Lease dealing with Additional Contributions, Additional Building
Contributions and Marriott's right to make an addition or expansion with its
own funds if the Partnership elects not to make a Landlord's Additional
Contribution or an Additional Building Contribution. Marriott has exercised
its right of first refusal to purchase the Hotels in the Transaction.
32
<PAGE>
OPTION TO PURCHASE ON EXPIRATION OF INITIAL TERM
Both the Nashville and Tan-Tar-A Leases give Marriott the right, upon the
expiration of the initial term of such Operating Leases to purchase the
subject Property at a price equal to (A) in the case of the Nashville
Property, the greater of (i) $21,500,000 plus the Landlord's Investment or
(ii) the Nashville Property's then fair market value; and (B) in the case of
the Tan-Tar-A Property, the greater of (i) $15,000,000 plus the Landlord's
Investment or (ii) the Tan-Tar-A Property's then fair market value. Each
Property's current market value shall be determined by arbitration.
THE AMENDMENT
Section 7.05(c) of the Partnership Agreement provides that the General
Partner generally may not, without the consent of the holders of a majority of
the Units, cause the Partnership to sell all or substantially all of the
Partnership's assets (the "Sale Limitation"). The General Partner, on behalf
of the Partnership, proposes to eliminate the Sale Limitation by deleting
Section 7.05(c) and all references thereto from the Partnership Agreement so
that it has the power to sell all of the assets of the Partnership, including
the Remaining Hotels (if any), after the Sale, without the expense and
potential delay of a separate Unitholder consent solicitation statement. The
General Partner believes that elimination of the Sale Limitation will also
simplify the procedures associated with the sale of the Remaining Hotels (if
necessary) and thereby enhance the marketability of the Remaining Hotels.
Approval of the Amendment is not conditioned upon the closing of the
Transaction. Accordingly, if approved, the Amendment will be effective whether
or not the Transaction is ultimately consummated as set forth herein. THE
EFFECT OF THE AMENDMENT WILL BE TO AUTHORIZE THE GENERAL PARTNER TO DISPOSE OF
THE HOTELS (IF THE SALE IS NOT CONSUMMATED) UPON TERMS THAT THE GENERAL
PARTNER, IN ITS SOLE DISCRETION, DETERMINES TO BE IN THE BEST INTERESTS OF THE
UNITHOLDERS WITHOUT FURTHER CONSENT OF THE UNITHOLDERS. HOWEVER, THE GENERAL
PARTNER WILL NOT SELL ANY OF THE HOTELS TO ANY OF ITS AFFILIATES WITHOUT THE
CONSENT OF THE HOLDERS OF A MAJORITY OF THE UNITS.
The General Partner has determined that the Amendment is the best course of
action for, and in the best interests of, the Partnership and the Unitholders.
Accordingly, the General Partner has approved the Amendment and recommends
that the Unitholders use the enclosed consent card to vote "FOR" approval of
the Amendment.
33
<PAGE>
HOTEL PROPERTIES L.P.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Accountants......................................... F-2
Financial Statements:
Balance Sheets at December 31, 1997 and 1996............................ F-3
Statement of Partners' Capital for the years ended December 31, 1997,
1996 and 1995.......................................................... F-4
Statements of Operations for the years ended December 31, 1997, 1996 and
1995................................................................... F-4
Statements of Cash Flows for the years ended December 31, 1997, 1996 and
1995................................................................... F-5
Notes to Financial Statements........................................... F-6
Schedule III.............................................................. F-19
Independent Accountant's Report on Schedule III........................... F-20
</TABLE>
F-1
<PAGE>
LOGO OF COOPERS & LYBRAND APPEARS HERE]
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners of
Hotel Properties L.P.:
We have audited the accompanying balance sheets of Hotel Properties L.P.
(formerly EQ/Shearson Hotel Properties, L.P.), a Delaware limited partnership,
as of December 31, 1997 and 1996, and the related statements of operations,
partners' capital and cash flows for each of the three years in the period
ended December 31, 1997. These financial statements are the responsibility of
the Partnership's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Hotel Properties L.P. as of
December 31, 1997 and 1996, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1997, in
conformity with generally accepted accounting principles.
As discussed in Notes 3 and 12 to the financial statements, the Partnership
entered into a Letter of Intent on January 9, 1998 to sell its Hotels. Upon
execution of a Purchase and Sales Agreement and subsequent Limited Partner
approval, the Partnership will sell the Hotels and commence liquidation shortly
thereafter.
/s/ Coopers & Lybrand L.L.P.
Hartford, Connecticut
March 18, 1998
F-2
<PAGE>
HOTEL PROPERTIES L.P.
BALANCE SHEETS
<TABLE>
<CAPTION>
AT DECEMBER 31,
-------------------------
1997 1996
------------ ------------
<S> <C> <C>
ASSETS
Real estate, at cost: (Notes 3 and 4)
Land.............................................. $ -- $ 22,569,415
Buildings......................................... -- 72,645,014
Furniture, fixtures and equipment................. -- 48,892,073
------------ ------------
-- 144,106,502
Less accumulated depreciation..................... -- (47,206,347)
------------ ------------
-- 96,900,155
Real estate held for disposition.................... 101,883,177 --
Cash and cash equivalents (Note 6).................. 3,334,906 3,590,188
Restricted cash (Note 3)............................ 938,376 1,297,810
Restricted cash - loan reserve (Note 4)............. 2,535,447 2,534,317
Due from hotel managers, net (Note 3)............... 623,501 577,522
Replacement reserve receivable (Note 3)............. 1,783,963 3,426,722
Rent receivable (Note 3)............................ 454,951 488,415
Deferred charges - refinancing costs, net of
accumulated amortization of $813,626 in 1997 and
$488,176 in 1996................................... 813,626 1,139,076
------------ ------------
Total Assets.................................... $112,367,947 $109,954,205
============ ============
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accounts payable and accrued expenses............. $ 72,916 $ 85,067
Due to affiliates (Note 6)........................ 40,000 1,000
Mortgage loans payable (Note 4)................... 78,332,542 80,239,491
Mortgage loans interest payable................... -- 601,796
Refinancing fee payable (Note 8).................. 412,500 412,500
Distributions payable (Note 10)................... -- 1,399,879
Deferred management fees payable (Note 8)......... 4,187,505 4,187,505
Deferred interest payable (Note 8)................ 1,849,185 1,849,185
Promissory notes payable (Note 5)................. 420,273 --
------------ ------------
Total Liabilities............................... 85,314,921 88,776,423
------------ ------------
Partners' Capital:
General Partner................................... 58,752 --
Limited Partners (3,464,700 limited partnership
units authorized, issued and outstanding)........ 26,994,274 21,177,782
------------ ------------
Total Partners' Capital......................... 27,053,026 21,177,782
------------ ------------
Total Liabilities and Partners' Capital......... $112,367,947 $109,954,205
============ ============
</TABLE>
See accompanying notes to the financial statements.
F-3
<PAGE>
HOTEL PROPERTIES L.P.
STATEMENT OF PARTNERS' CAPITAL
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
1997, 1996 AND 1995
-------------------------------------
LIMITED GENERAL
PARTNERS PARTNER TOTAL
----------- ----------- -----------
<S> <C> <C> <C>
BALANCE AT DECEMBER 31, 1994........... $20,466,498 $ (85,829) $20,380,669
Net Income............................. 189,030 85,829 274,859
----------- ----------- -----------
BALANCE AT DECEMBER 31, 1995........... $20,655,528 $ -- $20,655,528
Net Income............................. 1,908,134 13,999 1,922,133
Distributions.......................... (1,385,880) (13,999) (1,399,879)
----------- ----------- -----------
BALANCE AT DECEMBER 31, 1996........... $21,177,782 $ -- $21,177,782
Net Income............................. 5,816,492 58,752 5,875,244
----------- ----------- -----------
BALANCE AT DECEMBER 31, 1997........... $26,994,274 $ 58,752 $27,053,026
=========== =========== ===========
STATEMENTS OF OPERATIONS
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
INCOME
Rent: (Note 3)
Operating profit..................... $11,127,581 $10,350,982 $10,155,725
Replacement escrow................... 5,694,279 5,557,759 5,219,071
Interest............................... 439,230 416,202 365,855
----------- ----------- -----------
Total Income....................... 17,261,090 16,324,943 15,740,651
----------- ----------- -----------
EXPENSES
Interest (Note 4)...................... 7,137,238 7,288,757 7,975,815
Depreciation and amortization.......... 3,850,564 6,919,620 6,997,180
Asset management fee (Note 8).......... -- -- 288,528
General and administrative (Note 6).... 272,242 122,397 148,466
Professional fees...................... 125,802 72,036 55,803
----------- ----------- -----------
Total Expenses..................... 11,385,846 14,402,810 15,465,792
----------- ----------- -----------
NET INCOME............................. $ 5,875,244 $ 1,922,133 $ 274,859
=========== =========== ===========
NET INCOME ALLOCATED:
To the General Partner................. $ 58,752 $ 13,999 $ 85,829
To the Limited Partners................ 5,816,492 1,908,134 189,030
----------- ----------- -----------
$ 5,875,244 $ 1,922,133 $ 274,859
=========== =========== ===========
PER LIMITED PARTNERSHIP UNIT (3,464,700
OUTSTANDING).......................... $ 1.68 $ .55 $ .05
=========== =========== ===========
</TABLE>
See accompanying notes to the financial statements.
F-4
<PAGE>
HOTEL PROPERTIES L.P.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income............................. $ 5,875,244 $ 1,922,133 $ 274,859
Adjustments to reconcile net income to
net cash provided by operating
activities:
Rental income from replacement
escrow.............................. (5,694,279) (5,557,759) (5,219,071)
Depreciation and amortization........ 3,850,564 6,919,620 6,997,180
Increase (decrease) in cash arising
from changes in operating assets and
liabilities:
Due from hotel managers, net....... (45,979) (42,853) (45,278)
Rent receivable.................... 33,464 195,851 (5,718)
Accounts payable and accrued
expenses.......................... (12,151) 19,022 (20,152)
Due to affiliates.................. 39,000 (1,462) 311
Mortgage loans interest payable.... (601,796) 601,796 --
Deferred management fees........... -- -- 288,528
Deferred interest payable.......... -- -- 332,877
----------- ----------- -----------
Net cash provided by operating
activities...................... 3,444,067 4,056,348 2,603,536
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to real estate, net of
disposals............................. (8,508,136) (5,137,319) (4,891,419)
Proceeds from replacement reserve
receivable............................ 7,337,038 4,648,984 4,360,894
Proceeds from restricted cash.......... 359,434 488,335 530,525
----------- ----------- -----------
Net cash used for investing
activities...................... (811,664) -- --
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on mortgage loans
payable............................... (1,906,949) (1,475,026) (1,254,900)
Cash distributions paid................ (1,399,879) -- --
Proceeds from promissory note payable.. 1,100,000 -- --
Principal payments on promissory note
payable............................... (679,727) -- --
Net increase in restricted cash -
loan reserve.................... (1,130) 4,301 --
Deferred charges - refinancing costs... -- -- (1,214,752)
Funding of loan reserve................ -- -- (2,538,618)
----------- ----------- -----------
Net cash used for financing
activities............................ (2,887,685) (1,470,725) (5,008,270)
----------- ----------- -----------
Net increase (decrease) in cash and
cash equivalents...................... (255,282) 2,585,623 (2,404,734)
Cash and cash equivalents, beginning of
period................................ 3,590,188 1,004,565 3,409,299
----------- ----------- -----------
CASH AND CASH EQUIVALENTS, END OF
PERIOD................................ $ 3,334,906 $ 3,590,188 $ 1,004,565
=========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the period for
interest.............................. $ 7,739,034 $ 6,686,961 $ 7,642,938
=========== =========== ===========
</TABLE>
See accompanying notes to the financial statements.
F-5
<PAGE>
HOTEL PROPERTIES L.P.
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
1. ORGANIZATION
Hotel Properties L.P. (the "Partnership") was formed on September 24, 1987
for the purpose of acquiring four hotel properties: the Los Angeles Airport
Marriott Hotel, the St. Louis Airport Marriott Hotel, the Nashville Airport
Marriott Hotel and Marriott's Tan-Tar-A Resort Hotel (the "Properties" or the
"Hotels").
Initial capital of $1,000 was contributed by EHP/GP Inc. (the General
Partner), a Delaware corporation and wholly-owned subsidiary of Lehman
Brothers Inc., formerly Shearson Lehman Hutton Inc. The Partnership commenced
operations on June 3, 1988 with the issuance of a maximum 3,464,700 depository
units (the "Units") which represent limited partnership interests (the
"Limited Partners").
On July 31, 1993, Shearson Lehman Brothers Inc. ("Shearson") sold certain of
its domestic retail brokerage and asset management businesses to Smith Barney,
Harris Upham & Co. Incorporated ("Smith Barney"). Subsequent to the sale,
Shearson changed its name to Lehman Brothers Inc. ("Lehman Brothers"). The
transaction did not affect the ownership of the General Partner. However, the
assets acquired by Smith Barney included the name "Shearson." Consequently,
effective October 22, 1993, the General Partner, Shearson EHP/GP Inc., changed
its name to EHP/GP Inc. and effective January 5, 1994, EQ/Shearson Hotel
Properties L.P. changed its name to Hotel Properties L.P.
2. SIGNIFICANT ACCOUNTING POLICIES
Basis of Accounting. The accompanying financial statements of the
Partnership have been prepared on the accrual basis of accounting.
Depreciation. Real estate investments, which consist of land, building and
personal property, are recorded at cost less accumulated depreciation. Cost
includes the initial purchase price of the property plus closing costs,
acquisition and legal fees, and capital improvements. Depreciation of the real
property is computed using the straight-line method based on the estimated
useful life of 40 years. Depreciation of the personal property is computed
under the straight-line method over an estimated useful life of 7 years.
Real estate held for disposition. On June 30, 1997, the Partnership began
the process of marketing the Properties, and accordingly, reclassified the
Properties as "Real estate held for disposition" at their net book value. Upon
reclassification, depreciation expense is no longer recorded.
Accounting for Impairment. Statement of Financial Accounting Standards No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of" ("FAS 121"), requires impairment losses to be
recorded on long-lived assets used in operations when indicators of impairment
are present and the undiscounted cash flows estimated to be generated by those
assets are less than the assets' carrying amount. FAS 121 also addresses the
accounting for long-lived assets that are expected to be disposed of. The
Partnership adopted FAS 121 in the fourth quarter of 1995.
Fair Value of Financial Instruments. Statement of Financial Accounting
Standards No. 107, "Disclosures about Fair Value of Financial Instruments"
("FAS 107"), requires that the Partnership disclose the estimated fair values
of its financial instruments. Fair values generally represent estimates of
amounts at which a financial instrument could be exchanged between willing
parties in a current transaction other than in forced liquidation.
Fair value estimates are subjective and are dependent on a number of
significant assumptions based on management's judgment regarding future
expected loss experience, current economic conditions, risk
F-6
<PAGE>
HOTEL PROPERTIES L.P.
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
characteristics of various financial instruments, and other factors. In
addition, FAS 107 allows a wide range of valuation techniques, therefore,
comparisons between entities, however similar, may be difficult.
Deferred Charges--Refinancing Costs. Deferred charges--refinancing costs are
amortized on a straight-line basis over the five year term of the mortgage
loans payable.
Income Taxes. No income tax provision (benefit) has been recorded on the
books of the Partnership, as the respective shares of taxable income (loss)
are reportable by the partners on their individual tax returns.
Offering Costs. Offering costs are nonamortizable and have been deducted
from the Limited Partners' capital.
Cash and Cash Equivalents. Cash and cash equivalents consist of highly
liquid short-term investments with maturities of three months or less from the
date of issuance. The carrying amount approximates fair value because of the
short maturity of these instruments.
Concentration of Credit Risk. Financial instruments which potentially
subject the Partnership to a concentration of credit risk principally consist
of cash in excess of the financial institutions' insurance limits. The
Partnership invests available cash with high credit quality financial
institutions.
Use of Estimates. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
3. REAL ESTATE
The Partnership's real estate, which was purchased on June 3, 1988, consists
of the following four hotel properties:
Los Angeles Airport Marriott Hotel
The Los Angeles Airport Marriott Hotel (the "Los Angeles Hotel") is a 1012-
room hotel located on Century Boulevard, near the Los Angeles International
Airport in Los Angeles, California.
The Los Angeles Hotel was purchased subject to an operating lease with
Marriott Hotel Services, Inc. (the "Hotel Manager"), formerly The Marriott
Corporation (see below), which was restated on June 2, 1988, and provides for
a term expiring on July 25, 2003 and five 10-year renewal options by Marriott.
Rent payable under the lease equals the greater of (i) 50% of Operating
Profit (as defined in the lease) up to a maximum of $3,626,183 plus an amount
equal to a 10% return on all of the Landlord's Additional Contributions and
Additional Building Contributions (as defined in the lease), provided if, in
any year, 50% of the Operating Profit exceeds $3,626,183 plus such 10% return,
then Marriott must pay additional rent equal to one-half of the excess, or
(ii) if 50% of the Operating Profit is insufficient to pay the sum of
$3,626,183, plus a 9% return on all of the Landlord's Additional Contributions
and Additional Building Contributions, then Marriott must pay up to
$3,626,183, plus an amount equal to a 9% return on all of the Landlord's
Additional Contributions and Additional Building Contributions to the extent
of up to 100% of Operating Profit.
F-7
<PAGE>
HOTEL PROPERTIES L.P.
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
St. Louis Airport Marriott Hotel
The St. Louis Airport Marriott Hotel (the "St. Louis Hotel") is a 601-room
hotel located directly across from the St. Louis Airport in St. Louis,
Missouri.
The St. Louis Hotel was purchased subject to an operating lease with
Marriott, formerly The Marriott Corporation (see below), which was restated on
June 2, 1988, and provides for a term expiring on July 25, 2003 and five 10-
year renewal options by Marriott.
Rent payable under the lease equals the greater of (i) 50% of the Operating
Profit (as defined in the lease) up to a maximum of $1,352,500 plus an amount
equal to a 10% return on all of the Landlord's Additional Contributions and
Additional Building Contributions (as defined in the lease) provided if, in
any year, 50% of the Operating Profit exceeds $1,352,500 plus such 10% return,
then Marriott must pay additional rent equal to one-half of the excess, or
(ii) if 50% of the Operating Profit is insufficient to pay the sum of
$1,217,250 plus a 9% return on all of the Landlord's Additional Contributions
and Additional Building Contributions, then Marriott must pay up to
$1,217,250, plus an amount equal to a 9% return on all of the Landlord's
Additional Contributions and Additional Building Contributions to the extent
of up to 100% of Operating Profit.
Nashville Airport Marriott Hotel
The Nashville Airport Marriott Hotel (the "Nashville Hotel") is a 399-room
hotel located in Nashville, Tennessee.
The Nashville Airport Hotel was purchased subject to an operating lease with
Marriott, formerly The Marriott Corporation (see below), which was assumed by
the Partnership. The Nashville Hotel's lease had a remaining term of 18 years
on June 3, 1988, expires December 29, 2006 and contains five 10-year renewal
options by Marriott.
Rent payable under the lease equals 60% of the Operating Profit (as defined
in the lease), provided if (i) 60% of the Operating Profit is less than the
Landlord's First Priority (as defined in the lease), rent shall be increased
by the difference, from up to 80% of the Operating Profit, or (ii) if 60% of
the Operating Profit is greater than the Landlord's Second Priority (as
defined in the lease), rent shall be reduced by 25% of such excess, but rent
shall not be less than 50% of the Operating Profit.
Marriott's Tan-Tar-A Resort Hotel
Marriott's Tan-Tar-A Resort ("Tan-Tar-A"), located in Lake of the Ozarks,
Missouri, encompasses 26 buildings on two parcels of land; overall, there are
365 guest rooms. Tan-Tar-A also has available for rental private homes
(Estates), bringing the total number of available rooms to 975.
Tan-Tar-A was purchased subject to an operating lease with Marriott,
formerly The Marriott Corporation (see below), which was assumed by the
Partnership. The lease, which had a remaining term of 17 years as of June 3,
1988, expires December 30, 2005 and contains five 10-year renewal options by
Marriott.
Rent payable under the lease equals 60% of the Operating Profit (as defined
in the lease), provided if (i) 60% of the Operating Profit is less than the
Landlord's First Priority (as defined in the lease), rent shall be increased
by the difference, from up to 80% of the Operating Profit, or (ii) if 60% of
the Operating Profit is greater than the Landlord's Second Priority (as
defined in the lease), rent shall be reduced by 25% of such excess, but rent
shall not be less than 50% of the Operating Profit.
During 1997, the Partnership increased its investment in Tan-Tar-A. The
funding came in the form of contributions to the Furniture, Fixtures, &
Equipment ("FF & E") escrow fund for the purpose of garage repair.
F-8
<PAGE>
HOTEL PROPERTIES L.P.
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
Reserve Funds for Replacement
Pursuant to the terms of the operating leases, Marriott is required on
behalf of the Partnership to maintain reserve funds for replacement of
furnishings and equipment on the Properties from the Operating Profit of the
Properties, ranging from 4.5% to 5%. The reserve funds for the Los Angeles,
St. Louis and Tan-Tar-A Hotels are maintained on behalf of the Partnership at
those properties by Marriott, while the Nashville Hotel fund is held by the
Partnership. At December 31, 1997, the Partnership had $938,376 of the
Nashville Hotel fund invested in an interest-bearing account (included in
restricted cash in the accompanying financial statements). Additionally, at
December 31, 1997, $1,783,963 of reserve funds for the three remaining Hotels
were held at the Hotels on behalf of the Partnership (included in replacement
reserve receivable in the accompanying financial statements). During the year
ended December 31, 1997, the Partnership earned replacement escrow rental
income of $5,694,279 which either remained in the reserve accounts or was used
to fund fixed asset additions.
The St. Louis and Los Angeles Hotel Operating Leases require Marriott to
maintain sufficient funds necessary to provide the respective Properties with
adequate levels of working capital. In addition, under the leases, Marriott
will retain control of the working capital throughout the lease term and upon
termination thereof. Equitable Real Estate Investment Management, Inc. (the
"Seller" or "EREIM") advanced Marriott $850,000 of working capital for Tan-
Tar-A and $480,000 of working capital for Nashville. These noninterest-bearing
working capital advances shall be paid to the Partnership by Marriott after
termination of the respective Operating Lease. As the advances do not provide
for interest, they have been discounted using the effective borrowing rate of
9.5% associated with the mortgage loans payable and have been included under
due from hotel managers at the discounted value of $569,408. Included in due
from hotel managers for the periods ended December 31, 1997 and 1996, is
interest income of $54,093 and $49,400, respectively.
F-9
<PAGE>
HOTEL PROPERTIES L.P.
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
Hotel Operations
The following presents summarized information with respect to the operations
of the Properties as provided by Marriott for the periods ended December 31,
1997, 1996 and 1995:
<TABLE>
<CAPTION>
LOS ANGELES ST. LOUIS NASHVILLE TAN-TAR-A
HOTEL HOTEL HOTEL HOTEL TOTAL
----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
1997:
Hotel Revenues........ $46,469,035 $23,764,846 $19,259,481 $31,415,599 $120,908,961
Hotel Expenses........ 37,170,031 19,510,903 14,321,720 28,561,725 99,564,379
----------- ----------- ----------- ----------- ------------
Operating Profit.... 9,299,004 4,253,943 4,937,761 2,853,874 21,344,582
----------- ----------- ----------- ----------- ------------
Rental income to owner.. 4,441,773 2,024,250 2,949,234 1,712,324 11,127,581
Add - Real estate
additions and reserve
funds for replacement
owned by the
Partnership, included
in hotel expenses...... 2,091,107 1,069,418 962,974 1,570,780 5,694,279
----------- ----------- ----------- ----------- ------------
TOTAL RENTAL
INCOME............. $ 6,532,880 $ 3,093,668 $ 3,912,208 $ 3,283,104 $ 16,821,860
=========== =========== =========== =========== ============
1996:
Hotel Revenues........ $46,243,470 $23,419,438 $18,363,779 $30,104,900 $118,131,587
Hotel Expenses........ 38,407,331 19,398,340 14,022,954 27,517,424 99,346,049
----------- ----------- ----------- ----------- ------------
Operating Profit.... 7,836,139 4,021,098 4,340,825 2,587,476 18,785,538
----------- ----------- ----------- ----------- ------------
Rental income to owner.. 4,173,258 1,965,901 2,604,495 1,607,328 10,350,982
Add - Real estate
additions and reserve
funds for replacement
owned by the
Partnership, included
in hotel expenses...... 2,080,956 1,053,370 918,188 1,505,245 5,557,759
----------- ----------- ----------- ----------- ------------
TOTAL RENTAL
INCOME............. $ 6,254,214 $ 3,019,271 $ 3,522,683 $ 3,112,573 $ 15,908,741
=========== =========== =========== =========== ============
1995:
Hotel Revenues........ $42,447,026 $20,829,490 $18,040,956 $29,391,568 $110,709,040
Hotel Expenses........ 35,639,057 17,397,505 13,630,938 26,896,710 93,564,210
----------- ----------- ----------- ----------- ------------
Operating Profit.... 6,807,969 3,431,985 4,410,018 2,494,858 17,144,830
----------- ----------- ----------- ----------- ------------
Rental income to owner.. 4,173,258 1,729,128 2,646,011 1,607,328 10,155,725
Add - Real estate
additions and reserve
funds for replacement
owned by the
Partnership, included
in hotel expenses...... 1,910,117 937,328 902,048 1,469,578 5,219,071
----------- ----------- ----------- ----------- ------------
TOTAL RENTAL
INCOME............. $ 6,083,375 $ 2,666,456 $ 3,548,059 $ 3,076,906 $ 15,374,796
=========== =========== =========== =========== ============
</TABLE>
On June 19, 1993, The Marriott Corporation assigned its interests in the
Amended and Restated Leases for the four hotel properties owned by the
Partnership to Marriott, a wholly-owned subsidiary of Marriott International.
The assignment has no effect on the Partnership's operations.
After considering a number of factors, including the recently improved
operating performance of the Hotels, the improving hospitality industry
nationwide and the significantly strengthened market for the acquisition of
full-service hotel properties, the General Partner has decided to begin
marketing the Hotels for sale on June 30, 1997. The Partnership retained
Eastdil Realty Company, a nationally-recognized real estate firm, to assist
with the marketing efforts.
F-10
<PAGE>
HOTEL PROPERTIES L.P.
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
On January 9, 1998, the Partnership entered into a non-binding letter of
intent with a major independent hotel buyer, pursuant to which the parties
agreed to negotiate in good faith an agreement to purchase the Hotels for a
cash purchase price of $114 million (the "Offer"), subject to Marriott's right
of first refusal. On that same day, the General Partner notified Marriott of
the Offer, and by letter dated February 5, 1998, Marriott notified the General
Partner that it would exercise its right of first refusal to purchase the
Hotels at the same price and the same terms and conditions as those set forth
in the Offer (the "Proposed Sale "). The Partnership and Marriott are
negotiating a formal Purchase and Sale Contract (the "Contract") which is
expected to be executed in March 1998.
The Proposed Sale is subject to the satisfaction of certain conditions,
including the Partnership obtaining the approval of a majority in interest of
the outstanding Unitholders. Should the Proposed Sale be approved, it is
currently anticipated that the closing will occur during the second or third
quarter of 1998. Upon completion of the Proposed Sale, distributions will be
made to Limited Partners in accordance with the Partnership Agreement. If the
Proposed Sale occurs, the General Partner currently estimates that proceeds
available for distribution may exceed $10.00 per Unit. The amount will be
dependent on operations of the Hotels and the Partnership until closing, the
timing of the closing and other factors, all of which are uncertain at this
time. While it is expected that the Hotels will be sold during 1998, there can
be no assurance that the Proposed Sale will be consummated, or that the
Proposed Sale will result in any particular level of distributable cash.
In view of the anticipated sale of the Hotels, the Partnership's real estate
has been recorded at cost, less accumulated depreciation and amortization at
December 31, 1997 on the Partnership's Balance Sheet as "Real estate held for
disposition." Real estate held for disposition at December 31, 1997 was
$101,883,177. Upon reclassification, depreciation expense is no longer
recorded.
4. MORTGAGE LOANS PAYABLE
The mortgage loans payable were made by The Equitable Life Assurance Society
of the United States ("Equitable"), the Seller, in the amount of $80,438,000
on June 3, 1988. A separate mortgage loan was issued with respect to each
property, each collateralized by a property. An event of default under each
mortgage loan constituted an event of default under the other mortgage loans.
The loans bore interest at a rate of 9.5% per annum. The loans provided for
monthly payments of interest only until maturity on June 2, 1995, at which
time the entire principal balances were due. Equitable had committed to loan
to the Partnership such funds, as necessary, to meet Marriott request for
additional funding. In connection therewith, Equitable made lines of credit
aggregating $27,162,000 available to the Partnership. Funds drawn on the lines
of credit, totaling $2,531,417, bore interest at 2% over prime with principal
due June 2, 1995.
On June 28, 1995 (the "Effective Date"), the Partnership refinanced and
amended the $80,438,000 in mortgage loans and the $2,531,417 revolving credit
loans payable (collectively, the "Loan") with Equitable, and terminated its
Asset Management Agreement with EREIM. The Loan, which originally matured on
June 2, 1995, was extended under the existing terms to the Effective Date. At
closing, the Partnership made a $500,000 principal payment and the Loan was
consolidated into a loan with Equitable totaling $82,469,417 (the "Equitable
Loan"). The Equitable Loan is collateralized by four separate deeds of trust
with respect to the Los Angeles, St. Louis, Nashville, and Tan-Tar-A Marriott
Hotels of which Marriott is the lessee and operator.
Under the terms of the Equitable Loan, the Partnership is required to make
monthly payments of principal and interest in the amount of $741,999 at a rate
of 9% per annum based on a 20-year amortization term, commencing on August 1,
1995 until maturity on June 2, 2000, at which time the entire outstanding
principal balance is due. The Equitable Loan may be prepaid in whole or in
part at anytime prior to June 2, 1998 in connection with a sale or refinancing
of one or more of the Hotels without paying a prepayment premium. Subsequent
to June 2, 1998, prepayment of the Equitable Loan will be subject to a
prepayment premium as set
F-11
<PAGE>
HOTEL PROPERTIES L.P.
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
forth in the Equitable Loan agreement. Interest expense for each of the years
ended December 31, 1997, 1996 and 1995 was $7,137,238, $7,288,757 and
$7,975,815, respectively.
The following is a schedule of principal payments for the next three years:
<TABLE>
<CAPTION>
YEAR AMOUNT
---- -----------
<S> <C>
1998............................. $ 1,764,742
1999............................. 2,098,025
2000............................. 74,469,775
-----------
Total.......................... $78,332,542
===========
</TABLE>
As a condition of the Equitable Loan, the Partnership entered into an escrow
agreement with Equitable which requires the Partnership to provide additional
collateral for the Equitable Loan. The Partnership agreed to direct Marriott
to forward rent from operating profit ("Rent") generated by the Hotels,
subsequent to the Effective Date, to an escrow account (the "Loan Reserve")
maintained by Equitable's escrow agent (the "Escrow Agent"). Marriott was
directed to forward Rent to the Loan Reserve until a balance of $2.5 million
was reached and maintained. The Escrow Agent used these funds to pay the
Partnership's monthly debt service payments. Until the balance of $2.5 million
was reached, the Escrow Agent forwarded 10% of the Rent generated by the
Hotels to the Partnership, provided there were no existing defaults on the
Equitable Loan. As of December 31, 1997, the Partnership has funded the Loan
Reserve in the amount of $2,535,447, and is included as "Restricted cash--loan
reserve" on the Partnership's balance sheet. The funds in excess of the $2.5
million requirement represent interest earned on the Loan Reserve and are
transferred to the Partnership quarterly.
Total costs incurred by the Partnership related to the refinancing of the
Loan and termination of the Asset Management Agreement were approximately $1.6
million and have been reflected in "Deferred charges--refinancing costs" on
the Partnership's balance sheet. The refinancing costs consist of a 1%
refinancing fee of $825,000 paid to Equitable, a refinancing fee payable to
EREIM of $412,500 and legal and other refinancing costs of approximately
$362,500. These costs are being amortized on a straight-line basis over the
five-year term of the Equitable Loan.
Based on the borrowing rates currently available to the Partnership for
mortgage loans with similar maturities, the fair value of long-term debt
approximates carrying value.
5. PROMISSORY NOTE
On October 18, 1995, the Partnership entered into a loan agreement and
executed a promissory note in an amount up to $1,100,000 (the "Note") with
Marriott International Capital Corporation (the "Lender"). The purpose of such
financing was to provide the Partnership with the required capital to
implement certain upgrades to furniture, fixtures and equipment ("FF&E") and
to make certain non-structural repairs and renovations (collectively, the
"Renovations") at the St. Louis Hotel. The Lender will fund to the Partnership
from time-to-time amounts necessary (up to the maximum amount of the Line of
Credit) to complete the Renovations at the St. Louis Hotel. The Line of Credit
is unsecured and non-recourse to the Partnership. During the first half of
1997, the Partnership borrowed $1,100,000 under the Line of Credit and funded
the replacement reserve to make the Renovations.
The Partnership has directed Marriott, the St. Louis Hotel's tenant, to make
payments on behalf of the Partnership solely from the St. Louis Hotel's FF&E
Replacement Reserve account in an amount equal to $61,986 per period
commencing with the second accounting period in fiscal 1997 until the maturity
of the Line of Credit. The Line of Credit bears interest at a rate of 9% per
annum on all outstanding amounts and can be prepaid by
F-12
<PAGE>
HOTEL PROPERTIES L.P.
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
the Partnership without premium or penalty. Marriott will fund all interest
payments into the FF&E Replacement Reserve account from Marriott's own funds
prior to making any debt service payments to the Lender. Consequently, the
payment from the tenant will offset the interest as if this were an interest-
free loan to the Partnership. The Partnership made principal payments on the
Line of Credit from the replacement reserve totaling $679,727 during 1997.
Interest on the Line of Credit was $64,105 during 1997.
6. TRANSACTIONS WITH RELATED PARTIES
Administration
The General Partner or its affiliates incurred out-of-pocket and other
expenses in connection with the administration of the Partnership. The
following is a summary of these expenses incurred for the periods ended
December 31, 1997, 1996 and 1995 and the unpaid portions at December 31, 1997
and 1996.
Effective as of January 1, 1997 the Partnership began reimbursing certain
expenses incurred by the General Partner and its affiliates in servicing the
Partnership to the extent permitted by the partnership agreement. In prior
years, affiliates of the General Partner had voluntarily absorbed these
expenses.
<TABLE>
<CAPTION>
UNPAID AT UNPAID AT
DECEMBER 31, DECEMBER 31,
1997 1996 1997 1996 1995
------------ ------------ ------- ------- -------
<S> <C> <C> <C> <C> <C>
Out-of-pocket expenses....... $ -- $1,000 $11,220 $10,081 $13,801
Other expenses............... 40,000 -- 80,223 -- --
</TABLE>
Fees and Compensation
The General Partner or its affiliates earned fees and compensation, and were
reimbursed for certain out-of-pocket and expenses actually incurred in
connection with the organization, syndication, acquisition and financing for
the Partnership and the Properties in the amount of $6,094,751 in 1988. These
amounts are comprised of $4,044,982 included in the offering costs, $302,576
(prior to reimbursement) included in deferred charges, $667,165 included in
organization costs and $1,080,028 included in the acquisition cost of the
Properties.
Cash and Cash Equivalents
Cash and cash equivalents were on deposit with an affiliate of the General
Partner during a portion of 1996. As of December 31, 1997, no cash and cash
equivalents were on deposit with an affiliate of the General Partner or the
Partnership.
7. PARTNERSHIP AGREEMENT
The partnership agreement provides for the following allocations:
Income. Income is first allocated to the General Partner and Limited
Partners (the "Partners") in amounts equal to the amounts distributed to such
Partners; then to any Partner with a deficit capital account balance to the
extent of such Partner's deficit capital account balance; then 100% to the
Limited Partners in an amount equal to the unpaid balance of their preferred
return, as defined in the Partnership Agreement.
Losses. Losses are generally allocated to the General Partner and Limited
Partners in the amounts equal to the amount distributed to such Partners.
Distributions of Net Cash Flow from Operations. Net cash flow from
operations, as defined, with respect to each fiscal year will generally be
distributed 99% to the Limited Partners and 1% to the General Partner, until
F-13
<PAGE>
HOTEL PROPERTIES L.P.
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
such time as each Limited Partner has received an amount equal to his
preferred return, as defined, plus his unrecovered capital, as defined.
Thereafter, net cash flow from operations will be distributed 94.12% to the
Limited Partners and 5.88% to the General Partner.
Distributions of Net Proceeds from Interim Capital Transactions. Net
Proceeds from interim capital transactions will generally be distributed 99%
to the Limited Partners and 1% to the General Partner until each Limited
Partner has received an amount equal to his unpaid preferred return and
unrecovered capital, as defined. Any remaining net proceeds will be
distributed 94.12% to the Limited Partners and 5.88% to the General Partner.
Distributions of Net Proceeds from Sale Upon Dissolution. It is anticipated
that net proceeds from any final liquidation of the Partnership's assets will
be distributed 99% to the Limited Partners and 1% to the General Partner until
each Limited Partner has received from these and other payments an amount
equal to any unpaid preferred return and his capital contribution (less prior
distributions with respect thereof from a previous Interim Capital
Transaction). Any remaining net proceeds will generally be distributed 94.12%
to the Limited Partners and 5.88% to the General Partner.
Allocation of Gain or Loss from Sales. Gains on sales of properties will
generally be allocated first to each Limited Partner and the General Partner
in the amount of the proceeds received by such Limited Partner and the General
Partner from the transaction. Then, following certain capital account
adjustments, any remaining income or gain will be allocated 94.12% to the
Limited Partners and 5.88% to the General Partner. Losses from Interim Capital
Transactions will be allocated in accordance with positive capital accounts,
then in accordance with the profit sharing ratios then in effect, subject to
certain adjustments as described in the partnership agreement.
8. ASSET MANAGEMENT AGREEMENT
On June 3, 1988, the Partnership entered into an agreement with EREIM, an
affiliate of the Seller, for the management of the Properties. The agreement
provided for an annual fee of the lesser of 6.5% of the rent received by the
Partnership or 1% of gross revenues of the Properties, subject to an agreement
to defer such fee to the extent that rents received by the Partnership were
less than certain amounts defined in the Asset Management Agreement. Any
amount of such fee that was deferred accrued interest at 12.5%, compounded
annually, and was due and payable on the earlier of 15 years after the
purchase of the Properties or upon sale of the Properties; however, such
amount was subordinate to the Partners receiving a return of their capital and
a 6% simple return thereon.
On June 28, 1995, the Partnership terminated its June 3, 1988 Asset
Management Agreement with EREIM. Pursuant to the termination agreement, EREIM
is entitled to a refinancing fee in the amount of $412,500, which is payable
upon the earlier of a sale or refinancing of one or more of the Hotels or on
June 2, 2000. The refinancing fee is included in "Refinancing fee payable" and
"Deferred charges--refinancing costs" on the Partnership's balance sheet and
is being amortized over the term of the Equitable Loan. Additionally, all
deferred management fees and deferred interest payable earned as of the
Effective Date in the amounts of $4,187,505 and $1,849,185, respectively, will
remain as liabilities to EREIM but subordinate to a return of investor equity
plus a 6% annual return thereon. No further management fees or interest on
these amounts accrue after the Effective Date.
During 1997, 1996 and 1995, the Partnership recorded $0, $0 and $288,528,
respectively, of such asset management fees, of which $4,187,505 have been
cumulatively deferred as of December 31, 1997 and 1996.
If the Hotels are sold based upon the negotiated sale price (see Note 3),
the Partners would not receive a six percent simple return on their capital.
This will likely result in non-payment of the accrued management fees and
related deferred interest payable which are subordinated to the Partners
receiving a return on their capital and a six percent simple return thereon
(see Note 12).
F-14
<PAGE>
HOTEL PROPERTIES L.P.
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
9. COMMITMENTS AND CONTINGENCIES
The lease agreements provide that Marriott can request additional funds for
furniture, fixtures and equipment or building additions or expansions, as
required. In each case, Marriott and the Partnership would be required to
contribute a portion of such funds, as defined in the operating leases. The
Partnership contributed $395,920 in 1997 to fund a portion of garage repair
costs at Tan-Tar-A. Marriott added $237,552 as it's portion, as required by
the lease.
Should the Partnership not elect to contribute such additional funds,
Marriott would have the right to acquire the Properties at purchase prices, as
outlined in the leases. Marriott may also have certain purchase rights upon
the termination of the leases or lease defaults.
10. DISTRIBUTIONS
Prior to 1994, cash distributions were paid on a quarterly basis from net
cash flow provided by operating activities to Unitholders based on the
seasonal performance of the Hotels. The General Partner suspended the payment
of cash distributions in the fourth quarter of 1994. This action was taken in
order to increase Partnership cash reserves to provide for the various costs
of securing replacement financing related to the maturity of the Partnership's
outstanding indebtedness in June 1995. Distributions remained suspended
through 1996 in order for the Partnership to meet certain requirements under
the terms of the Equitable Loan. Due to the satisfaction of such requirements,
and improved operations during 1996 at both the Partnership and Hotel levels,
a cash distribution in the amount of $0.40 per Unit was paid to Limited
Partners on February 14, 1997 from the Partnership's operations during the
past year. The distribution was paid to Limited Partners of record as of each
month-end in 1996. This represented a one-time distribution of 1996 annual
cash flow and did not indicate the reinstatement of regular cash
distributions.
As noted above, the Partnership expects to sell the Hotels during the second
or third quarter of 1998. Accordingly, future distributions will be in the
form of one or more distributions following the sale of the Hotels.
11. RECONCILIATION OF FINANCIAL STATEMENT NET INCOME AND PARTNERS' CAPITAL TO
FEDERAL INCOME TAX BASIS NET INCOME (LOSS) AND PARTNERS' CAPITAL
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Financial statement net income...... $ 5,875,244 $ 1,922,133 $ 274,859
Tax basis depreciation under (over)
financial statement depreciation... (3,920,811) 95,092 350,546
Financial statement deferred
management fee and interest expense
over tax basis deferred management
fee and interest expense........... -- -- 621,404
Other............................... 29,874 84,628 43,952
----------- ----------- -----------
Federal income tax basis net
income........................... $ 1,984,307 $ 2,101,853 $ 1,290,761
=========== =========== ===========
Financial statement partners'
capital............................ $27,053,026 $21,177,782 $20,655,528
Current year financial statement net
income (loss) under (over) federal
income tax basis net income........ (3,890,962) 179,720 1,015,902
Cumulative financial statement net
income over federal income tax
basis net income................... (1,232,998) (1,412,718) (2,428,620)
----------- ----------- -----------
Federal income tax basis partners'
capital.......................... $21,029,066 $19,944,784 $19,242,810
=========== =========== ===========
</TABLE>
Because many types of transactions are susceptible to varying
interpretations under Federal and State income tax laws and regulations, the
amounts reported above may be subject to change at a later date upon final
determination by the taxing authorities.
F-15
<PAGE>
12. SUBSEQUENT EVENT
The following unaudited pro forma financial information gives effect to the
Proposed Sale. The pro forma financial information is presented for
illustrative purposes only, and therefore, is not necessarily indicative of
the operating results and financial position that might have been achieved had
the Proposed Sale occurred as of an earlier date, nor are they necessarily
indicative of operating results and financial position which may occur in the
future. A pro forma balance sheet is provided as of December 31, 1997, giving
effect to the Proposed Sale as though it had been consummated on that date.
<TABLE>
<CAPTION>
PRO FORMA
DECEMBER 31, PRO FORMA DECEMBER 31,
1997 ADJUSTMENTS 1997(F)
------------ ------------- ------------
<S> <C> <C> <C>
ASSETS
Real estate held for disposition.. $101,883,177 $(101,883,177)(a) $ 0
Cash and cash equivalents......... 3,334,906 2,157,625 (e) 38,879,989
111,720,000 (a)
(78,332,542)(b)
Restricted cash................... 938,376 (938,376)(a) 0
Restricted cash - loan reserve.... 2,535,447 (2,535,447)(e) 0
Due from hotel managers, net...... 623,501 (623,501)(a) 0
Replacement reserve receivable.... 1,783,963 (1,783,963)(e) 0
Rent receivable................... 454,951 (454,951)(e) 0
Deferred charges - refinancing
costs, net of accumulated
amortization of $813,626 in
1997............................. 813,626 (813,626)(d) 0
------------ ------------- -----------
Total Assets.................. $112,367,947 $ (73,487,958) $38,879,989
============ ============= ===========
LIABILITIES AND PARTNERS' CAPITAL:
Liabilities
Accounts payable and accrued
expenses....................... $ 72,916 $ 72,916
Due to affiliates............... 40,000 40,000
Mortgage loans payable.......... 78,332,542 (78,332,542)(b) 0
Mortgage loans interest
payable........................ 0
Refinancing fee payable......... 412,500 (412,500)(e) 0
Distributions payable........... 0
Deferred management fees........ 4,187,505 (4,187,505)(c) 0
Deferred interest payable....... 1,849,186 (1,849,185)(c) 0
Promissory notes payable........ 420,273 (420,273)(e) 0
------------ ------------- -----------
Total liabilities............. $ 85,314,921 $ (85,202,005) $ 112,916
============ ============= ===========
PARTNERS' CAPITAL:
$ 333,875 (a)
3,180 (c)
General Partner................... $ 58,752 (8,136)(d) $ 387,671
6,157,108 (a)
6,033,510 (c)
Limited Partners (3,464,700
limited partnership units
authorized, issued and
outstanding)..................... 26,994,274 (805,490)(d) 38,379,402
------------ ------------- -----------
Total Partners' Capital......... 27,053,026 11,714,047 38,767,073
------------ ------------- -----------
Total Liabilities and
Partners' Capital............ $112,367,947 $ (73,487,958) $38,879,989
============ ============= ===========
</TABLE>
F-16
<PAGE>
The pro forma balance sheet as of December 31, 1997 reflects the assumed
sale of the four Hotels and the liquidation of the Partnership on December 31,
1997. The sale price of the Hotels is $114,000,000 in cash, subject to certain
adjustments. The cost to sell the Hotels as of June 30, 1998 are anticipated
to be approximately $2,280,000. The Partnership will use a portion of the
proceeds from the sale to repay the mortgage loan payable in full, which is
$78,332,542 as of December 31, 1997. The remaining cash in the Partnership is
assumed to be distributed in accordance with the Partnership Agreement. See
accompanying Notes to the Pro Forma Adjustments.
Notes to the Pro Forma Adjustments:
(a) To record the sale of the Hotels reflecting the removal of the property
held for disposition and related deferred charges, the receipt of net sale
proceeds, and the allocation of the gain to the General Partner and
Unitholders as follows:
<TABLE>
<S> <C>
Sales price.................................................. $114,000,000
Closing costs................................................ 2,280,000
------------
Net Cash Proceeds.......................................... 111,720,000
------------
Property held for disposition................................ 101,883,177
Restricted Cash.............................................. 938,376
Due from Hotel Managers...................................... 623,501
Replacement Reserve Receivable............................... 1,783,963
------------
Gain on Sale............................................... $ 6,490,983
============
Allocated as follows:
Unitholders................................................ $ 6,157,108
General Partner............................................ 333,875
------------
$ 6,490,983
============
</TABLE>
The allocation of gain to the General Partner is based upon their estimated
share of distributions from the sale.
(b) To reflect the payment of mortgage indebtedness, pursuant to the
agreements discussed herein, as follows:
<TABLE>
<S> <C>
Mortgage Loan Payable......................................... $78,332,542
-----------
$78,332,542
===========
(c) To reflect the forgiveness and related allocation to the General Partner
and Unitholders as follows:
Deferred Management Fees...................................... $ 4,187,505
Deferred Interest Payable..................................... 1,849,185
-----------
$ 6,036,690
===========
Allocated as Follows:
Unitholders................................................. $ 6,033,510
General Partner............................................. 3,180
-----------
$ 6,036,690
===========
</TABLE>
(d) To reflect the write-off of deferred charges associated with the mortgages
totaling $813,626 and the related allocation to the General Partner and
Unitholders:
<TABLE>
<S> <C>
Unitholders....................................................... $805,490
General Partner................................................... 8,136
--------
$813,626
========
</TABLE>
(e) To reflect the collection of rent receivable and other receivables from
hotel managers, the receipt of the Partnership's portion of the
replacement reserve from Marriott, the satisfaction of obligations payable
from the replacement reserve, and the receipt of restricted cash.
F-17
<PAGE>
(f) The remaining cash, net of accounts payable and accrued expenses and due
to affiliates, will be distributed to the General Partner and Unitholders
in accordance with the ending capital balances as follows:
<TABLE>
<S> <C>
General Partner................................................ $ 387,671
Unitholders.................................................... 38,379,402
-----------
$38,767,073
===========
</TABLE>
F-18
<PAGE>
SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1997
<TABLE>
<CAPTION>
HOTEL PROPERTIES: LOS ANGELES NASHVILLE ST. LOUIS TAN-TAR-A TOTAL
- ----------------- --------------- ------------- ------------- --------------- ------------
<S> <C> <C> <C> <C> <C>
Location................ Los Angeles, CA Nashville, TN St. Louis, MO Osage Beach, MO na
Construction date....... 1973 1981 1972 1980 na
Acquisition date........ 06-03-88 06-03-88 06-03-88 06-03-88 na
Life on which
depreciation in latest
income statements is
computed............... 40/7 40/7 40/7 40/7 na
Encumbrances............ $ 35,038,146 $18,321,981 $ 14,146,857 $ 10,825,557 $ 78,332,541
Initial cost to
Partnership:
Land................... 12,751,066 3,064,552 4,282,676 2,410,489 22,508,783
Buildings and
improvements.......... 35,081,383 19,435,904 18,442,592 9,236,472 82,196,351
Costs capitalized
subsequent to
acquisition:
Land, buildings and
improvements.......... 17,909,977 6,067,691 10,034,387 13,897,449 47,909,504
Elimination of
accumulated
depreciation........... $(19,444,456) $(8,722,122) $(11,610,587) $(10,954,296) $(50,731,461)
Gross amount at which
carried at close of
period:
Land................... 12,751,066 3,040,946 4,282,676 2,494,727 22,569,415
Buildings and
improvements.......... 52,991,360 25,527,201 28,476,979 23,049,683 130,045,223
--------------- ------------- ------------- --------------- ------------
46,297,970 19,846,025 21,149,068 14,590,114 101,883,177
--------------- ------------- ------------- --------------- ------------
Accumulated depreciation
(3).................... -- -- -- -- --
</TABLE>
- --------
(1) Net of $1,058,976 reduction in purchase price allocated to land, buildings
and personal property.
(2) For Federal income tax purposes, the basis of land, building, and personal
property on a gross basis is $153,199,115.
(3) The amount of accumulated depreciation for Federal income tax purposes is
$62,160,400.
A reconciliation of the carrying amount of real estate and accumulated
depreciation for the years ended December 31, 1997, 1996, and 1995 follows:
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
REAL ESTATE INVESTMENTS:
Beginning of year..................... $144,106,502 $138,969,183 $134,077,764
Costs capitalized subsequent to
acquisition, net..................... 8,508,136 5,137,319 4,891,419
Reclassification to held for
disposition.......................... $(50,731,461) $ -- $ --
------------ ------------ ------------
End of year........................... $101,883,177 $144,106,502 $138,969,183
============ ============ ============
ACCUMULATED DEPRECIATION:
Beginning of year..................... $ 47,206,347 $ 40,612,178 $ 33,777,723
Depreciation expense.................. 3,525,114 6,594,169 6,834,455
Elimination of accumulated
depreciation......................... (50,731,461) -- --
------------ ------------ ------------
End of year........................... $ -- $ 47,206,347 $ 40,612,178
============ ============ ============
</TABLE>
F-19
<PAGE>
[LOGO OF COOPERS & LYBRAND APPEARS HERE]
REPORT OF INDEPENDENT ACCOUNTANTS ON SCHEDULE
TO FINANCIAL STATEMENTS
To the Partners of
Hotel Properties L.P.:
In connection with our audits of the financial statements of Hotel Properties
L.P. (formerly EQ/Shearson Hotel Properties, L.P.), a Delaware limited
partnership, as of December 31, 1997 and 1996, and for each of the three years
in the period ended December 31, 1997, which financial statements are included
in the Proxy Statement, we have also audited the financial statement schedule
listed in the Index of the Financial Statements herein.
In our opinion, the financial statement schedule, when considered in relation
to the basic financial statements taken as a whole, present fairly, in all
material respects, the information required to be included therein.
/s/ Coopers & Lybrand L.L.P.
Hartford, Connecticut
March 18, 1998
F-20
<PAGE>
ANNEX A
-------
PURCHASE AND SALE AGREEMENT
AND JOINT ESCROW INSTRUCTIONS
Dated as of April 23, 1998
between
HOTEL PROPERTIES L.P.
a Delaware limited partnership
as Seller
and
MARRIOTT HOTEL SERVICES, INC.
a Delaware corporation
as Buyer
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I EFFECTIVE DATE......................................................1
ARTICLE II DEFINITIONS........................................................2
ARTICLE III AGREEMENT; CONVEYANCE INSTRUMENTS.................................9
3.1. Property.......................................................9
3.2. Conveyance Documents...........................................9
ARTICLE IV PURCHASE PRICE, PAYMENT OF PURCHASE PRICE AND LIQUIDATED
DAMAGES.............................................................10
4.1. Purchase Price................................................10
4.2. Payment of Purchase Price; Deposit............................10
4.3. Allocation of Purchase Price..................................11
4.4. Investment of Deposit.........................................11
4.5. Liquidated Damages............................................11
ARTICLE V "AS IS, WHERE IS" SALE.............................................13
5.1. "AS IS, WHERE IS" SALE........................................13
5.2. Inspection....................................................15
ARTICLE VI TITLE TO REAL PROPERTY; APPROVALS.................................16
6.1. Title.........................................................16
6.2. Approval of Title.............................................17
6.3. Personalty, Marriott Leases, Tan-Tar-A Ground Leases
and Intangibles...............................................19
6.4. Approval of Other Matters.....................................19
ARTICLE VII BUYER'S CONDITIONS PRECEDENT TO CLOSING..........................19
7.1. Buyer's Conditions Precedent..................................19
7.2. Satisfaction of Conditions....................................20
7.3. Waiver of Conditions..........................................20
ARTICLE VIII SELLER'S CONDITIONS PRECEDENT TO CLOSING........................20
8.1. Seller's Conditions Precedent.................................20
8.2. Satisfaction of Conditions....................................24
8.3. Waiver of Conditions..........................................24
ARTICLE IX ESCROW AND CLOSING................................................25
9.1. Deposit With Escrow Holder and Escrow Instructions............25
9.2. Closing.......................................................25
9.3. Deliveries by Seller..........................................25
9.4. Deliveries by Buyer...........................................27
9.5. Other Instruments; Revised Deliveries.........................28
9.6. Adjustments...................................................28
9.7. Costs and Expenses............................................30
9.8. Insurance.....................................................30
9.9. Close of Escrow...............................................30
9.10. Notification; Closing Statements..............................32
i
<PAGE>
ARTICLE X REPRESENTATIONS, WARRANTIES, AND COVENANTS.........................32
10.1. Buyer's Representations and Warranties.......................32
10.2. Seller's Representations and Warranties......................33
10.3. Continuation and Survival of Representations and Warranties;
Limitations on Liability Therefor............................34
ARTICLE XI POSSESSION........................................................34
ARTICLE XII OPERATION OF THE HOTELS..........................................35
ARTICLE XIII LOSS BY CASUALTY; CONDEMNATION..................................36
13.1. Damage or Destruction........................................36
13.2. Condemnation.................................................36
ARTICLE XIV MISCELLANEOUS....................................................37
14.1. Notices......................................................37
14.2. Brokers and Finders..........................................38
14.3. Assignment...................................................39
14.4. Successors and Assigns.......................................39
14.5. Amendments...................................................39
14.6. Interpretation...............................................40
14.7. Governing Law................................................40
14.8. Entire Agreement.............................................40
14.9. Attorneys' Fees and Costs....................................40
14.10. Time of the Essence..........................................40
14.11. Confidentiality..............................................41
14.12. No Waiver....................................................42
14.13. Further Acts.................................................42
14.14. Exhibits.....................................................42
14.15. Counterparts.................................................42
14.16. No Intent to Benefit Third Parties...........................42
14.17. Performance Due on Day Other Than Business Day...............42
14.18. Expenses of Purchase and Sale................................43
14.19. Severability.................................................43
14.20. No Recording.................................................43
14.21. Termination of Agreement.....................................43
14.22. Waiver of Known Defaults.....................................44
ii
<PAGE>
PURCHASE AND SALE AGREEMENT
AND JOINT ESCROW INSTRUCTIONS
This PURCHASE AND SALE AGREEMENT AND JOINT ESCROW INSTRUCTIONS (this
"Agreement") is made as of April 23, 1998, between HOTEL PROPERTIES L.P., a
Delaware limited partnership ("Seller"), and MARRIOTT HOTEL SERVICES, INC., a
Delaware corporation ("Buyer"), for the purpose of setting forth the agreement
of the parties and of instructing FIRST AMERICAN TITLE INSURANCE COMPANY, a
California corporation ("Escrow Holder") with respect to the transactions
contemplated by this Agreement.
R E C I T A L S
---------------
A. Seller is the owner of the Hotels (as hereinafter defined) and has not
and does not directly operate or manage the Hotels.
B. The Hotels are leased by Seller to Buyer and operated by Buyer pursuant
to the Marriott Leases (as hereinafter defined).
C. A former affiliate of Buyer was the original developer and owner of the
Los Angeles Hotel (as hereinafter defined), the Nashville Hotel (as hereinafter
defined) and the St. Louis Hotel (as hereinafter defined), and a previous owner
of the Tan-Tar-A Hotel (as hereinafter defined).
D. Seller desires to sell, and Buyer desires to purchase, the Hotels upon
the terms and conditions hereinafter set forth.
AGREEMENT
---------
NOW, THEREFORE, in consideration of the foregoing and the mutual agreements
set forth herein, and other valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, Seller and Buyer agree as follows:
ARTICLE I
EFFECTIVE DATE
--------------
This Agreement shall be effective (the "Effective Date") when a fully
executed copy of this Agreement (or a fully executed copy in counterparts) is
deposited with Escrow Holder. Escrow Holder is hereby instructed to immediately
notify in writing each party to this Agreement of the Effective Date.
1
<PAGE>
ARTICLE II
DEFINITIONS
-----------
The following terms and references shall have the meanings indicated below:
(1) "Adjustments" shall have the meaning ascribed thereto in Section
-------
9.6(b) of this Agreement .
- ------
(2) "Agreement" shall have the meaning ascribed thereto in the
introductory paragraph of this Agreement.
(3) "Assignment and Assumption Agreements (Intangibles)" shall have the
meaning ascribed thereto in Section 3.2(c) of this Agreement.
--------------
(4) "Assignment and Assumption Agreements (Marriott Leases)" shall have
the meaning ascribed thereto in Section 3.2(d) of this Agreement.
--------------
(5) "Assignment and Assumption Agreements (Tan-Tar-A Ground Leases)"
shall have the meaning ascribed thereto in Section 3.2(e) of this Agreement.
--------------
(6) "Balance" shall have the meaning ascribed thereto in Section 4.2(b)
--------------
of this Agreement.
(7) "Bills of Sale" shall have the meaning ascribed thereto in Section
-------
3.2(b) of this Agreement.
- ------
(8) "Broker" shall have the meaning ascribed thereto in Section 14.2(a)
---------------
of this Agreement.
(9) "Buyer" shall have the meaning ascribed thereto in the introductory
paragraph of this Agreement.
(10) "Casualty Notice" shall have the meaning ascribed thereto in
Section 13.1 of this Agreement.
- ------------
(11) "Closing" means the consummation of the transactions contemplated
by this Agreement.
(12) "Closing Date" means the day that the Deeds are recorded.
(13) "Closing Statements" shall have the meaning ascribed thereto in
Section 9.9(a) of this Agreement.
- --------------
(14) "Commitments" shall mean, collectively, the Los Angeles Commitment,
the Nashville Commitment, the St. Louis Commitment, and the Tan-Tar-A
Commitment.
2
<PAGE>
(15) "Condemnation Notice" shall have the meaning ascribed thereto in
Section 13.2 of this Agreement.
- ------------
(16) "Deeds" shall have the meaning ascribed thereto in Section 3.2(a)
--------------
of this Agreement.
(17) "Deposit" shall have the meaning ascribed thereto in Section 4.2(a)
--------------
of this Agreement.
(18) "Documents" shall have the meaning ascribed thereto in Section 6.4
-----------
of this Agreement.
(19) "Effective Date" shall have the meaning ascribed thereto in Article
-------
I of this Agreement.
- -
(20) "Environmental Assessments" shall have the meaning ascribed thereto
in Section 5.1 (e) of this Agreement.
---------------
(21) "EQ/Shearson" shall mean EQ/Shearson Hotel Properties, L.P.
(22) "Equitable" shall mean The Equitable Life Assurance Society of the
United States.
(23) "Escrow" shall have the meaning ascribed thereto in Section 9.1 of
-----------
this Agreement.
(24) "Escrow Holder" shall have the meaning ascribed thereto in the
introductory paragraph of this Agreement.
(25) "Holiday" shall have the meaning ascribed thereto in Section 14.17
-------------
of this Agreement.
(26) "Hotels" shall mean, collectively, the Los Angeles Hotel, the
Nashville Hotel, the St. Louis Hotel, and the Tan-Tar-A Hotel.
(27) "Improvements" shall mean, collectively, those buildings,
improvements and all attachments and other real property and fixtures located on
the Lands, including without limitation, all parking lots, signs, walkways,
machinery, fixtures, HVAC equipment, plumbing and electrical equipment, lighting
and lighting equipment, elevators, escalators, fire control systems, sprinkler
systems, generators, security systems, waste removal systems, and all other
equipment.
(28) "Indemnified Party" shall have the meaning ascribed thereto in
Section 8.1(a)(iv) of this Agreement.
- ------------------
3
<PAGE>
(29) "Indemnifying Party" shall have the meaning ascribed thereto in
Section 8.1(a)(iv) of this Agreement.
- ------------------
(30) "Information" shall have the meaning ascribed thereto in Section
-------
5.l(e) of this Agreement.
- ------
(31) "Insurance Proceeds" shall have the meaning ascribed thereto in
Section 6.1 of this Agreement.
- -----------
(32) "Intangibles" shall mean all intangible personal property owned by
Seller and used in connection with any of the Lands, Improvements, and
Personalty including, without limitation, Seller's right (if any) to use all
trade names and trademarks in connection with the operation of the Hotels;
Seller's interests in and obligations under all contracts and agreements related
to the improvement, maintenance, repair, or operation of the Hotels in effect on
the Closing Date, including without limitation all personal property leases
entered into by Seller and covering items that, if not leased, would constitute
Personalty; and to the extent assignable, all licenses, permits and certificates
of occupancy and any other governmental approvals necessary for the current use
and operation of the Hotels, and all right, title and interest of Seller in all
transferable warranties, and all plans and specifications and development rights
related to the Hotels, but excluding Seller's interests in the Marriott Leases
and the Tan-Tar-A Ground Leases and all of Seller's cash on hand and Seller's
bank accounts.
(33) "Known Default" shall have the meaning ascribed thereto in Section
-------
14.22 of this Agreement.
- -----
(34) "Landlord Estoppel" shall have the meaning ascribed thereto in
Section 9.3(1)(j) of this Agreement.
- -----------------
(35) "Lands" shall mean, collectively, the Los Angeles Land, the
Nashville Land, the St. Louis Land, and the Tan-Tar-A Land, together with all
right, title and interest of Seller in and to any other interest in real estate
belonging or in any way appurtenant to the Lands.
(36) "Limited Partner Approval" shall have the meaning ascribed thereto
in Section 8.1(a)(i) of this Agreement.
-----------------
(37) "Limited Partner Approval Notice" shall have the meaning ascribed
thereto in Section 8.1(a)(ii) of this Agreement.
------------------
(38) "Limited Partners" means, collectively, the limited partners and
unit holders of Seller.
(39) "Limited Partner Vote" shall have the meaning ascribed in Section
-------
8.1(a)(i) of this Agreement.
- ---------
4
<PAGE>
(40) "Los Angeles Commitment" shall have the meaning ascribed thereto in
Section 6.2(a)(i) of this Agreement.
- -----------------
(41) "Los Angeles Hotel" shall mean, collectively, (a) the Los Angeles
Land, (b) the Los Angeles Improvements, (c) the Los Angeles Personalty, (d) the
Los Angeles Intangibles, and (e) Seller's interest in the Los Angeles Lease.
(42) "Los Angeles Improvements" shall mean the Improvements situated on
the Los Angeles Land.
(43) "Los Angeles Intangibles" shall mean the Intangibles related to the
Los Angeles Land, the Los Angeles Improvements or the Los Angeles Personalty.
(44) "Los Angeles Land" shall mean that certain tract or parcel of land
located in the City of Los Angeles, State of California, and more particularly
described in Exhibit A.
---------
(45) "Los Angeles Lease" shall mean the Amended and Restated Los Angeles
Hotel Lease Agreement between EQ/Shearson, as landlord (as assigned to Buyer),
and Marriott Corporation, as tenant, dated June 2, 1988, a copy of which is
attached hereto as Exhibit B.
---------
(46) "Los Angeles Personalty" shall mean the Personalty related to the
Los Angeles Land or the Los Angeles Improvements.
(47) "Los Angeles Real Property" shall mean the Los Angeles Land and the
Los Angeles Improvements.
(48) "Los Angeles Survey" shall have the meaning ascribed thereto in
Section 6.2(a)(i) of this Agreement.
- -----------------
(49) "Marriott Leases" means, collectively, the Los Angeles Lease, the
Nashville Lease, the St. Louis Lease, and the Tan-Tar-A Lease.
(50) "Nashville Commitment" shall have the meaning ascribed thereto in
Section 6.2(a)(ii) of this Agreement.
- ------------------
(51) "Nashville Hotel" shall mean, collectively, (a) the Nashville Land,
(b) the Nashville Improvements, (c) the Nashville Personalty, (d) the Nashville
Intangibles, and (e) Seller's interest in the Nashville Lease.
(52) "Nashville Improvements" shall mean the Improvements situated on
the Nashville Land.
(53) "Nashville Intangibles" shall mean the Intangibles related to the
Nashville Land, the Nashville Improvements or the Nashville Personalty.
5
<PAGE>
(54) "Nashville Land" shall mean that certain tract or parcel of land
located in the City of Nashville, State of Tennessee, and more particularly
described in Exhibit C.
---------
(55) "Nashville Lease" shall mean the Lease Agreement between Equitable,
as landlord (and assigned by Equitable to Seller), and Marriott Corporation, as
tenant (as assigned to Buyer), dated November 18, 1981, a copy of which is
attached hereto as Exhibit D.
---------
(56) "Nashville Personalty" shall mean the Personalty related to the
Nashville Land or the Nashville Improvements.
(57) "Nashville Real Property" shall mean the Nashville Land and the
Nashville Improvements.
(58) "Nashville Survey" shall have the meaning ascribed thereto in
Section 6.2(a)(ii) of this Agreement.
- ------------------
(59) "Owner's Title Policies" shall have the meaning ascribed thereto in
Section 6.1 of this Agreement.
- -----------
(60) "Permitted Exceptions" shall have the meaning ascribed thereto in
Section 6.1 of this Agreement.
- -----------
(61) "Personalty" shall mean all items of tangible personal property
owned by Seller and located in or on any of the Lands or Improvements, or
otherwise located off the Lands and Improvements, but used solely in connection
with the operation or maintenance of any of the Lands and/or Improvements,
including, without limitation, appliances, fixtures, furnishings, equipment,
graphics, artwork, plans, specifications, maps, drawings, machinery, motor
vehicles, supplies, inventory and other tangible personal property and all
replacements thereof.
(62) "Proxy Materials" shall have the meaning ascribed thereto in
Section 8.1(a)(iii) of this Agreement.
- -------------------
(63) "Purchase Price" shall have the meaning ascribed thereto in Section
-------
4.1 of this Agreement.
- ---
(64) "Real Property" shall mean the Lands and the Improvements.
(65) "St. Louis Commitment" shall have the meaning ascribed thereto in
Section 6.2(a)(iii) of this Agreement.
- -------------------
(66) "St. Louis FF&E Loan" shall mean that certain loan in the original
principal amount of ONE MILLION ONE HUNDRED THOUSAND DOLLARS ($1,100,000.00)
made by Marriott International Capital Corporation to Seller to finance certain
items of furniture, fixtures and equipment for the St. Louis Hotel.
6
<PAGE>
(67) "St. Louis FF&E Loan Note" shall have the meaning ascribed thereto
in Section 9.4(1)(f) of this Agreement.
-----------------
(68) "St. Louis Hotel" shall mean, collectively, (a) the St. Louis Land,
(b) the St. Louis Improvements, (c) the St. Louis Personalty, (d) the St. Louis
Intangibles, and (e) Seller's interest in the St. Louis Lease.
(69) "St. Louis Improvements" shall mean the Improvements situated on
the St. Louis Land.
(70) "St. Louis Intangibles" shall mean the Intangibles related to the
St. Louis Land, the St. Louis Improvements or the St. Louis Personalty.
(71) "St. Louis Land" shall mean that certain tract or parcel of land
located in the City of Edmundson, State of Missouri, and more particularly
described in Exhibit E.
---------
(72) "St. Louis Lease" shall mean the Amended and Restated Lease between
EQ/Shearson, as landlord, and Marriott Corporation, as tenant (as assigned to
Buyer), dated June 2, 1988, a copy of which is attached hereto as Exhibit F.
---------
(73) "St. Louis Personalty" shall mean the Personalty related to the St.
Louis Land or the St. Louis Improvements.
(74) "St. Louis Real Property" shall mean the St. Louis Land and the St.
Louis Improvements.
(75) "St. Louis Survey" shall have the meaning ascribed thereto in
Section 6.2(a)(iii) of this Agreement.
- -------------------
(76) "Seller" shall have the meaning ascribed thereto in the
introductory paragraph of this Agreement.
(77) "Seller has not received" shall have the meaning ascribed thereto
in Section 10.2(h) of this Agreement.
---------------
(78) "Seller's Certificate" shall have the meaning ascribed thereto in
Section 9.3(1)(k) of this Agreement.
- -----------------
(79) "Seller's knowledge" shall have the meaning ascribed thereto in
Section 10.2(h) of this Agreement.
- ---------------
(80) "Seller's Non-Foreign Affidavit" shall have the meaning ascribed
thereto in Section 9.3(1)(f) of this Agreement.
-----------------
7
<PAGE>
(81) "Seller's Partnership Agreement" shall mean that certain Agreement
of Limited Partnership of EQ/Shearson Hotel Properties L.P., dated as of
September 24, 1987.
(82) "Structural Reports" shall have the meaning ascribed thereto in
Section 5.1(e) of this Agreement.
- --------------
(83) "Surveys" shall mean, collectively, the Los Angeles Survey, the
Nashville Survey, the St. Louis Survey, and the Tan-Tar-A Survey.
(84) "Tan-Tar-A Commitment" shall have the meaning ascribed thereto in
Section 6.2(a)(iv) of this Agreement.
- ------------------
(85) "Tan-Tar-A Ground Leases" shall mean, collectively, (a) the Lease
of Land in Tan-Tar-A Estates (Land under Golf Maintenance, Telephone Building,
and Well #2) dated August 12, 1977, by and between Burton W. Duenke as Trustee
of the Burton Walter Duenke Living Trust, as lessor, and Marriott Corporation,
as lessee, a copy of which is attached hereto as Exhibit G; (b) the Lease of
---------
Land in Tan-Tar-A Estates (Land under Estate Rental Office, Swimming Pool,
Parking Area and Service Area) dated August 12, 1977, by and between Burton W.
Duenke as Trustee of the Burton Walter Duenke Living Trust, as lessor, and
Marriott Corporation, as lessee, a copy of which is attached hereto as Exhibit
-------
H; (c) the Lease of Golf Course in Tan-Tar-A Estates dated August 12, 1977, by
- -
and between Burton W. Duenke as Trustee of the Burton Walter Duenke Living
Trust, as lessor, and Marriott Corporation, a copy of which is attached hereto
as Exhibit I; and (d) the Land Lease dated August 12, 1977, by and between
---------
Burton W. Duenke, as lessor, and Marriott Corporation, as lessee, a copy of
which is attached hereto as Exhibit J.
---------
(86) "Tan-Tar-A Hotel" shall mean, collectively, (a) the Tan-Tar-A Land,
(b) the Tan-Tar-A Improvements, (c) the Tan-Tar-A Personalty, (d) the Tan-Tar-A
Intangibles, and (e) Seller's interest in the Tan-Tar-A Lease and (f) Seller's
interest in the Tan-Tar-A Ground Leases.
(87) "Tan-Tar-A Improvements" shall mean the Improvements situated on
the Tan-Tar-A Land.
(88) "Tan-Tar-A Intangibles" shall mean the Intangibles related to the
Tan-Tar-A Land, the Tan-Tar-A Improvements or the Tan-Tar-A Personalty.
(89) "Tan-Tar-A Land" shall mean that certain tract or parcel of land
located in Osage Beach, State of Missouri, and more particularly described in
Exhibit K.
- ---------
(90) "Tan-Tar-A Lease" shall mean the Lease Agreement between Equitable,
as landlord (and assigned by Equitable to Seller), and Marriott Corporation, as
tenant (as assigned to Buyer), dated August 8, 1980, a copy of which is attached
as Exhibit L.
---------
8
<PAGE>
(91) "Tan-Tar-A Personalty" shall mean the Personalty related to the
Tan-Tar-A Land or the Tan-Tar-A Improvements.
(92) "Tan-Tar-A Real Property" shall mean the Tan-Tar-A Land and the
Tan-Tar-A Improvements.
(93) "Tan-Tar-A Survey" shall have the meaning ascribed thereto in
Section 6.2(a)(iv) of this Agreement.
- ------------------
(94) "Tenant Estoppel" shall have the meaning ascribed thereto in
Section 9.3(1)(j) of this Agreement.
- -----------------
(95) "Title Company" shall have the meaning ascribed thereto in Section
-------
6.1 of this Agreement.
- ---
(96) "Transfer" shall have the meaning ascribed thereto in Section 14.3
------------
of this Agreement.
ARTICLE III
AGREEMENT; COVEYANCE INSTRUMENTS
3.1. Property.
--------
Seller hereby agrees to sell to Buyer, and Buyer hereby agrees to purchase
from Seller, subject to the terms and conditions set forth herein, all of
Seller's right, title, and interest in and to the Hotels.
3.2. Conveyance Documents.
--------------------
(a) The Lands and the Improvements (collectively, the "Real Property")
shall be conveyed from Seller to Buyer pursuant to four separate Deeds (one for
each Hotel) (each, a "Deed," and collectively, the "Deeds"), substantially in
the forms set forth on Exhibit M attached hereto and incorporated herein by
---------
reference;
(b) The Personalty shall be conveyed from Seller to Buyer pursuant to
four separate Bills of Sale (one for each Hotel) (each, a "Bill of Sale," and
collectively, the "Bills of Sale") substantially in the form of Exhibit N
---------
attached hereto and incorporated herein by reference.
(c) The Intangibles shall be conveyed from Seller to Buyer pursuant to
four separate Assignment Agreements (Intangibles) (one for each Hotel) (each, an
"Assignment and Assumption Agreement (Intangibles)," and collectively, the
"Assignment and Assumption
9
<PAGE>
Agreements (Intangibles)") substantially in the form of Exhibit O attached
---------
hereto and incorporated herein by reference.
(d) The Seller's interest in the Marriott Leases shall be conveyed
from Seller to Buyer pursuant to four Assignment and Assumption Agreements
(Marriott Leases) (one for each Hotel) (each, an "Assignment and Assumption
Agreement (Marriott Lease)," and collectively, the "Assignment and Assumption
Agreements (Marriott Leases)") substantially in the form of Exhibit P attached
---------
hereto and incorporated herein by reference.
(e) The Seller's interest in the Tan-Tar-A Ground Leases shall be
conveyed from Seller to Buyer pursuant to six Assignment and Assumption
Agreements (Tan-Tar-A Ground Leases) (one for each Tan-Tar-A Ground Lease)
(each, an "Assignment and Assumption Agreement (Tan-Tar-A Ground Lease)"), and
collectively, the "Assignment and Assumption Agreements (Tan-Tar-A Ground
Leases)") substantially in the form of Exhibit Q attached hereto and
---------
incorporated herein by reference.
ARTICLE IV
PURCHASE PRICE, PAYMENT OF
PURCHASE PRICE AND LIQUIDATED DAMAGES
-------------------------------------
4.1. Purchase Price.
--------------
Subject to the terms, conditions, and provisions contained in this
Agreement, Buyer agrees to pay, and Seller agrees to accept, as consideration
for conveyance of the Hotels to Buyer, the sum of ONE HUNDRED FOURTEEN MILLION
DOLLARS ($114,000,000.00) (the "Purchase Price").
4.2. Payment of Purchase Price; Deposit.
----------------------------------
The Purchase Price shall be paid by Buyer as follows:
(a) ONE MILLION ONE HUNDRED FORTY THOUSAND DOLLARS ($1,140,000.00)
(the "Deposit") shall be placed into Escrow by wire transfer of immediately
available funds to Escrow Holder within one (1) business day following the
Effective Date. Escrow Holder shall immediately notify Seller by facsimile in
accordance with Section 14.1 hereof of Escrow Holder's receipt of the Deposit.
------------
The Deposit shall become non-refundable upon deposit into Escrow, except as
otherwise provided herein.
(b) The balance of the Purchase Price, subject to adjustments as
provided in Section 9.6 hereof and taking into account all interest earned on
-----------
the Deposit (the "Balance"), shall be placed into Escrow by wire transfer of
immediately available funds to Escrow Holder at least one (1) business day
before the scheduled Closing Date. If the purchase of the Hotels by
10
<PAGE>
Buyer hereunder is consummated, then the Deposit and all interest accrued
thereon shall constitute a part of and be applied against the Purchase Price. If
the purchase of the Hotels by Buyer hereunder is not consummated, then the
Deposit and all interest accrued thereon shall either be returned to Buyer or be
paid to Seller in accordance with the provisions hereinafter set forth.
4.3. Allocation of Purchase Price.
----------------------------
Subject to the prorations and adjustments hereinafter provided, the
Purchase Price shall be allocated among the Real Property, the Personalty, and
the Intangibles for each Hotel as agreed by the parties prior to Closing. The
parties agree to negotiate in good faith and use reasonable commercial efforts
in an attempt to agree to such an allocation of the Purchase Price prior to
Closing. Notwithstanding the aforesaid allocation of the Purchase Price, the
sale of the Hotels shall be on an all or nothing basis, the sale of each Hotel
(including the components (Real Property, Personalty and Intangibles) thereof)
to be conditioned upon the simultaneous sale of all the other Hotels on a
concurrent basis. Buyer shall have no right to purchase, and Seller shall have
no right to cause Buyer to purchase, less than all of the Hotels in accordance
with the provisions of this Agreement. Nevertheless, both Buyer and Seller
agree that in all public filings and reports, including, without limitation, any
documentary or other transfer tax declarations and any federal, state, or local
income, sales, or use tax returns or declarations, the various components of the
Hotels shall be valued as herein provided, or if not specifically provided for
herein, then Buyer and Seller shall negotiate in good faith any additional
allocations for the components of the Hotels using, to the extent required, the
method set forth in Section 1060 of the Internal Revenue Code of 1986 (as
amended) and the Treasury Regulations promulgated thereunder for purposes of
filing Form 8594 with the Internal Revenue Service.
4.4. Investment of Deposit.
---------------------
Immediately upon receipt of the Deposit and without further instruction,
Escrow Holder shall invest the Deposit in money market accounts, certificates of
deposit, United States government obligations, or in collateralized interest
bearing accounts, or accounts, as shall be directed in writing by Buyer and
Seller. All interest on the Deposit shall accrue for the benefit of Buyer until
the Closing; provided, however, that in the event of any default by Buyer
hereunder, all interest earned on such account shall accrue to the benefit of
Seller. Seller shall not be responsible for nor bear the risk of loss of the
Deposit, and Seller shall not be responsible for the rate of return thereon.
4.5. Liquidated Damages.
------------------
IF THE SALE OF THE HOTELS AS CONTEMPLATED HEREUNDER IS NOT CONSUMMATED
BECAUSE THIS AGREEMENT IS TERMINATED BY SELLER UNDER SECTION 14.21(c) HEREOF,
----------------
AND SELLER HAS OTHERWISE SATISFIED ALL MATERIAL CONDITIONS REQUIRED TO BE
SATISFIED BY SELLER ON OR BEFORE THE DATE OF SUCH TERMINATION, ESCROW HOLDER
SHALL PAY TO SELLER THE
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<PAGE>
DEPOSIT (INCLUDING ALL INTEREST EARNED FROM THE INVESTMENT THEREOF) AND SELLER
SHALL RETAIN SUCH AMOUNT AS LIQUIDATED DAMAGES. THE PARTIES ACKNOWLEDGE THAT
SELLER'S ACTUAL DAMAGES IN THE EVENT OF A DEFAULT BY BUYER WOULD BE EXTREMELY
DIFFICULT OR IMPRACTICABLE TO DETERMINE. THEREFORE, BY PLACING THEIR SIGNATURES
BELOW, THE PARTIES EXPRESSLY AGREE AND ACKNOWLEDGE THAT THE DEPOSIT (PLUS
INTEREST) HAS BEEN AGREED UPON, AFTER NEGOTIATION, AS THE PARTIES' REASONABLE
ESTIMATE OF SELLER'S DAMAGES IF THE SALE OF THE HOTELS AS CONTEMPLATED HEREUNDER
IS NOT CONSUMMATED BECAUSE OF A DEFAULT UNDER THIS AGREEMENT ON THE PART OF
BUYER. THE PARTIES FURTHER ACKNOWLEDGE THAT SUCH LIQUIDATED DAMAGES HAVE BEEN
AGREED UPON AS SELLER'S EXCLUSIVE REMEDY AGAINST BUYER IN THE EVENT THAT THE
SALE OF THE HOTELS AS CONTEMPLATED HEREUNDER IS NOT CONSUMMATED BECAUSE OF A
DEFAULT HEREUNDER ON THE PART OF BUYER, PROVIDED THAT: (A) THE FOREGOING SHALL
NOT LIMIT SELLER'S RIGHTS OR REMEDIES WITH RESPECT TO THE OBLIGATIONS OF BUYER
UNDER SECTIONS 5.2, 14.2(b) AND 14.11 HEREOF; AND (B) BUYER SHALL ALSO BE
--------------------- -----
RESPONSIBLE FOR THE PAYMENT OF ALL TITLE COMPANY CHARGES RELATING TO SEARCHING
TITLE AND ISSUING THE COMMITMENT.
NOTHING CONTAINED IN THIS SECTION 4.5 SHALL BE DEEMED TO LIMIT ANY OF THE
-----------
INDEMNITIES OF BUYER OR SELLER CONTAINED ELSEWHERE IN THIS AGREEMENT. IN THE
EVENT THAT THE SALE OF THE HOTELS AS CONTEMPLATED HEREUNDER IS CONSUMMATED, THIS
SECTION 4.5 SHALL BE OF NO FURTHER FORCE OR EFFECT.
- -----------
Seller:
HOTEL PROPERTIES L.P., a Delaware limited
partnership
By: EHP/GP Inc., a Delaware corporation,
General Partner
By: /s/ Jeffrey C. Carter
-------------------------
Jeffrey C. Carter
President
12
<PAGE>
Buyer:
MARRIOTT HOTEL SERVICES, INC., a
Delaware corporation
By: /s/ Kevin M. Kimball
------------------------------------
Name: Kevin M. Kimball
----------------------------------
Title: Vice President
---------------------------------
ARTICLE V
"AS IS, WHERE IS" SALE
----------------------
5.1. "AS IS, WHERE IS" SALE.
----------------------
Buyer acknowledges, understands, and agrees as follows:
(a) Buyer is (or is controlled by) a sophisticated purchaser who is
familiar with hotel properties similar to the Hotels.
(b) Except as set forth herein, neither Seller nor any of its agents,
brokers, officers, directors, partners, unit holders, shareholders, or employees
has made or will make any representations or warranties of any kind whatsoever,
whether oral or written express or implied, with respect to the Hotels.
(c) Except as expressly provided herein, Buyer will be purchasing the
Hotels in their "AS IS, WHERE IS" condition and "WITH ALL FAULTS," and Buyer
expressly acknowledges and agrees that the Seller is selling and conveying the
Hotels without: (i) any implied or express warranty of merchantability; (ii) any
implied or express warranty of fitness for a particular purpose; and (iii) any
implied warranty with respect to the condition of the Improvements, the past or
projected financial condition of the Hotels, or the uses permitted on, the
development requirements for, or any other matter or thing relating to all or
any portion of the Hotels.
(d) Pursuant to Section 5.2 hereof, Buyer previously has been
-----------
afforded the opportunity to make any and all inspections of the Hotels and such
related matters as Buyer may reasonably desire.
(e) Except as expressly provided herein, and without limiting the
generality of the foregoing, all documents, reports (including, without
limitation, the phase I environmental assessments of the Real Property prepared
by Earth Tech Inc. (the "Environmental Assessments") and the engineering studies
of the Improvements prepared by The Gettys Group, Inc. (the "Structural
Reports"), studies, and other information or materials delivered or disclosed or
to be delivered or disclosed to Buyer by Seller (collectively, the
"Information"),
13
<PAGE>
have been and are being provided to Buyer for informational purposes only and
only as an accommodation to Buyer.
(f) Unless expressly stated otherwise, all of the Information relates
to the period from and after Seller's acquisition of title to the Hotels, and
Seller need not provide any documents, reports, studies, or other information or
materials regarding any aspect of Seller's relationship with Seller's
predecessor(s)-in-title.
(g) Seller has not made, is not making, and will not make any
representation, warranty, or promise of any kind, express or implied, concerning
the accuracy or completeness of all or any part of the Information.
(h) Any inaccuracy, incompleteness, or deficiency in any part of the
Information shall be solely the risk and responsibility of Buyer, shall not be
chargeable in any respect to Seller, and shall not form the basis of any claims
by Buyer against any person or entity that prepared, authored, compiled, or
created any part of the Information, such claims being expressly waived and
relinquished by Buyer.
(i) Buyer hereby absolutely and unconditionally waives and releases
Seller, to the fullest extent permitted under law, from and of any and all
demands, claims, actions or causes of action, assessments, losses, damages,
liabilities, costs, and expenses with respect to all obligations for or
pertaining to the existence of asbestos, hazardous materials, or environmental
contamination or conditions at, in, on, under, or from the Hotels arising under
or based upon any federal, state, local, or foreign laws or regulations, or
based upon common law or otherwise, whether now or hereafter in effect,
including, without limitation, all those provisions of law that exclude or may
exclude unknown or unsuspected claims from general release, provided, however,
that this waiver and release shall not release Seller from any liability for
fraud or intentional misrepresentation or to any governmental agency pursuant to
any federal or state law if such liability is due to the existence of asbestos,
hazardous materials, or environmental contamination or conditions at, in, on,
under, or from the Hotels. EXCEPT FOR ANY LIABILITY OF SELLER FOR FRAUD OR
INTENTIONAL MISREPRESENTATION OR TO A GOVERNMENTAL AGENCY PURSUANT TO FEDERAL OR
STATE LAW AND DUE TO THE EXISTENCE OF ASBESTOS, HAZARDOUS MATERIALS, OR
ENVIRONMENTAL CONTAMINATION OR CONDITIONS AT, IN, ON, UNDER, OR FROM THE HOTELS,
THIS WAIVER AND RELEASE BY BUYER SPECIFICALLY, BUT WITHOUT LIMITATION, INCLUDES
BUYER'S WAIVER AND RELEASE OF ANY CLAIMS UNDER (A) SECTION 1542 OF THE
CALIFORNIA CIVIL CODE, WHICH PROVIDES, "A GENERAL RELEASE DOES NOT EXTEND TO
CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE
TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY
AFFECTED HIS SETTLEMENT WITH THE DEBTOR", THE PROVISIONS OF WHICH BUYER HEREBY
SPECIFICALLY ACKNOWLEDGES, AFTER
14
<PAGE>
CONSULTATION WITH LEGAL COUNSEL AND WITH FULL KNOWLEDGE OF THE CONSEQUENCES OF
ITS ACTIONS.
/s/ KMK
------------------
Initials of Buyer's Duly Authorized Representative
Notwithstanding the foregoing waiver and release, Buyer and Seller acknowledge
and agree that such waiver and release by Buyer is not intended to preclude
Buyer from asserting as a defense in any claim, action, or proceeding brought
against Buyer and relating to the presence, discovery, or removal of any
hazardous materials in, at, about, or under any Hotel, that the responsibility
therefor lies in whole or in part with Seller or Seller's predecessors in title,
but Buyer shall not be entitled to seek recovery against Seller therefor except
as otherwise expressly set forth herein.
(j) To the extent required to be operative, the disclaimers or
warranties contained in this Section 5.1 are "conspicuous" disclaimers for
purposes of any applicable law, rule, regulation, or order, and the delivery of
the Environmental Assessments to Buyer constitutes appropriate written
disclosure and notice of hazardous substances at the Hotels to the extent
required by Section 25359.7 et seq. of the California Health and Safety Code.
-- ----
5.2. Inspection.
----------
(a) Prior to the date hereof, Seller has permitted Buyer and its
representatives to enter upon and inspect the Hotels and to conduct soils,
engineering, and any other tests or studies as Buyer desired, and Buyer
acknowledges it has conducted the due diligence it desires to conduct and such
due diligence was conducted at the Buyer's sole cost and expense. Buyer has and
shall keep the Hotels free and clear of any mechanic's or materialmen's liens
arising out of any entry, inspection, test, or study conducted by Buyer or its
representatives, and if Buyer has not already done so, Buyer shall promptly
restore the Hotels to therein condition before such entries were made or
inspections, studies, or tests were performed, and shall do so after any future
entries are made or inspections, studies, or tests are performed.
(b) All entries by Buyer onto the Hotels shall be subject to, and
conducted in accordance with, all applicable laws, and the rights of the lessor
under the Tan-Tar-A Ground Leases, and the rights of the current occupants of
the Hotels, so as to avoid any material interference with the operations and
occupancy of the Hotels or other occupants of the Hotels.
(c) If Buyer or its representatives undertook any borings or other
disturbances of the soil, the soil shall be re-compacted to its condition
immediately before any such borings or other disturbances were undertaken, and
if required by the local or state government in which the Hotels are located,
Buyer shall obtain, at Buyer's own expense, a certificate from a licensed soils
engineer that certifies that the soil has been re-compacted to such condition.
15
<PAGE>
(d) Notwithstanding any general liability or other insurance that may
be maintained by Buyer, Buyer shall indemnify and defend Seller, and hold Seller
harmless (using counsel reasonably satisfactory to Seller) from any and all
loss, cost, liability, claim, damage, or expense (including, without limitation,
attorneys' fees and costs) that Seller may sustain or incur by reason of or in
connection with any such entry, inspections, studies, or tests. The indemnity
obligations of Buyer under this Section 5.2(d) shall survive any termination of
--------------
this Agreement, or the delivery of the Lease Assignment and Assumption
Agreements (Marriott Leases), Assignment and Assumption Agreement (Tan-Tar-A
Ground Leases), the Deeds and the transfer of title to the Hotels. If this
Agreement is terminated for any reason other than pursuant to Section 14.21(b)
----------------
hereof, Buyer shall, upon request, deliver to Seller (without any representation
or warranty by Buyer) copies of any and all inspections, studies, tests,
surveys, or other reports made for or provided to Buyer by third parties with
respect to the proposed acquisition of the Hotels pursuant to the terms of this
Agreement (but not such items provided to Buyer in its capacity as property
manager or lessee under the Marriott Leases). All costs of copying such
inspections, studies, tests, surveys, or other reports shall be borne
exclusively by Seller.
ARTICLE VI
TITLE TO REAL PROPERTY; APPROVALS
---------------------------------
6.1. Title.
-----
At the Closing, Seller shall convey to Buyer the Real Property by execution
and delivery of the Deeds. The issuance by First American Title Insurance
Company (the "Title Company") of an American Land Title Association Policy of
Title Insurance for each Hotel in conformity with the Commitments (the "Owner's
Title Policies") shall be conclusive evidence, except as expressly provided to
the contrary in this Section 6.1, of Seller's delivery of appropriate title
-----------
acceptable to Buyer. Buyer's first recourse for any defect in the title
actually acquired by Buyer shall be to enforce Buyer's rights under the Owner's
Title Policies, and Seller shall have no liability to Buyer based upon any
defect in the title actually acquired by Buyer unless Seller would otherwise be
liable therefor based on the terms, conditions and warranties in the applicable
Deed. Buyer shall make no claim for a title defect against Seller unless and
until Buyer has properly filed a claim for such title defect against the Title
Company pursuant to the applicable Owner's Title Policy and diligently pursued
such claim against the Title Company until the Title Company either makes title
insurance proceeds ("Insurance Proceeds") available to Buyer with respect to
such claim or denies coverage of the claim in writing (including, by way of
example but without limitation, in a letter to Buyer or in court pleadings
responding to Buyer's court pleadings). If Buyer recovers Insurance Proceeds
because of any defect in title, Seller's liability therefor shall be limited to
the amount by which Buyer's actual damages incurred as a direct result of such
title defect exceed such Insurance Proceeds. Notwithstanding anything to the
contrary set forth in this Section 6.1, Seller shall be liable for all of the
Buyer's actual damages incurred as a direct result of a breach of a
representation or warranty, of Seller made in Section 10.2(a) or (b) below, or a
--------------- ---
complete failure of Buyer's title due to Seller not holding any title to the
Real Property at the time of its transfer to Buyer or due to Seller's lack of
authority to
16
<PAGE>
transfer title to the Real Property. The Owner's Title Policies shall be issued
by the Title Company subject only to the Marriott Leases, the Tan-Tar-A Ground
Leases, property taxes and assessments not yet delinquent, and such other
exceptions to title as may be approved by Buyer pursuant to Section 6.2 hereof
-----------
(collectively, the "Permitted Exceptions"). The provisions of this Section 6.1
-----------
limiting Buyer's rights, remedies, and recourse against Seller for a defect in
title relating to the Real Property shall survive the Closing.
6.2. Approval of Title.
-----------------
(a) Buyer has received and reviewed:
(i) Los Angeles Hotel: (i) a commitment for title insurance,
-----------------
numbered 9809703-21 and dated February 17, 1998, concerning
the Los Angeles Real Property and issued by the Title
Company, copies of all documents referred to in the
commitment as encumbering the Los Angeles Real Property,
and all title endorsements attached thereto (the "Los
Angeles Commitment"); and (ii) a Survey of the Los Angeles
Real Property acceptable to Buyer (the "Los Angeles
Survey"). Buyer has approved the condition of title to the
Los Angeles Real Property, and shall not object thereto
except for: (i) matters first arising after the date of the
Los Angeles Commitment; (ii) (x) the title exceptions in
Schedule B-Section 2 of the Los Angeles Commitment numbered
8, 9, 12 and 13, which Seller shall cause to be omitted
from the Title Policy relating the Los Angeles Real
Property as a title exceptions or (as to exception number
13) modified to specify the parties referred to therein
based on an affidavit of Seller, (y) Schedule B-Section 1
of the Los Angeles Commitment, and (z) the standard
exceptions at the beginning of Schedule B-Section 2 of the
Los Angeles Commitment;
(ii) Nashville Hotel: (i) a commitment for title insurance,
---------------
numbered 15055 and dated February 18, 1998, concerning the
Nashville Real Property and issued by the Title Company,
copies of all documents referred to in the commitment as
encumbering the Nashville Real Property, and all title
endorsements attached thereto (the "Nashville Commitment");
and (ii) an ALTA/ACSM Land Title Survey of the Nashville
Real Property acceptable to Buyer (the "Nashville Survey").
Buyer has approved the condition of title to the Nashville
Real Property, and shall not object thereto except for: (i)
matters first arising after the date of the Nashville
Commitment; (ii) (x) the title exception in Schedule B-
Section 2 of the Nashville Commitment numbered 13, which
Seller shall cause to be omitted from the Title Policy
relating to the Nashville Real Property as a
17
<PAGE>
title exception or modified to specify the parties referred
to therein based on an affidavit of the Seller, (y)
Schedule B-Section 1 of the Nashville Commitment, and (z)
the standard exceptions at the beginning of Schedule B-
Section 2 of the Nashville Commitment;
(iii) St. Louis Hotel: (i) a commitment for title insurance,
---------------
numbered 344200-12L-24-0518 and dated February 18, 1998,
concerning the St. Louis Real Property and issued by the
Title Company, copies of all documents referred to in the
commitment as encumbering the St. Louis Real Property, and
all title endorsements attached thereto (the "St. Louis
Commitment"); and (ii) an ALTA/ACSM Land Title Survey of
the St. Louis Real Property acceptable to Buyer (the "St.
Louis Survey"). Buyer has approved the condition of title
to the St. Louis Real Property, and shall not object
thereto except for: (i) matters first arising after the
date of the St. Louis Commitment; (ii) (x) the title
exception in Schedule B-Section 2 of the St. Louis
Commitment number 19, (y) Schedule B-Section 1 of the St.
Louis Commitment, and (z) the standard exceptions at the
beginning of Schedule B-Section 2 of the St. Louis
Commitment;
(iv) Tan-Tar-A Hotel: (i) a commitment for title insurance,
---------------
numbered 1952 and dated February 20, 1998, concerning the
Tan-Tar-A Real Property and issued by the Title Company,
copies of all documents referred to in the commitment as
encumbering the Tan-Tar-A Real Property, and all title
endorsements attached thereto (the "Tan-Tar-A Commitment");
and (ii) 1988 and 1995 surveys of the Tan-Tar-A Real
Property prepared for Seller (collectively, the "Tan-Tar-A
Survey"). Buyer has approved the condition of title to the
Tan-Tar-A Real Property, and shall not object thereto
except for: (i) matters first arising after the date of the
Tan-Tar-A Commitment; (ii) (x) the title exceptions in
Schedule B-Section 2 of the Tan-Tar-A Commitment numbered
8, 9, 10 and 16, (y) Schedule B-Section 1 of the Tan-Tar-A
Commitment, and (z) the standard exceptions at the
beginning of Schedule B-Section 2 of the Tan-Tar-A
Commitment and (iii) survey matters relating to parcel 1 of
the legal description of the Tan-Tar-A Hotel contained in
the Tan-Tar-A Commitment and not disclosed in the Tan-Tar-A
Survey.
(b) Buyer shall in no event refuse to accept the following matters of
title (each of which shall be each deemed a "Permitted Exception" hereunder):
(i) applicable zoning and use regulations of any applicable governmental
authority; (ii) terms of the Marriott Leases; (iii) rights of guests of the
Hotels as guests only; (iv) any mechanic's or other liens arising out of
18
<PAGE>
Buyer's entry on the Real Property; (v) terms of the Tan-Tar-A Ground Leases;
and (vi) except as provided in Section 6.2(a)(iv), survey matters.
(c) Prior to the Closing, Seller shall not take any action or
commit or suffer any acts which would give rise to a variance from the current
legal description of the Real Property, or cause the creation of any exception
or encumbrance against or respecting the Real Property, without in each case the
prior written consent of Buyer, which consent shall not be unreasonably withheld
or delayed.
6.3. Personalty, Marriott Leases, Tan-Tar-A Ground Leases and Intangibles.
--------------------------------------------------------------------
At the Closing, Seller shall transfer to Buyer and Buyer shall assume all
of Seller's interest in the Personalty, Marriott Leases, Tan-Tar-A Ground Leases
and Intangibles by execution and delivery of the Bill of Sale, the Assignment
and Assumption Agreement (Marriott Leases), the Assignment and Assumption
Agreements (Tan-Tar-A Ground Leases), and the Assignment and Assumption
Agreements (Intangibles), respectively. In connection therewith, Buyer (in its
capacity as lessee under the Marriott Leases) hereby agrees to Seller's
assignment to Buyer of the Marriott Leases as provided herein. Seller and Buyer
specifically waive compliance, if any is required, with (i) California Uniform
Commercial Code, Sections 6101, et seq., commonly referred to as the Uniform
-- ----
Commercial Code - Bulk Transfers, (ii) RSMo. Section 400.6-101 et seq., (iii)
-- ---
T.C.A. 9-6-101 and any similar provisions under the laws of the States of
California, Missouri or Tennessee in effect from time to time.
6.4. Approval of Other Matters.
-------------------------
Buyer and Seller each hereby acknowledge that the conveyance documents
attached hereto as exhibits (collectively, the "Documents"), as revised to
conform to the specific terms of this Agreement (as amended from time to time),
will be used at Closing. Buyer and Seller each hereby approve the form of all
the Documents, subject to completion of any uncompleted information to be set
forth therein in accordance with the terms of this Agreement, and further
subject to the reasonable review and approval of the Title Company, and to any
other reasonable changes required to comply with federal, state, or local law.
ARTICLE VII
BUYER'S CONDITIONS PRECEDENT TO CLOSING
---------------------------------------
7.1. Buyer's Conditions Precedent.
----------------------------
The following conditions are conditions precedent to Buyer's obligation to
purchase the Property:
(a) Owner's Title Policies. The Title Company shall be irrevocably
committed to issue to Buyer the Owner's Title Policies, subject only to the
Permitted Exceptions.
19
<PAGE>
(b) Seller's Organizational Documents. Seller shall have delivered
the following to Buyer: (i) for Seller, certified copies of Seller's Partnership
Agreement, a Certificate of Limited Partnership, all amendments or modifications
thereto, and a current certificate of good standing from the states of Delaware,
New York, California, Missouri and Tennessee; and (ii) for Seller's general
partner, certified copies of its articles of incorporation and all amendments or
modifications thereto, appropriate resolutions and incumbency certificates, and
a current certificate of good standing from the states of Delaware and New York.
(c) Compliance by Seller. Seller shall have complied in all respects
with each and every material covenant and condition of this Agreement to be kept
or complied with by Seller.
(d) Representations and Warranties. The representations and
warranties of Seller contained in Section 10.2 and elsewhere in this Agreement
------------
shall be true and correct in all material respects when made, and shall be true
and correct in all material respects on the Closing Date, and Buyer shall have
received a certificate to that effect by a duly authorized officer of the
general partner of Seller (the liability thereunder being solely that of Seller
and not the personal liability of the officer executing the same).
(e) Limited Partner Approval. Seller shall have obtained the Limited
Partner Approval and delivered the Limited Partner Approval Notice evidencing
the same to Buyer and Escrow Holder.
7.2. Satisfaction of Conditions.
--------------------------
Seller hereby agrees to use commercially reasonable efforts to cause each
of the conditions precedent to the obligations of Buyer as set forth in Section
-------
7.1 hereto to be fully satisfied, performed, and discharged on and as of the
- ---
Closing Date, except that Seller shall not have any obligations to expend any
funds, or incur any liabilities or obligations, that it would not otherwise be
required to spend or incur under the provisions of this Agreement.
7.3. Waiver of Conditions.
--------------------
If any condition set forth in this Article VII is not fulfilled, Buyer may,
-----------
in its sole and absolute discretion, elect to waive such condition by providing
written notice of such election to Seller and to Escrow Holder.
ARTICLE VIII
SELLER'S CONDITIONS PRECEDENT TO CLOSING
----------------------------------------
8.1. Seller's Conditions Precedent.
-----------------------------
The following conditions are conditions precedent to Seller's obligation to
sell the Property:
20
<PAGE>
(a) Limited Partner Vote. Seller believes that it is required to obtain
the approval of the Limited Partners and shall, therefore, at Seller's sole cost
and expense, present the sale to the Limited Partners for their approval.
(i) Solicitation. Seller shall solicit the approval (the "Limited
------------
Partner Vote") by the Limited Partners of the sale of the
Hotels as contemplated hereby and shall recommend that the
Limited Partners approve such sale because it is in the best
interest of Seller and the Limited Partners. Approval of the
sale of the Hotels pursuant to this Agreement may only be
granted upon the affirmative action of Limited Partners
holding a majority of the outstanding "Interests" (as defined
in Seller's Partnership Agreement) (the "Limited Partner
Approval").
(ii) Limited Partner Approval Notice. Within one (1) business day
-------------------------------
after obtaining Limited Partner Approval (or if the sale of
the Hotels is disapproved or deemed to be disapproved by the
Limited Partners) Seller shall deliver written notice of the
result thereof (the "Limited Partner Approval Notice") to
Buyer and Escrow Holder, in substantially the form of Exhibit
-------
R attached hereto.
-
(iii) Proxy Materials. Buyer and Seller each acknowledges and
---------------
agrees that Buyer shall have no responsibility for, or
involvement or participation in, the preparation, execution,
issuance or dissemination of the materials (the "Proxy
Materials") prepared and filed or to be prepared and filed
with the Securities and Exchange Commission and thereafter
distributed to the Limited Partners in connection with
soliciting the Limited Partner Approval. Notwithstanding the
foregoing, Buyer shall provide relevant information to
Seller, to the extent reasonably requested by Seller in
writing and based on requests by the Securities and Exchange
Commission, in connection with its review of the Proxy
Materials, provided that Seller shall pay any reasonable and
actual out-of-pocket costs incurred by Buyer in connection
with such requested information. Seller shall deliver to
Buyer final and definitive versions of the Proxy Materials
together with delivery thereof to the Limited Partners. If,
at any time prior to Limited Partner Approval, any event or
circumstances relating to Buyer and Seller should be
discovered by such party which should be set forth in an
amendment or a supplement to the Proxy Materials, such party
shall promptly inform the other thereof and take appropriate
action in respect thereof.
21
<PAGE>
(iv) Indemnification. Each party hereto shall (i) indemnify (in
---------------
such role, an "Indemnifying Party") and hold harmless each
other party and their respective partners, affiliates,
directors, officers and controlling persons (an "Indemnified
Party") against any and all loss, liability, claim, damage
and expense whatsoever to which an Indemnified Party may
become subject, under the Securities Exchange Act of 1934, as
amended or otherwise, insofar as such losses, claims, damages
or liabilities (or actions in respect thereof) arise out of
any untrue statement or alleged untrue statement of a
material fact contained in the Proxy Materials, including any
amendment or supplement thereto, or any preliminary Proxy
Materials, or the omission or alleged omission therefrom of a
material fact required to be stated therein or necessary to
make the statements therein not misleading; and (ii)
reimburse the Indemnified Party for any legal or other
expenses reasonably incurred by the Indemnified Party in
connection with the investigating or defending of any such
loss, claim, damage, liability or action as such expenses are
incurred; provided, however, that (x) Buyer shall be liable
under this Section 8.1(a)(iv) only to the extent that any
------------------
such loss, claim, damage, liability or action arises out of
any untrue statement or alleged untrue statement of a
material fact or omission or alleged omission of a material
fact made in any such document, in reliance upon and in
conformity with written information furnished by or on behalf
of Buyer pursuant to Section 8.1(a)(iii) specifically for use
-------------------
in the Proxy Materials, and (y) Seller shall not be liable in
any such case under this Section 8.1(a)(iv) to the extent
------------------
that any such loss, claim, damage, liability or action arises
out of any untrue statement or alleged untrue statement of a
material fact or omission or alleged omission of a material
fact made in any of such documents in reliance upon and in
conformity with written information furnished to Seller by or
on behalf of Buyer pursuant to Section 8.1(a)(iii)
-------------------
specifically for use therein.
Promptly after receipt by an Indemnified Party under this
Section 8.1(a)(iv) notice of any claim or the commencement of
------------------
any action, the Indemnified Party shall, if a claim in
respect thereof is to be made against the Indemnifying Party
under this Section 8.1(a)(iv), promptly notify the
------------------
Indemnifying Party in writing of the claim or the
commencement of that action; provided, however, that the
failure to notify or a delay in notifying the Indemnifying
Party shall not relieve it from any liability which it may
have to an Indemnified Party under this Section 8.1(a)(iv)
------------------
except to the extent
22
<PAGE>
that such Indemnifying Party is materially prejudiced
thereby. If any such claim or action shall be brought against
an Indemnified Party, and it shall notify the Indemnifying
Party thereof, the Indemnifying Party shall be entitled to
participate therein. Each Indemnified Party, as a condition
of the indemnity agreements contained herein shall use its
commercially reasonable efforts to cooperate with the
Indemnifying Party in the defense of any such claim or
action. The Indemnifying Party shall not be liable for any
settlement of any such claim or action effected without its
written consent (which consent shall not be unreasonably
withheld), but if settled with its written consent or if
there is a final judgment in favor of the plaintiff in any
such claim or action, the Indemnifying Party agrees to
indemnify and hold harmless any Indemnified Party from and
against any loss or liability by reason of such settlement or
judgment.
(v) Termination Right. In the event that a Limited Partner
-----------------
Approval Notice evidencing disapproval by the Limited
Partners of the sale of the Hotels as contemplated hereby is
delivered by Seller to Escrow Holder and Buyer then this
Agreement shall automatically terminate. In the event that no
Limited Partner Approval Notice (whether evidencing the
approval or disapproval of the Limited Partners) has been
delivered to Escrow Holder and Buyer on or before May 15,
1998, then either party may terminate this Agreement and
cancel the Escrow by written notice to the other party and
the Escrow Holder. If this Agreement is terminated pursuant
to this Section 8.1(a)(v) (whether automatically or by either
-----------------
party), Seller shall reimburse Buyer for third-party costs
reasonably incurred by Buyer in connection with this
Agreement and its due diligence investigation of the Hotels
up to a maximum amount of $50,000.
(b) Buyer's Organizational Documents. Within fifteen (15) business days
--------------------------------
after the Effective Date, Buyer shall deliver the following to Seller at the
address set forth in Section 14.1 hereof:
------------
(i) if Buyer or any partner or permitted assignee of Buyer is a
corporation, certified copies of each such corporation's
Articles of Incorporation, Bylaws, and all amendments or
modification thereto, appropriate corporate resolutions and
incumbency certificates, and a current certificate of good
standing in the jurisdiction of its organization;
23
<PAGE>
(ii) if Buyer or any partner or permitted assignee of Buyer is a
general partnership, certified copies of each such general
partnership's Partnership Agreement and Statement of
Partnership, and all amendments and modifications thereto;
(iii) if Buyer or any partner or permitted assignee of Buyer is a
limited partnership, certified copies of each such limited
partnership's Partnership Agreement and Certificate of
Limited Partnership, and all amendments or modifications
thereto, and if available, a certificate of good standing in
the jurisdiction of its organization; and
(iv) if Buyer or any partner or permitted assignee of Buyer is a
trust, certified copies of each such trust's trust agreement,
and all amendments and modification thereto, and, if
available, a certificate of good standing.
(c) Compliance By Buyer. Buyer shall have complied in all material
-------------------
respects with each and every covenant and condition of this Agreement
to be kept or complied with by Buyer.
(d) Representations and Warranties. The representations and warranties of
------------------------------
Buyer contained in Section 10.1 shall be true and correct in all
------------
material respects when made, and shall be true and correct in all
material respects on the Closing Date, and Seller shall have received
a certificate to that effect by a duly authorized officer of Buyer
(the liability thereunder being solely that of Buyer and not the
personal liability of the officer executing the same).
8.2. Satisfaction of Conditions.
--------------------------
Seller shall not have the right to terminate this Agreement pursuant to
Sections 8.l(a) if Seller has failed to use commercially reasonable efforts to
- ---------------
cause such conditions precedent to Closing described therein to be satisfied.
8.3. Waiver of Conditions.
--------------------
If any condition set forth in this Article VIII is not fulfilled, Seller
------------
may, in its sole and absolute discretion, elect to waive such condition by
providing written notice of such election to Buyer and to Escrow Holder. Such
waiver shall not constitute a waiver of any other condition.
24
<PAGE>
ARTICLE IX
ESCROW AND CLOSING
------------------
9.1. Deposit With Escrow Holder and Escrow Instructions.
--------------------------------------------------
Escrow hereunder (the "Escrow") shall be established with Escrow Holder at
Suite 709, 1025 Connecticut Avenue, N.W., Washington, D.C. On the Effective
Date, the parties shall deposit an executed copy of this Agreement with Escrow
Holder. This Agreement shall serve as the instructions to Escrow Holder to
consummate the purchase and sale contemplated hereby. Such instructions may be
modified by reasonable additional or supplemental escrow instructions executed
by either party hereto. Seller and Buyer agree to execute such additional and
supplementary escrow instructions as are consistent with this Agreement and as
may be appropriate to enable Escrow Holder to comply with the terms of this
Agreement.
9.2. Closing.
-------
(a) The parties hereto shall use reasonable commercial efforts to
cause Closing to occur on May 22, 1998, but in all events Closing shall occur no
later than fifteen (15) days after delivery of the Limited Partner Approval
Notice indicating Limited Partner Approval has occurred to Buyer and Escrow
Agent (the "Closing Date"), unless the parties hereto agree in writing, each in
its sole and absolute discretion, to change the scheduled Closing Date.
(b) If either party has complied with the material terms and
conditions of this Agreement on or before the scheduled Closing Date but the
Closing does not occur because of a default hereunder by the other parry, the
defaulting party shall be deemed to be in material default of this Agreement and
the non-defaulting parry may terminate this Agreement in accordance with
Section 14.22 below.
- -------------
9.3. Deliveries by Seller.
--------------------
(1) No less than three (3) business days prior to the Closing Date,
Seller shall deposit with Escrow Holder the following:
(a) One (1) original of each of the Deeds, duly executed and
acknowledged by Seller, and in recordable form;
(b) Four (4) original counterparts of each of the Assignment and
Assumption Agreements (Intangibles), duly executed by Seller.
(c) Two (2) original counterparts of each of the Bills of Sale,
duly executed by Seller;
25
<PAGE>
(d) Four (4) original counterparts of each of the Assignment and
Assumption Agreements (Marriott Leases), duly executed and acknowledged by
Seller, and in recordable form;
(e) Four (4) original counterparts of each of the Assignment and
Assumption Agreements (Tan-Tar-A Leases), duly executed and acknowledged by
Seller, and in recordable form;
(f) For each Hotel, two (2) original non-foreign affidavits
satisfying the requirements of Section 1445 of the United States Internal
Revenue Code of 1986, as amended, and for the Los Angeles Hotel the requirements
of Section 18805 of the California Revenue and Taxation Code, as amended,
substantially in the form of Exhibit S attached hereto and incorporated herein
---------
by reference (the "Seller's Non-Foreign Affidavit"), duly executed by Seller;
(g) Original copies, executed by or on behalf of Seller, of any
required real estate transfer tax declarations, or any similar documentation
required to evidence the payment of any tax imposed by any state, county, or
municipality on the transaction contemplated hereby;
(h) Such additional articles of incorporation, agreements or
certificates of partnership, resolutions, authorizations, bylaws,
certifications, or other corporate, partnership, or trust documents or
agreements relating to Seller and Seller's partners as Buyer or Escrow Holder
shall reasonably require in connection with this transaction;
(i) A Certificate of Payment of Buyer, or substantially similar
certificate or letter for the Los Angeles Hotel executed by the State of
California Board of Equalization, evidencing the fact that Buyer is not required
to withhold any funds from the Purchase Price for payment of any amount due to
such governmental authority;
(j) Either (i) a tenant estoppel certificate in the form of Exhibit
-------
T attached hereto and incorporated herein by reference ("Tenant Estoppel") from
- -
Seller or (ii) a landlord estoppel certificate in the form of Exhibit U attached
---------
hereto and incorporated herein by reference ("Landlord Estoppel") from the
landlord thereunder with respect to each of the Tan-Tar-A Ground Leases; and
(k) Two fully executed originals of a certificate from the Seller
that all of its representations and warranties under Section 10.2 of this
------------
Agreement are true and correct as of the date of closing in the form of Exhibit
-------
V attached hereto and incorporated herein by reference ("Seller's Certificate").
- -
(2) At least one (1) business day before the Closing, Seller shall
deposit with Escrow Holder any other documents, or instruments called for
hereunder or reasonably requested by Buyer or Escrow Holder and consistent
herewith to be executed, or delivered by Seller that have not previously been
delivered by Seller to Escrow Holder.
26
<PAGE>
9.4. Deliveries by Buyer.
-------------------
(1) No later than three (3) business days prior to the Closing, Buyer
shall deposit with Escrow Holder the following:
(a) Four (4) original counterparts of each of the Assignment and
Assumption Agreements (Intangibles), duly executed by Buyer;
(b) Four (4) original counterparts of each of the Assignment and
Assumption Agreements (Marriott Leases), duly executed and acknowledged by
Buyer; and in recordable form;
(c) Four (4) original counterparts of each of the Assignment and
Assumption Agreements (Tan-Tar-A Ground Leases), duly executed and acknowledged
by Buyer; and in recordable form;
(d) Such additional articles of incorporation, agreements or
certificates of partnership, resolutions, authorizations, bylaws,
certifications, or other corporate, partnership, or trust documents or
agreements relating to Buyer as Seller or Escrow Holder shall reasonably require
in connection with this transaction;
(e) Original copies, executed by or on behalf of Buyer, of any
required real estate transfer tax declarations, or any similar documentation
required to evidence the payment of any tax imposed by any state, county, or
municipality on the transaction contemplated hereby;
(f) The original promissory note evidencing the St. Louis FF&E Loan
(the "St. Louis FF&E Loan Note"); and
(g) Any documents, or instruments reasonably requested by Seller or
Title Company to evidence Buyer's assumption of the Marriott Leases, the Tan-
Tar-A Leases, and the release of Seller from its obligations under each accruing
after the Closing, all executed and delivered (in recordable form where
necessary) by Buyer.
(2) At least one (1) business day before the Closing, Buyer shall deposit
with Escrow Holder the following:
(a) Good and immediately available funds sufficient to pay the
Balance, Buyer's portion of the closing costs, and any other amounts payable by
Buyer in order to permit Escrow Holder to close the Escrow which, if deposited
by Buyer prior to the Closing Date, shall be invested for Buyer's benefit at
Buyer's reasonable discretion; and
(b) Any other documents, or instruments called for hereunder or
reasonably requested by Seller and consistent herewith to be executed, or
delivered by Buyer or that are required for Closing hereunder that have not been
previously delivered by Buyer to Escrow Holder.
27
<PAGE>
9.5. Other Instruments; Revised Deliveries.
-------------------------------------
Seller and Buyer shall each deposit any other documents or instruments that
may be reasonably required by Escrow Holder, or that are otherwise required to
close Escrow and consummate the purchase and sale of the Hotels in accordance
with the terms hereof including, without limitation, the Closing Statements. In
the event that the interest hereunder of Buyer or Seller is assigned (as
permitted hereby) subsequent to the date that instruments have been delivered
into Escrow but prior to the Closing Date, the parties shall re-execute
documents by and for the benefit of the permitted assignee and shall deliver
such revised instruments to Escrow Holder and shall authorize Escrow Holder,
upon its receipt of the revised documentation, to destroy the instruments
previously deposited into Escrow, to the extent replaced by such revised
documentation.
9.6. Adjustments.
-----------
(a) Payments required to be made by Buyer under the Marriott Leases
shall be prorated, credited or applied in accordance with Section 9.6(b) hereof.
--------------
Because of the net character of the Marriott Leases, there shall be no
adjustment of the Purchase Price with respect to real estate taxes, personal
property taxes, unmetered water and sewer rents and charges, vault taxes,
unmetered utility fees and charges, and all other fees, taxes and periodic
charges relating to or payable in connection with the use, occupancy,
maintenance, ownership and operation of the Hotels. Buyer shall pay off the St.
Louis FF&E Loan at Closing and shall not receive a credit or be entitled to any
adjustment with respect to the St. Louis FF&E Loan. In addition, at Closing
Buyer shall be entitled to Seller's interests in (i) the then current balance in
the respective Escrow Improvement Fund (as such term is defined in the Marriott
Leases) under each of the Marriott Leases; (ii) with respect to the St. Louis
Lease and the Los Angeles Lease, the then current balance in the Supplemental
Escrow Improvement Fund (as such term is defined in such leases); and (iii) with
respect to the Nashville Lease and the Tan-Tar-A Lease, the Working Capital )
(as such term is defined in the Marriott Leases) to the extent previously
advanced to Buyer, all without adjustment of the Purchase Price; it being
understood and agreed that Seller has no interest in the Working Capital with
respect to the St. Louis Lease and the Los Angeles Lease.
(b) Rent required to be paid by Buyer under the Marriott Leases for
the fiscal period in which Closing occurs shall be prorated between Buyer and
Seller effective as of 11:59 p.m. on the Closing Date based on the actual number
of days elapsed. Within 90 days after the Closing Date, Buyer shall provide a
final statement ("Final Statement") summarizing the operation of the Hotels for
the partial fiscal year ending at the end of the first fiscal period ending
after Closing Date (or for the fiscal period ending on the Closing Date if the
Closing Date occurs on the last day of a fiscal period). Such statements may
require adjustments ("Adjustments") to the interim rentals paid by Buyer as
tenant under the Marriott Leases during such partial fiscal year. In the event
the Adjustments result in sums payable by Buyer, as tenant, under the Marriott
Leases, the Seller's pro rata share of the Adjustments shall be promptly
remitted to Seller. In the
28
<PAGE>
event the Adjustments result in sums due to Buyer, as tenant under the Marriott
Leases, Seller shall promptly remit Seller's pro rata share of the Adjustments
to Buyer.
(c) Provided that the Closing occurs on or before June 1, 1998,
Buyer shall receive a credit at the Closing for the repair of certain items at
the Properties claimed by Buyer to be in need of repair based on Buyer's due
diligence at and investigation of the Properties. Buyer and Seller agree that
the amount of such credit shall be Seven Hundred Thousand Dollars ($700,000).
(d) The provisions of this Section 9.6 shall survive Closing for
-----------
six (6) months. Within such six-month period, Seller, its independent auditors
and other representatives, shall have the right, after delivery of the Final
Statement, and upon twenty (20) days' written notice and during normal business
hours, to undertake and complete an inspection of the books, records and
accounts of Buyer pertaining to the Hotels for the partial fiscal year in which
the Closing occurs.
(e) If Seller and Buyer are unable, after using reasonable efforts
in good faith, to agree upon any particular item, or the amount thereof, for
inclusion in the Closing Statements, the Closing shall nevertheless occur, and
proration adjustments shall be made, on a tentative basis, on the basis of the
individual items as proposed by Buyer, with any differences the amounts as
proposed by Buyer and the amounts proposed by Seller deposited by Buyer in an
escrow with the Title Company under the Title Company's form of strict joint
order escrow (the "Prorations Escrows"). Promptly after Buyer's delivery of the
Adjustment calculations, Buyer and Seller shall meet and attempt in good faith
to resolve any differences between them with regard to any item of proration of
Adjustment in dispute. If however, the parties are unable, within ten (10) days
following Buyer's delivery of the Adjustment calculations, to resolve all items
in dispute, each party will, within three business days and at its sole cost and
expense, engage an independent and disinterested certified public accountant
with no less than ten (10) years experience in calculating prorations of the
type in question (other than the accounting firm of Arthur Anderson & Co.) to
calculate (within ten (10) calendar days) the item or items of proration or
Adjustment in dispute, and, so long as the calculation of the higher accountant
of any particular item is no more than 110% of the value of the lower
accountant, the parties will agree to accept the average of the two
calculations. In the event that the higher calculation is more than 110% of the
lower calculation, then the two accountants shall within five (5) calendar days
jointly designate a third disinterested certified public accountant. In the
event that the two accountants after good faith attempts shall have failed to
agree on the third accountant within such five day period, then either Buyer or
Seller may request that the accounting firm of Arthur Andersen & Co. designate
the third accountant, and such designation(s) shall be binding on the parties.
If, within, ten (10) days after appointment of the third accountant, a majority
of the accountants concur on the valuation, that valuation shall be binding and
conclusive on Buyer and Seller. If a majority of the accountants do not concur
within that period, the calculation farthest from the median of the three
calculations shall be disregarded and the average of the remaining two
calculations shall be deemed the calculations and shall be binding and
conclusive. The cost
29
<PAGE>
of the third accountant shall be borne solely by the parties who engaged the
accountant who delivered the original calculation that was farthest in value
from the third calculation. Buyer and Seller agree to furnish the accountant(s)
with all appropriate information utilized in the parties' own calculations.
9.7. Costs and Expenses.
------------------
(a) Seller shall pay: (i) all charges to remove liens, mortgages,
and like encumbrances (which Seller must remove pursuant to the terms of this
Agreement) and all charges to remove any title exceptions that are not Permitted
Exceptions and that Seller has elected to remove, including recording fees for
the same; (ii) all costs directly related to any Partnership Vote Meeting that
may be called in accordance with the terms of this Agreement; and (iii) the
commission of Broker.
(b) Buyer shall pay: (i) the premium for the coverage under the
Owner's Title Policies , and the cost of all endorsements to the Owner's Title
Policies; (ii) the cost of the Surveys; (iii) all charges for filing and
recording the Documents; (iv) all transfer fees and costs relating to the
assignment and assumption of the Leases; and (vi) all county and city
documentary and other transfer taxes, and all sales, use, and other taxes
applicable to the transfer of the Hotels to Buyer.
(c) Except as otherwise expressly herein provided, each party
hereto agrees to bear and pay for its own account the fees and disbursements of
its own counsel, accountants, appraisers, engineers, and other advisors in
connection with the negotiation and preparation of this Agreement and the close
of Escrow.
9.8. Insurance
---------
Buyer acknowledges that Seller will cause policies of insurance maintained
by Seller (if any) to be terminated with respect to the Hotels, as of the
Closing Date. Buyer shall be responsible for obtaining its own insurance as of
the Closing Date and thereafter.
9.9. Close of Escrow.
---------------
Provided that: (i) Escrow Holder has received the documents and funds
described in Sections 9.3, 9.4, 9.5, and 9.6 hereof; (ii) Escrow Holder has not
-------------------------------
received prior written notice from either party to the effect that an agreement
of either party made hereunder has not been performed or to the effect that any
condition set forth herein has not been satisfied or waived; (iii) Buyer has not
terminated this Agreement as permitted herein; (iv) Seller has not terminated
this Agreement as permitted herein; and (v) the Title Company has issued or is
unconditionally prepared and committed to issue to Buyer the Owner's Title
Policies, Escrow Holder is authorized and instructed at 8:00 a.m., Eastern time,
on the scheduled Closing Date to:
30
<PAGE>
(a) retain for Escrow Holder's own account funds sufficient to
reimburse Escrow Holder for its out-of-pocket costs paid to unrelated third
parties, and the fees and expenses incurred in connection with the issuance of
the Owner's Title Policies, and disburse to any other persons or entities
entitled thereto the amount of any other closing costs, all in accordance with
Buyer's and Seller's settlement statements prepared by Escrow Holder and pre-
approved by the parties hereto in writing (the "Closing Statements");
(b) record or file in the appropriate office any documents or
instruments necessary, to remove any exceptions to title which are not Permitted
Exceptions;
(c) request that the amount of any documentary transfer tax due be
shown on separate papers and be affixed to the Deeds, the Assignment and
Assumption Agreements (Marriott Leases), the Assignment and Assumption
Agreements (Tan-Tar-A Leases) by the applicable County Recorders only after the
permanent record is made;
(d) with respect to the Los Angeles Hotel, cause the applicable
Deed and the Assignment and Assumption Agreement (Marriott Leases) to be
recorded in the County Recorder's Office of Los Angeles County, California, and
deliver two (2) conformed copies of each of such recorded documents to each of
Buyer and Seller;
(e) with respect to the Nashville Hotel, cause the applicable Deed
and the Assignment and Assumption Agreement (Marriott Leases) to be recorded in
the County Recorder's Office of Davidson County, Tennessee, and deliver two (2)
conformed copies of each of such recorded documents to each of Buyer and Seller;
(f) with respect to the St. Louis Hotel, cause the applicable Deed
and the Assignment and Assumption Agreement (Marriott Leases) to be recorded in
the County Recorder's Office of St. Louis County, Missouri, and deliver two (2)
conformed copies of each of such recorded documents to each of Buyer and Seller,
and deliver to Seller the original St. Louis FF&E Loan Note marked canceled;
(g) with respect to the Tan-Tar-A Hotel, cause the applicable Deed,
the Assignment and Assumption Agreement (Marriott Leases), and the Assignment
and Assumption Agreement (Tan-Tar-A Ground Leases) to be recorded in the County
Recorder's Office of Camden County, Missouri, and deliver two (2) conformed
copies of each such recorded documents to each of Buyer and Seller; and deliver
to Buyer an original Tenant Estoppel or an original Landlord Estoppel with
respect to each of the Tan-Tar-A Ground Leases;
(h) deliver the Purchase Price to Seller, as adjusted by Seller's
share of Adjustments and costs of title, in the manner specified by Seller in
separate written instructions to Escrow Holder;
(i) deliver to Buyer two (2) fully executed originals or original
counterparts of each of the Bills of Sale, the Assignment and Assumption
Agreement (Intangibles), the
31
<PAGE>
Seller's Non-Foreign Affidavits and the Seller's Certificate; deliver to Seller
two (2) fully executed original counterparts of the Assignment and Assumption
Agreement (Intangibles), and two (2) fully executed originals or original
counterparts of the Assignment and Assumption Agreements (Marriott Leases);
(j) return any remaining funds to Buyer after all payments pursuant
to the terms of this Agreement; and
(k) cause the Title Company to issue the Owner's Title Policies to
Buyer.
9.10. Notification; Closing Statements.
--------------------------------
If Escrow Holder cannot comply with the instructions herein (or as may be
provided later), Escrow Holder is not authorized to cause the recording or
delivery of any of the foregoing documents or funds. If Escrow Holder is unable
to timely cause such recording and delivery, Escrow Holder shall notify the
parties of such fact without delay. If such inability continues for a period of
two (2) business days (unless either Seller or Buyer is then in default
hereunder, in which event the provisions of Section 9.2(b) shall apply), either
--------------
Seller or Buyer may, upon written notice to the other party and to Escrow
Holder, demand the return of its deposits (except the Deposit and any interest
earned thereon, which Escrow Holder shall retain), and Escrow Holder shall
return said deposits (except the Deposit and any interest earned thereon) to the
respective depositor; provided, however, that if such inability shall continue
for an additional period of six (6) business days (unless either Seller or Buyer
is then in default hereunder, in which event the provisions of Section 9.2(b)
--------------
shall apply), either Seller or Buyer may, upon written notice to the other party
and to Escrow Holder, demand the return of its remaining deposits (including,
without limitation, the Deposit and all interest earned thereon to Buyer), and
Escrow Holder shall return said deposits (including, without limitation, the
Deposit and all interest earned thereon to Buyer) to the respective depositor,
and this Agreement shall terminate. Immediately after the Closing, Escrow
Holder shall deliver to Buyer and Seller, respectively, at their addresses
listed in Section 14.1 hereof, a true, correct, and complete copy of the
------------
Seller's and Buyer's Closing Statements, in the form customarily prepared by
Escrow Holder, as well as all other instruments and documents to be delivered to
Buyer and Seller.
ARTICLE X
REPRESENTATIONS, WARRANTIES, AND COVENANTS
------------------------------------------
10.1. Buyer's Representations and Warranties.
--------------------------------------
Buyer represents and warrants to Seller as follows:
(a) Buyer is a corporation, duly created, validly existing, and in
good standing under the laws of the State of Delaware with full right, power,
and authority to take title to the Hotels, and to enter into and otherwise
perform and comply with all the terms and conditions of this Agreement.
32
<PAGE>
(b) This Agreement and all documents executed by Buyer that are to
be delivered pursuant to this Agreement are, and at the time of Closing will be,
duly authorized, executed, and delivered by Buyer; and this Agreement and all
documents executed by Buyer that are to be delivered to pursuant to this
Agreement are, and at the Closing will be, legal, valid, and binding obligations
of Buyer, enforceable in accordance with their terms (except as enforcement may
be limited by bankruptcy, insolvency or similar laws) and do not, and at the
time of Closing will not, violate any provisions of any agreement or judicial
order to which Buyer is a party or to which Buyer is subject.
(c) Except as may be expressly provided otherwise in this Agreement
or in the documents or instruments being executed and delivered in connection
with this Agreement, no representations of any kind (whether oral or written,
express or implied) have been made by the Seller to Buyer, and Buyer hereby
represents and warrants to Seller that Buyer is investing in the Hotels solely
in reliance on Buyer's own investigations and evaluation thereof and the
representations and warranties of Seller set forth herein, and not in reliance
on anything else.
10.2. Seller's Representations and Warranties.
---------------------------------------
Seller represents and warrants to Buyer as follows:
(a) Seller is a Delaware limited partnership duly created, validly
existing, and in good standing under the laws of the State of Delaware, and
qualified to do business in the States of California, Tennessee and Missouri.
Subject to the right of Seller's Limited Partners to vote to disapprove the
transactions contemplated by this Agreement in accordance with a Partnership
Vote Meeting, Seller has the full right, power, and authority to own and convey
the Hotels and to enter into and otherwise perform and comply with all the terms
and conditions of this Agreement. This Agreement and the transactions
contemplated hereby do not violate the terms of Seller's Partnership Agreement.
Subject to the right of Seller's Limited Partners to vote to disapprove the
transactions contemplated by this Agreement in accordance with a Partnership
Vote Meeting, the general partner of Seller has the full right, power, and
authority to bind Seller with respect to this Agreement and the transactions
contemplated hereby.
(b) Subject to the right of Seller's Limited Partners to vote to
disapprove the transactions contemplated by this Agreement in accordance with a
Partnership Vote Meeting, (i) this Agreement and all documents executed by
Seller that are to be delivered pursuant to this Agreement are, and at the time
of Closing will be, duly authorized, executed, and delivered by Seller, and (ii)
this Agreement and all documents executed by Seller that are to be delivered
pursuant to this Agreement are, and at the time of Closing will be, legal,
valid, and binding obligations of Seller, enforceable in accordance with their
terms (except as enforcement may be limited by bankruptcy, insolvency or similar
laws) and do not, and at the time of Closing will not, violate any provisions of
any agreement or judicial order to which Seller is a party or to which Seller or
the Hotels are subject. Seller has provided notice to the Limited Partners of
Seller's intention to enter into a purchase and sale agreement to sell the
Hotels.
33
<PAGE>
(c) Seller is the owner of the landlord's interest under the
Marriott Leases and Seller has not hereto assigned any of its interest in the
Marriott Leases, the Personalty, or the Intangibles.
(d) To Seller's knowledge, no default on Seller's part has occurred
and is continuing under the Marriott Leases or the Tan-Tar-A Ground Leases or
any other contracts relating to the Hotels.
(e) To Seller's knowledge, Seller has not received any written
notices of violations of any laws, ordinances, orders or requirements of any
governmental authority, agency, or officer having jurisdiction against or
affecting the Hotels.
(f) To Seller's knowledge, there are no suits or proceedings
pending or threatened with respect to the Hotels, or any part thereof (other
than those being administered by Buyer or reasonably believed by Seller to be
covered by insurance).
(g) To Seller's knowledge, there is no construction at the Hotels
that would give rise to a mechanic's lien.
(h) As used herein, the term "Seller has not received" shall mean
Jeffrey C. Carter, the president of the general partner of Seller, has not
received such item, and the term "Seller's knowledge" shall mean the actual
knowledge of Jeffrey C. Carter, the president of the general partner of Seller.
10.3. Continuation and Survival of Representations and Warranties;
------------------------------------------------------------
Limitations on Liability Therefor.
- ---------------------------------
All representations and warranties made by the respective parties and
contained in this Agreement are intended to and shall remain true and correct as
of the time of Closing, shall be deemed to be material, shall survive the
execution and delivery of this Agreement, but shall not survive Closing and
thereafter neither Buyer nor Seller shall have any liability for breach of its
representations set forth in Sections 10.1 and 10.2. Notwithstanding the
----------------------
foregoing, neither party shall have any right to pursue remedies against the
other for an untrue representation or the breach of a warranty unless and until
the actual cumulative damages of the claiming party as a result of such
incorrectness, falsity, or breach are in excess of $25,000.00.
ARTICLE XI
POSSESSION
----------
Possession of the Hotels shall be delivered to Buyer immediately following
the Closing, subject only to the Permitted Exceptions.
34
<PAGE>
ARTICLE XII
OPERATION OF THE HOTELS
-----------------------
Seller and Buyer, in their respective capacities as such under this
Agreement, and not as lessor and lessee under the Marriott Leases, agree as
follows regarding the operation, maintenance, and repair of the Hotels between
the Effective Date and the Closing Date (or earlier termination of this
Agreement) (subject to the terms of the Marriott Leases and the Tan-Tar-A Leases
and nothing contained in this Article XII shall be deemed to waive or modify the
-----------
terms thereof):
(a) Seller shall not be required to make any capital improvements to the
Hotels, except as required by the Marriott Leases;
(b) Seller agrees that it will not, without the prior written consent of
Buyer (not to be unreasonably withheld or delayed), enter into any sublease or
contract with respect to any portion of the Property which is not terminable
upon thirty (30) calendar days notice without penalty;
(c) Seller shall not take any action, or suffer any action to be taken
in its name or on its behalf, the effect of which would cause any of the
representations or warranties of Seller herein contained to be untrue or
incorrect in any material respect on and as of the Closing Date, or which would
have the effect of causing Seller to be unable to satisfy or perform any of the
conditions precedent to the obligations of Buyer hereunder; provided, however,
that this provision shall not apply to any Partnership Vote Meeting, or any
matters arising from or in connection therewith;
(d) Seller shall at all times (i) promptly deliver to Buyer copies of
any notices received by Seller from any person, firm, corporation, or
governmental agency alleging any default on the part of Seller under any
contract or agreement relating to the Property, or any part thereof, or any
violation of any applicable law or ordinance with respect thereto which, if the
facts alleged therein were true, would constitute a breach of any representation
or warranty of Seller herein contained or adversely affect the ability of Seller
to satisfy any condition precedent to the obligations of Buyer hereunder, and
(ii) promptly advise Buyer in writing of any change in Seller's representations
and warranties made in Section 10.2 above;
------------
(e) Seller will not consent to, authorize, or approve any change in
zoning or similar land use classification for the Real Property or any part
thereof, or any special assessments not heretofore confirmed with respect to the
Real Property; and
(f) Seller will not knowingly or deliberately permit any lien or
encumbrance to attach to the Hotels, or any part thereof.
35
<PAGE>
ARTICLE XIII
LOSS BY CASUALTY; CONDEMNATION
------------------------------
13.1. Damage or Destruction.
---------------------
Prior to the Closing Date, the entire risk of loss or damage to the Hotels
by earthquake, flood, landslide, fire, hurricane, tornado, or other casualty
shall be borne by Seller. If prior to the Closing all or any portion of the
Hotels is damaged by earthquake, flood, landslide, fire, hurricane, tornado or
other casualty, Seller shall promptly notify Buyer of such fact (the "Casualty
Notice"). If in the reasonable opinion of Buyer the casualty materially
interferes or would materially interfere with the economic operation or use of
the Hotels as they are operated on the Effective Date, then Buyer may elect to
terminate this Agreement by written notice to such effect given to Seller within
ten (10) business days after receipt by Buyer of the Casualty Notice, in which
event this Agreement shall terminate. If under such circumstances, Buyer does
not elect to timely terminate this Agreement, then Buyer shall be entitled to
receive and keep, all insurance proceeds payable to Seller with respect to such
damage and the parties shall proceed to Closing pursuant to the terms hereof
without modification to the terms of this Agreement. If, prior to the Closing,
one or more of the Hotels is damaged by earthquake, flood, landslide, fire,
hurricane, tornado or other casualty in a manner which does not in the
reasonable opinion of Buyer materially interfere with the economic operation of
the Hotels as they are being operated on the Effective Date, then Buyer shall be
entitled to receive and keep, all insurance proceeds payable to Seller with
respect to such damage and the parties shall proceed to Closing pursuant to the
terms hereof without modification of the terms of this Agreement.
13.2. Condemnation.
------------
If prior to the Closing Date all or any portion of the Hotels is taken by a
condemnation or eminent domain (or is the subject of a pending or contemplated
taking which has not been consummated), Seller shall promptly notify Buyer of
such fact (the "Condemnation Notice"). If in the reasonable opinion of Buyer
the taking materially interferes or would materially interfere with the economic
operation or use of the Real Property as it is operated on the Effective Date,
then Buyer may elect to terminate this Agreement by written notice to such
effect given to Seller within ten (10) business days after receipt by Buyer of
the Condemnation Notice, in which event this Agreement shall terminate. If,
under such circumstances, Buyer does not so elect to timely terminate this
Agreement, then the Closing shall take place as herein provided without any
abatement of the Purchase Price, and at the Closing Seller shall assign\\ and
turn over to the Buyer, and Buyer shall be entitled to receive and keep, all of
Seller's right, title, and interest in and to any condemnation award which may
be payable to Seller on account of such condemnation. If, prior to the Closing
Date, one or more portions of the Real Property shall be taken (or are
threatened to be taken) by exercise of right of eminent domain in a manner which
does not, in the reasonable opinion of Buyer, materially interfere with the
economic operation or use of the Hotels, then neither party shall have any right
to terminate its obligations hereunder by reason thereof, but at the Closing
Seller shall turn over and assign to Buyer all of Seller's right,
36
<PAGE>
title, and interest in and to any condemnation awards which may be payable to
Seller on account of such condemnation. For purposes hereof, the term "taking"
shall include any temporary as well as permanent taking.
ARTICLE XIV
MISCELLANEOUS
14.1. Notices.
-------
Any communication, notice, or demand of any kind whatsoever that either
party may be required or may desire to give to or serve upon the other shall be
in writing, addressed to the parties at the addresses set forth below, and
delivered by personal service, by Federal Express or other overnight delivery
service, by facsimile transmission, or by registered or certified mail, postage
prepaid, return receipt requested:
If to Seller: Hotel Properties L.P.
c/o EHP/GP Inc.
3 World Financial Center, 29th Floor
New York, New York 10285-2900
Attention: Jeffrey C. Carter, President
Facsimile Number: (212) 528-9696
With a copy to: Hunton & Williams
1900 K Street, N.W.
Washington, D.C. 20006-1109
Attention: John M. Ratino, Esq.
Facsimile Number: (202) 778-2201
If to Buyer: Marriott Hotel Services, Inc.
10400 Fernwood Road
Bethesda, Maryland 20817
Attention: Mr. James L. Best
Facsimile: (301) 380-5067
and
Attention: Kimberly S. Perini, Esq.
Facsimile: (301) 380-6727
37
<PAGE>
With copies to: Holland & Knight LLP
2100 Pennsylvania Avenue, N.W.
Washington, D.C. 20037-3202
Attention: Maurice J. Montaldi, Esq.
Facsimile: (202) 955-5564
Any such notice shall be deemed delivered if sent as follows: (a) if
personally delivered, on the date of delivery to the address of the person to
receive such notice as evidenced by a signed receipt; (b) if sent by Federal
Express or other overnight courier service, on the date of delivery to the
address of the person to receive such notice as evidenced by a signed receipt;
(c) if sent by facsimile transmission, on the date transmitted to the person to
receive such notice if sent by 5:00 p.m., Eastern time, and on the next business
day if sent after 5:00 p.m., Eastern time; or (d) if mailed, on the date of
delivery to the address of the person to receive such notice as evidenced by a
signed receipt. Any notice sent by facsimile transmission must be confirmed by
personally delivering, sending by courier, or mailing a copy of the notice sent
by facsimile transmission. Any party may change its address for notice by
written notice given to the other at least ten (10) calendar days before the
effective date of such change in the manner provided in this Section 14.1.
------------
14.2. Brokers and Finders.
-------------------
(a) If and only if the sale contemplated herein actually closes (as
evidenced by the recordation of the Deeds, as the Assignment and Assumption
Agreements (Marriott Leases), Assignment and Assumption Agreement (Tan-Tar-A
Ground Leases), Seller has agreed to pay a brokerage commission to Eastdil
Broker Services, Inc., or its designee ("Broker") pursuant to a separate
agreement with Broker. Seller shall not pay any brokerage commission or finder's
fee to any broker or finder retained by Buyer, and Buyer shall be solely
responsible for any such commission or fee.
(b) In the event of any claim for broker's fees, finder's fees,
commissions, or other similar compensation in connection herewith: (i) Buyer, if
such claim is based upon any agreement alleged to have been made by Buyer, shall
indemnify Seller against, defend, and hold Seller harmless (using counsel
reasonably satisfactory to Seller) from any and all loss, cost, liability,
claim, damage, and expense (including, without limitation, attorneys' fees and
costs) that Seller sustains or incurs by reason of such claim; and (ii) Seller,
if such claim is based upon any agreement alleged to have been made by Seller
(including any agreement with Broker), shall indemnify Buyer against, defend,
and hold Buyer harmless (using counsel reasonably satisfactory to Buyer) from
any and all loss, cost, liability, claim, damage, and expense (including,
without limitation, attorneys' fees and costs) that Buyer sustains or incurs by
reason of such claim. The provisions of this Section 14.2(b) shall survive the
---------------
termination of this Agreement or the Closing.
38
<PAGE>
14.3. Assignment.
----------
Neither all nor any portion of Buyer's interest under this Agreement may
be sold, assigned, encumbered, conveyed, or otherwise transferred, whether
directly or indirectly, voluntarily or involuntarily, or by operation of law or
otherwise (including, without limitation, by a transfer of interests in Buyer)
(collectively, a "Transfer"), without the prior written consent of Seller, which
consent may be granted or denied in Seller's sole and absolute discretion. Any
attempted Transfer without Seller's consent shall be null and void. Buyer's
request for Seller's consent to any Transfer shall set forth in writing the
details of the proposed Transfer, including, without limitation, the name,
ownership, and financial condition of the prospective transferee and the
financial details of the proposed Transfer. In addition, Buyer shall provide
Seller with copies of all Transfer documentation, certified by Buyer to be true,
correct, and complete, and with all other information which Seller may
reasonably request.
Notwithstanding anything to the contrary, Buyer may assign its interest
under this Agreement without Seller's consent (but upon written notice to
Seller) if such assignment is to Host Marriott Corporation, or any subsidiary or
affiliate of Host Marriott Corporation or any subsidiary or affiliate of Buyer,
or any combination of them; it being understood that Buyer may so assign its
interest under this Agreement to one or more such entities on a Hotel by Hotel
basis, and each such entity shall be deemed an assignee with respect to the
particular Hotel so assigned to it. Further, Buyer desires to exchange other
property of like kind and qualifying use within the meaning of Section 1031 of
the Internal Revenue Code of 1986, as amended and the Regulations promulgated
thereunder, for the fee title in and to the Real Property. Accordingly, Buyer
reserves the right to assign its rights (but not its obligations) hereunder with
respect to one or more Hotels without Seller's consent (but upon written notice
to Seller), if such assignment is to a Qualified Intermediary as provided in IRC
Reg. 1.1031(k)-1(g)(4) on or before the Closing Date.
No transfer, whether with or without Seller's consent, shall operate to
release Buyer or alter Buyer's primary liability to perform the obligations of
Buyer under this Agreement.
14.4. Successors and Assigns.
----------------------
This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective permitted successors and assigns.
14.5. Amendments.
----------
This Agreement may be amended or modified only by a written instrument
executed by both parties.
39
<PAGE>
14.6. Interpretation.
--------------
Words used in the singular shall include the plural, and vice-versa, and
any gender shall be deemed to include the other. The captions and headings of
the Articles and Sections of this Agreement are for convenience of reference
only, and shall not be deemed to define or limit the provisions hereof.
Further, each party hereby acknowledges that such party and its counsel, after
negotiation and consultation, have reviewed and revised this Agreement. As
such, the terms of this Agreement shall be fairly construed and the rule of
construction, to the effect that any ambiguities herein should be resolved
against the drafting party, shall not be employed in the interpretation of this
Agreement or any amendments, modifications, or exhibits hereto or thereto.
14.7. Governing Law.
-------------
This Agreement shall be governed by and construed and enforced in
accordance with the laws of the State of New York, without regard to its
principles of conflicts of law.
14.8. Entire Agreement.
----------------
This Agreement, including the exhibits attached hereto, constitutes the
entire agreement between Buyer and Seller pertaining to the subject matter
hereof and supersedes all prior agreements, understandings, letters of intent,
negotiations, and discussions of the parties, whether oral or written, and there
are no warranties, representations, or other agreements, express or implied,
made to either party by the other party in connection with the subject matter
hereof except as specifically set forth herein or in the documents delivered
pursuant hereto or in connection herewith.
14.9. Attorneys' Fees and Costs.
-------------------------
If either Buyer or Seller brings any suit or other proceeding with
respect to the subject matter or the enforcement of this Agreement or any of the
Documents, the prevailing party (as determined by the court, agency, or other
authority before which such suit or proceeding is commenced), in addition to
such other relief as may be awarded, shall be entitled to recover reasonable
attorneys' fees and costs, and costs of investigation actually incurred. The
foregoing includes, without limitation, attorneys' fees and costs, and costs of
investigation incurred in appellate proceedings, costs incurred in establishing
the right to indemnification, or in any action or participation in, or in
connection with, any case or proceeding under Chapter 7, 11, or 13 of the
Bankruptcy Code, 11 United States Code Section 101 et seq., or any successor
------
statutes.
14.10. Time of the Essence.
-------------------
Time is of the essence with respect to all matters contemplated by this
Agreement.
40
<PAGE>
14.11. Confidentiality.
---------------
All information, surveys, reports, tests, and studies relating to the
Hotels obtained by Buyer in its due diligence investigation of the Hotels
pursuant to Section 5.2 of this Agreement before or after the Effective Date,
-----------
either by the observations and examinations of its agents and representatives or
by Seller's disclosure, shall remain confidential. Prior to the Closing, Buyer
and Seller agree that, to the extent reasonably practical, they shall keep the
contents of this Agreement confidential and that no publicity or press release
to the general public or otherwise with respect to this transaction shall be
made by either party without the prior written consent of the other party, which
consent may be denied in the sole and absolute discretion of either party;
provided, however, that either Buyer or Seller shall be entitled to make any
disclosures that either determines, in its reasonable discretion, are necessary
to comply with requirements of the Securities and Exchange Commission or any
other governmental entity, or to be disclosed or made available to the Limited
Partners of Seller and either Buyer or Seller shall be entitled to issue a press
release announcing (i) the names of the Seller (without identifying Lehman
Brothers Inc. or any other affiliate thereof) and Buyer, (ii) the names and
locations of the Hotels, (iii) the Purchase Price and the Allocated Purchase
Prices, (iv) the anticipated Closing Date, and (v) Buyer's proposal to deal with
the Hotels after the Closing. Notwithstanding the foregoing, nothing herein
contained shall be deemed to limit or impair in any way Seller's or Buyer's
right or ability to disclose the details of the herein contemplated transaction
to their respective employees, officers, directors, counsel, consultants,
advisors or accountants, provided that each such person is informed of the
confidentiality requirements hereof and agrees to abide by the same, or to such
persons as they deem necessary in order to enable either of them to comply with
any requirements of law or any court order. Moreover, nothing herein contained
shall limit or impair in any way Buyer's right or ability to disclose the
details of the herein contemplated transaction to persons or entities who in
good faith are considering providing debt or equity financing to Buyer for
purposes of this transaction, or to governmental agencies in connection with the
application by Buyer for any required license or permit. Finally, Seller
acknowledges that Buyer will release an announcement concerning its purchase of
the Hotels at the Closing, and Buyer agrees that in connection with any press
release by Buyer (except as specifically permitted above), including, without
limitation, the press release by Buyer at the Closing, Buyer will provide an
advance copy to Seller for Seller's review and approval, such review and
approval to be completed within one (1) business day of receipt thereof. Unless
the press release names Seller or any of Seller's affiliates, or contains a
misstatement of fact, (in either of which cases Seller's suggested revisions to
the press release shall be made), Buyer need not make Seller's suggested
revisions to such press release. The confidentiality provisions of this Section
-------
14.11 shall survive the Closing.
- -----
41
<PAGE>
14.12. No Waiver.
---------
No waiver of any of the provisions of this Agreement shall be deemed or
shall constitute a waiver of any other provision, whether or not similar, nor
shall any waiver constitute a continuing waiver. No waiver shall be binding
unless executed in writing by the party making the waiver.
14.13. Further Acts.
------------
Each party, at the request of the other, shall execute, acknowledge (if
appropriate), and deliver such additional documents, and do such other
additional acts, as may be reasonably required in order to accomplish the intent
and purposes of this Agreement.
14.14. Exhibits.
--------
Exhibits A through V inclusive, are attached hereto and incorporated
---------- -
herein by reference.
14.15. Counterparts.
------------
This Agreement may be executed in one or more counterparts, each of
which shall be deemed to constitute an original, but all of which when taken
together shall constitute one and the same instrument, with the same effect as
if all of the parties to this Agreement had executed the same counterpart.
14.16. No Intent to Benefit Third Parties.
----------------------------------
Seller and Buyer do not intend by any provision of this Agreement to
confer any right, remedy, or benefit upon any third party, and no third party
shall be entitled to enforce, or otherwise shall acquire any right, remedy, or
benefit by reason of, any provision of this Agreement.
14.17. Performance Due on Day Other Than Business Day.
----------------------------------------------
If the time period for the performance of any act called for under this
Agreement expires on a Saturday, Sunday, or any other day on which banking
institutions in the State of New York are authorized or obligated by law or
executive order to close (a "Holiday"), the act in question may be performed on
the next succeeding day that is not a Saturday, Sunday, or Holiday.
42
<PAGE>
14.18. Expenses of Purchase and Sale.
-----------------------------
Except as otherwise provided in this Agreement, Seller and Buyer shall
each bear its own direct and indirect expenses incurred in connection with the
negotiation and preparation of this Agreement and the consummation and
performance of the transactions contemplated hereby.
14.19. Severability.
------------
Any provision or part of this Agreement which is invalid or
unenforceable in any situation in any jurisdiction shall, as to such situation
and such jurisdiction, be ineffective only to the extent of such invalidity and
shall not affect the enforceability of the remaining provisions hereof or the
validity or enforceability of any such provision in any other situation or in
any other jurisdiction, unless such invalidity materially changes the
transaction set forth herein, in which event the Deposit shall be returned to
Buyer and this Agreement shall terminate.
14.20. No Recording.
------------
Buyer shall not record this Agreement or any notice thereof. If such
recording shall occur, Seller shall have, in addition to all other remedies for
breach provided by law, the right to terminate this Agreement by written notice
to Buyer.
14.21. Termination of Agreement.
------------------------
(a) If this Agreement is terminated pursuant to Sections 9.10,
--------------
Article XIII, or 14.19 hereof, or by reason of the failure of any material
- ----------------------
condition precedent to Seller's or Buyer's obligations to occur (other than the
failure of any material condition precedent resulting from the material uncured
breach by Seller or Buyer of any of the provisions hereof, which are addressed
separately by Sections 14.21(b) and (c) below in accordance with the terms of
-------------------------
such sections), the Deposit (together with all interest earned on such Deposit)
shall be returned to Buyer and Escrow Holder shall return all other cash,
documents, instruments, and other items theretofore deposited into Escrow to the
depositor party, without any further instruction' to Escrow Holder from either
Seller or Buyer. Thereafter, this Agreement shall be null and void and of no
further force or effect and neither party shall have any further rights or
obligations hereunder, except as provided in Sections 5.2(c), 5.2(d), 14.2(b),
--------------- ------ -------
and 14.11 hereof, and other than those rights and obligations that, by their
-----
terms, survive the termination of this Agreement. In the event of such
termination, the costs of the Title Company and Escrow Holder shall be borne
equally by Buyer and Seller, and each party shall bear its own costs (including
attorneys' and accountants' fees and costs) incurred hereunder.
(b) If this Agreement is terminated by Buyer as a result of the
material uncured breach by Seller (after notice, and after a reasonable
opportunity to cure such breach, which for purposes of this provision shall
constitute the commencement of such cure within ten (10) calendar days, the
diligent prosecution thereof, and the completion of such cure within thirty (30)
calendar days) of any of the provisions hereof, the Deposit (together with all
interest earned
43
<PAGE>
on such Deposit) shall be delivered to Buyer by Escrow Holder and Escrow Holder
shall return all other cash, documents, instruments, and other items theretofore
deposited into Escrow to the depositor party, without any further instruction to
Escrow Holder from either Seller or Buyer. Thereafter, this Agreement shall be
null and void and of no further force or effect and neither party shall have any
further rights or obligations hereunder, except as provided in Sections 5.2(c),
---------------
5.2(d), 14.2(b), and 14.11 hereof, and other than those rights and obligations
- ------ ------- -----
that, by their terms, survive the termination of this Agreement, and the costs
of the Title Company and Escrow Holder shall be borne by Seller.
(c) If this Agreement is terminated by Seller as a result of the
material uncured breach by Buyer (after notice, and after a reasonable
opportunity to cure such breach, which for purposes of this provision shall
constitute the commencement of such cure within ten (10) calendar days, the
diligent prosecution thereof, and the completion of such cure within thirty (30)
calendar days) of any of the provisions hereof, the Deposit (together with all
interest earned on such Deposit) shall be delivered to Seller by Escrow Holder,
without any further instruction to Escrow Holder from either Seller or Buyer.
Thereafter, this Agreement shall be null and void and of no further force or
effect and neither party shall have any further rights or obligations hereunder,
except as provided in Sections 5.2(c), 5.2(d), 14.2(b), and 14.11 hereof, and
--------------- ------ ------- -----
other than those rights and obligations that, by their terms, survive the
termination of this Agreement, and charges of the Title Company relating to
searching title and issuing the Commitment shall be borne by Buyer.
14.22. Waiver of Known Defaults.
------------------------
Notwithstanding anything to the contrary contained in this Agreement, if
either party hereto has actual knowledge of the default of the other party (a
"Known Default"), but nonetheless elects to consummate the transactions
contemplated hereby and proceeds to Closing, then the rights and remedies of the
non-defaulting party shall be waived with respect to any such Known Default upon
the Closing and the defaulting party shall have no liability with respect
thereto; provided, however, that if the non-defaulting party elects not to
consummate the transactions contemplated hereby and not to proceed to Closing,
the non-defaulting party shall retain all of its rights and remedies hereunder.
44
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date above.
SELLER
HOTEL PROPERTIES L.P., a Delaware limited
partnership
By: EHP/GP Inc., a Delaware corporation,
General Partner
By: /s/ Jeffrey C. Carter
----------------------
Jeffrey C. Carter
President
BUYER
MARRIOTT HOTEL SERVICES, INC., a
Delaware corporation
By: /s/ Kevin M. Kimball
------------------------------
Name: Kevin M. Kimball
----------------------------
Title: Vice President
---------------------------
ACCEPTED AND AGREED TO
on this 23rd day of April, 1998:
ESCROW HOLDER
FIRST AMERICAN TITLE COMPANY
a California corporation
By: /s/ Heidi H. Shanahan
------------------------------
Name: Heidi H. Shanahan
----------------------------
Title: Vice President
---------------------------
45
<PAGE>
CONSENT CARD
THIS WRITTEN CONSENT IS SOLICITED ON BEHALF OF
HOTEL PROPERTIES L.P.
CONSENT CARD FOR ACTION BY WRITTEN CONSENT OF UNITHOLDERS
TO BE EFFECTIVE AS SET FORTH IN THE PROXY STATEMENT
ACCOMPANYING THIS CONSENT CARD
The undersigned hereby appoints E.H.P. Depositary Corp. as proxy, with the
power to appoint a substitute, and hereby instructs it to represent and
consent separately in accordance with the directions below with respect to
each unit of the economic and certain other rights attributable to the limited
partnership interests in Hotel Properties L.P. (the "Partnership") held as of
record by the undersigned on May 4, 1998.
You are encouraged to specify your choices by marking the appropriate boxes,
but you need not mark any boxes if you wish to vote in accordance with the
General Partner's recommendation. Please sign and date this card. A postage-
paid return envelope is enclosed for your convenience in returning this card.
The proposals are as follows:
1. Proposed consent resolution to approve the sale of the four hotels
comprising all of the Partnership's assets pursuant to a Purchase and Sale
Agreement, dated as of April 23, 1998, providing for the sale of the hotels
for $114 million in cash as described in the accompanying Proxy Statement
(the "Transaction").
2. Proposed consent resolution to delete Section 7.05(c) of the Agreement of
Limited Partnership of the Partnership and permit the General Partner,
without further consent of the Unitholders, in the event that the closing
of the Transaction does not occur and some or all of the Partnership's four
hotels are not sold, to sell the unsold hotels on terms and conditions that
the General Partner, in its sole discretion, determines to be in the best
interests of the Partnership and the Unitholders.
IMPORTANT: PLEASE VOTE, DATE AND SIGN ON REVERSE SIDE.
<PAGE>
THE GENERAL PARTNER RECOMMENDS A VOTE "FOR" APPROVAL OF BOTH OF THE
PROPOSALS. FAILURE TO CHECK ANY OF THE BOXES WITH RESPECT TO A PROPOSAL WILL,
IF THIS CONSENT CARD HAS BEEN SIGNED AND DATED, CONSTITUTE AN INSTRUCTION TO
THE PROXY TO CONSENT TO THE ADOPTION OF THE PROPOSAL.
FOR AGAINST ABSTAIN
[_] [_] [_] 1. To approve the sale of the four hotels comprising all
of the Partnership's assets.
[_] [_] [_] 2. To delete Section 7.05(c) of the Agreement of Limited
Partnership.
Dated: , 1998
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(SIGNATURE(S) OF UNITHOLDERS(S))
(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.)
