<PAGE>
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_]Confidential, For Use of the
[X]Preliminary Proxy Statement Commission Only (as permitted by
Rule 14a-6(e) (2))
[_]Definitive Proxy Statement
[_]Definitive Additional Materials
[_]Soliciting Material Under Rule 14a-12
Courtyard by Marriott II Limited Partnership
(Name of Registrant as Specified in Its Charter)
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[_]No fee required.
[_]Fee computed on table below per Exchange Act Rules 14a-6(i) (1) and 0-11.
(1) Title of each class of securities to which transaction applies:
________________________________________________________________________
(2) Aggregate number of securities to which transaction applies:
________________________________________________________________________
(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):
________________________________________________________________________
(4) Proposed maximum aggregate value of transaction:
________________________________________________________________________
(5) Total fee paid:
________________________________________________________________________
[X]Fee paid previously with preliminary materials: $42,864
[_]Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a) (2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the form or schedule and the date of its filing.
(1) Amount previously paid:
________________________________________________________________________
(2) Form, Schedule or Registration Statement No.:
________________________________________________________________________
(3) Filing Party:
________________________________________________________________________
(4) Date Filed:
________________________________________________________________________
<PAGE>
EXHIBIT (a)(1)
COURTYARD BY MARRIOTT II LIMITED PARTNERSHIP
10400 Fernwood Road
Bethesda, Maryland 20817
To the Limited Partners of Courtyard by Marriott II Limited Partnership:
A Purchase Offer and Consent Solicitation is being made pursuant to the
terms of a settlement (the "Settlement") relating to a class action lawsuit
brought against the predecessor-in-interest to CBM Two LLC, a Delaware limited
liability company and the general partner (the "General Partner") of Courtyard
by Marriott II Limited Partnership (the "Partnership"), Marriott
International, Inc., a Delaware corporation ("Marriott International"), Host
Marriott Corporation, a Delaware corporation, as the predecessor-in-interest
to a Maryland corporation of the same name ("Host Marriott"), various related
entities and others, in the 285th Judicial District Court (the "Court") of
Bexar County, Texas (the "Milkes Litigation"). The Settlement also relates to
lawsuits filed with respect to six other limited partnerships (such suits,
together with the Milkes Litigation, the "Litigation").
On March 9, 2000, the defendants and counsel to the class action plaintiffs
in the Litigation entered into a settlement agreement (the "Settlement
Agreement") providing for the settlement of all the Litigation. The Settlement
with respect to the Partnership consists of:
. an offer by CBM II Holdings LLC, a Delaware limited liability company
(the "Purchaser"), to purchase all outstanding units of limited
partnership interest in the Partnership (other than units held by the
General Partner) pursuant to a purchase offer (the "Purchase Offer");
and
. a merger of a subsidiary of the Purchaser into the Partnership
immediately following the consummation of the Purchase Offer (the
"Merger"), pursuant to which (1) all units held by holders who have not
tendered their units in the Purchase Offer and who have not opted out of
the Settlement will be cashed out for the same amount of consideration
paid in the Purchase Offer, and (2) all units held by unitholders who
have opted out of the Settlement will be converted into the right to
receive an amount in cash equal to the appraised value of such units.
The consummation of the Purchase Offer and the Merger is subject to the
final approval by the Court of the Settlement. Following the expiration of the
Purchase Offer there will be a hearing before the Court to determine the
fairness of the Settlement. Assuming all the other conditions to the Purchase
Offer set forth in the Purchase Offer and Consent Solicitation have been
satisfied (or waived, if waivable), the Purchase Offer will be consummated as
soon as practicable after the Settlement is approved by the Court and all
appeal periods have expired or, if the approval of the Settlement is appealed
(other than an appeal that solely relates to counsel fees and expenses), after
the Settlement is determined finally to be approved. Immediately following the
consummation of the Purchase Offer, the Merger will be consummated.
The Purchase Offer. Pursuant to the terms of the Settlement Agreement, the
Purchaser has agreed to offer to purchase all of the issued and outstanding
units of limited partnership interest in the Partnership (other than units
owned by the General Partner) at a price of $147,959 per unit (or a pro rata
portion thereof) in cash, upon the terms and subject to the conditions set
forth in the Purchase Offer and Consent Solicitation attached hereto. This
amount represents not only the value of your units, but also the value of the
settlement of the claims asserted in the Milkes Litigation. If the Court
approves legal fees and expenses of approximately $29,000 per unit to counsel
to the class action plaintiffs in the Milkes Litigation, the net amount that
each holder that is a class member will receive is approximately $119,000 per
unit (or a pro rata portion thereof) (the "Net Settlement Amount"). The amount
a unitholder will receive in the Purchase Offer will be reduced by any amount
owed by such holder on the original purchase price of his or her units. If you
wish to receive the Net Settlement Amount for your units in the Purchase
Offer, you should not only tender your units in the Purchase Offer, but also
consent to the Merger and the amendments to the partnership agreement as
described below. The approval of the Merger and the amendments to the
partnership agreement by the holders of a majority of the outstanding units is
one of the conditions to the Purchase Offer and the Merger.
<PAGE>
The Merger. The terms of the Settlement Agreement provide for the Merger of
a subsidiary of the Purchaser into the Partnership pursuant to an agreement
and plan of merger (the "Merger Agreement") immediately following the
consummation of the Purchase Offer. In the Merger, each outstanding unit of
limited partnership interest in the Partnership that has not been tendered in
the Purchase Offer (other than units held by the General Partner, the
Purchaser or holders who have elected to opt out of the Settlement) will be
converted into the right to receive $147,959 per unit (or a pro rata portion
thereof) in cash. If the Court approves legal fees and expenses of
approximately $29,000 per unit to counsel to the class action plaintiffs in
the Milkes Litigation, the net amount that each holder that is a class member
will receive is approximately $119,000 per unit (or a pro rata portion
thereof). In addition, each outstanding unit held by a unitholder who has
elected to opt out of the Settlement will be converted in the Merger into the
right to receive a cash amount equal to the appraised value of such unit (or a
pro rata portion thereof), as determined in accordance with the appraisal
provisions of the Merger Agreement and the Settlement Agreement. The appraised
value of units will not include any amount representing the value of the
settlement of the claims asserted in the Milkes Litigation. The amount to be
received by any unitholder in the Merger will be reduced by any amount owed by
such holder on the original purchase price of his or her units. If you wish to
opt out of the Settlement, you must follow the procedures described in the
attached Purchase Offer and Consent Solicitation.
Written Consents. The Purchase Offer and Merger will not be consummated
unless holders of a majority of the units submit their written consent to:
(1) the Merger, and
(2) all four of the amendments to the Partnership's partnership agreement
as more fully described in the Purchase Offer and Consent Solicitation (the
"Amendments"), which are necessary to consummate the Purchase Offer and the
Merger. The Amendments would:
. eliminate the provision that prohibits the transfer of 50% or more
of the outstanding units within a 12-month period, so that the
Purchaser may acquire more than 50% of the outstanding units in the
Purchase Offer;
. revise the provision that permits unit transfers only on the first
day of an accounting period, so that the transfer of units to the
Purchaser pursuant to the Purchase Offer can occur on the designated
closing date, rather than on the first day of an accounting period;
. add a provision to permit distributions of cash available for
distribution in accordance with the Settlement Agreement and revise
the provisions relating to allocations of profits and losses and
distributions that conflict with such provision; and
. add a provision that would expressly permit the General Partner to
authorize one or more third parties to appraise the market value of
the hotels owned by the Partnership and the value of the units, to
remove any doubt that the value of units held by limited partners
who elect to opt out of the Settlement can be established in
accordance with the terms of the Settlement Agreement and the Merger
Agreement.
Accordingly, the General Partner is soliciting the limited partners'
consents to the Merger and the Amendments. The only holders of units who will
be entitled to consent to the Merger and the Amendments will be holders of
record of units at the close of business on July 10, 2000 who have been
admitted to the Partnership as limited partners. The terms of the Settlement
are described in detail under the heading "Special Factors--The Settlement
Agreement" in the Purchase Offer and Consent Solicitation.
In addition to holders of a majority of the outstanding units (other than
units held by the General Partner and other affiliates) having submitted valid
written consents to the Merger and to the Amendments, consummation of the
Purchase Offer and the Merger is conditioned upon, among other things, (1) not
more than ten percent of the units of limited partnership interest in the
Partnership and not more than ten percent of the units of limited partnership
interest in any one of the other six partnerships involved in the Settlement
(other than units held by the persons named as insiders in the Settlement
Agreement) being held by holders who have
2
<PAGE>
elected to opt out of the Settlement (which condition may be waived by the
Purchaser), and (2) the Court approving the fairness of the Settlement
(including the terms and conditions of the Purchase Offer, the Merger and the
Amendments) at a hearing at which unitholders who have not opted out of the
Settlement and who have timely filed the proper documents with the Court have
the right to appear. See the "Notice of Pendency and Settlement of Claim and
Derivative Action Related to Courtyard by Marriott II LP and Final Approval
Hearing," which is being distributed by counsel to the class action plaintiffs
with the Purchase Offer and Consent Solicitation, for a description of the
procedures that must be followed in order to appear at the hearing. The
Purchase Offer and the Merger are subject to additional conditions that are
described under the heading "Special Factors--Conditions of the Purchase Offer
and the Merger" in the attached Purchase Offer and Consent Solicitation.
The Purchaser is offering to pay all unitholders the same gross amount of
$147,959 per unit. Payment for the units will be made by deposit of the
purchase offer price for the units with Chase Bank of Texas, N.A., which has
been retained by counsel to the class action plaintiffs as escrow agent (the
"Escrow Agent"). Upon deposit of the purchase offer price for the units with
the Escrow Agent, unitholders must look solely to counsel to the class action
plaintiffs and the Escrow Agent for the determination and payment of the
amounts owed to them. The defendants in the Litigation have no responsibility
for or liability whatsoever with respect to the investment or distribution of
the settlement funds, the determination, administration, calculation or
payment of claims, or any losses incurred in connection therewith, or with the
formulation or implementation of the plan of allocation of the settlement
funds, or the giving of any notice with respect to same.
The Purchaser is an indirect wholly owned subsidiary of CBM Joint Venture
LLC (the "Joint Venture"), a Delaware limited liability company that is a
joint venture between MI CBM Investor LLC ("MI Investor"), a Delaware limited
liability company and a wholly owned indirect subsidiary of Marriott
International, and Rockledge Hotel Properties, Inc., a Delaware corporation
("Rockledge"). Rockledge currently owns a 99% non-managing interest in the
General Partner. Host Marriott, L.P. ("Host LP"), which owns the 1% managing
interest in the General Partner, also owns a 95% non-voting interest in
Rockledge. Host Marriott owns approximately 78% of the equity interests in
Host LP. Marriott International currently does not own an interest in any of
Host Marriott, Rockledge or the General Partner, but one of Marriott
International's subsidiaries is the manager of the hotels owned by the
Partnership. J.W. Marriott, Jr. and Richard E. Marriott serve on the board of
directors of Host Marriott and on the board of directors of Marriott
International. Rockledge's officers, Richard A. Burton, Robert E. Parsons,
Jr., Christopher G. Townsend and W. Edward Walter (Messrs. Parsons and
Townsend also serve as directors of Rockledge) are also employees of Host LP
and officers of Host Marriott. In addition, Messrs. Parsons and Townsend serve
as the members of the General Partner's board of managers. As a result, these
entities and individuals have a conflict of interest with respect to the
Purchase Offer and the Merger. See "Special Factors--Certain Transactions with
the Partnership" for a more detailed description of these conflicts of
interest.
A Purchase Offer and Consent Solicitation, including a PINK Proof of Claim,
Assignment and Release and a YELLOW consent form, are enclosed with this
notice. The attached Purchase Offer and Consent Solicitation contains
instructions on how to tender your units in the Purchase Offer and how to
consent to the Merger and the Amendments.
A Special Litigation Committee appointed by the General Partner has
determined that the terms of the Settlement (1) are fair and reasonable to the
Partnership (which the Special Litigation Committee considers, as a practical
matter, to have an identity of interest with the limited partners with respect
to the derivative claims in the Milkes Litigation) and (2) include a fair and
reasonable settlement of any and all derivative claims, express or implied,
made on behalf of the Partnership in the Milkes Litigation. Counsel for the
class action plaintiffs recommends that the class action plaintiffs approve
the Settlement by tendering their units in the Purchase Offer and consenting
to the Merger and the Amendments. See "Special Factors--Determination of the
Special Litigation Committee and Recommendation of Counsel to the Class Action
Plaintiffs."
3
<PAGE>
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of this transaction, passed upon the
fairness or merits of such transaction or passed upon the accuracy or adequacy
of the disclosure contained in this document. Any representation to the
contrary is a criminal offense.
The General Partner is not making a recommendation to you as to whether to
tender or refrain from tendering your units in the Purchase Offer or whether
or not to consent to the Merger or the Amendments. You must make your own
decisions as to these matters.
The Partnership has filed with the Securities and Exchange Commission a
Solicitation/Recommendation Statement on Schedule 14D-9, which is being mailed
to limited partners concurrently herewith.
CBM Two LLC
General Partner
Christopher G. Townsend
_____________________________________
Secretary
Date: August , 2000
Bethesda, Maryland
4
<PAGE>
Offer to Purchase for Cash
All Outstanding Units of Limited Partnership Interest in
COURTYARD BY MARRIOTT II LIMITED PARTNERSHIP
for
$147,959 Per Unit (or a Net Amount per Unit of Approximately
$119,000 after Payment of Court-Awarded Attorneys' Fees)
by
CBM II HOLDINGS LLC,
a wholly owned indirect subsidiary of
CBM JOINT VENTURE LLC,
a joint venture between
MI CBM INVESTOR LLC (a wholly owned indirect subsidiary of
MARRIOTT INTERNATIONAL, INC.) and
ROCKLEDGE HOTEL PROPERTIES, INC.
and
Solicitation of Consents to a Merger and Amendments to the Partnership
Agreement
----------------
THE PURCHASE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW
YORK CITY TIME, ON SEPTEMBER , 2000, UNLESS THE PURCHASE OFFER IS
EXTENDED (AS SO EXTENDED, THE "EXPIRATION DATE").
----------------
This Purchase Offer and Consent Solicitation and the related proof of claim,
assignment and release (the "Proof of Claim") are being furnished to holders
("Unitholders") of units of limited partnership interest ("Units") in
Courtyard by Marriott II Limited Partnership (the "Partnership") pursuant to
the terms of a settlement agreement (the "Settlement Agreement") relating to
the settlement (the "Settlement") of class action litigation described herein.
Pursuant to the terms of the Settlement, CBM II Holdings LLC (the "Purchaser")
is offering to purchase (the "Purchase Offer") all outstanding Units (other
than Units held by the Partnership's general partner (the "General Partner"))
and the General Partner of the Partnership is soliciting consents to the
merger of a subsidiary of the Purchaser into the Partnership (the "Merger")
pursuant to an agreement and plan of merger (the "Merger Agreement") and to
certain amendments (the "Amendments") to the Partnership's partnership
agreement (the "Partnership Agreement"). The Purchaser is offering to purchase
all Units tendered prior to the Expiration Date for $147,959 per Unit (or a
pro rata portion thereof) in cash. If the Court (as defined herein) approves
legal fees and expenses of approximately $29,000 per Unit to counsel to the
class action plaintiffs in the Milkes Litigation (as defined herein), the net
amount that each holder that is a class member will receive is approximately
$119,000 per Unit (or a pro rata portion thereof). The amount to be received
by any holder in the Purchase Offer will be reduced by any amount owed by the
holder on the original purchase price of his or her Units.
The Settlement Agreement provides for the consummation of the Merger
immediately after the purchase of the Units pursuant to the Purchase Offer. In
the Merger, each outstanding Unit that has not been tendered in the Purchase
Offer (other than Units held by the General Partner, the Purchaser and holders
who elect to opt out of the Settlement) will be converted into the right to
receive $147,959 per Unit (or a pro rata portion thereof) in cash. If the
Court approves legal fees and expenses of approximately $29,000 per unit to
counsel to the class action plaintiffs in the Milkes Litigation, the net
amount that each holder that is a class member will receive is approximately
$119,000 per Unit (or a pro rata portion thereof). The amount to be received
by any holder in the Merger will be reduced by any amount owed by such holder
on the original purchase price of his or her Units. In addition, in the Merger
each outstanding Unit (or partial Unit) held by a holder who has elected to
opt out of the Settlement will be converted into the right to receive a cash
amount equal to the appraised value of such Unit (or a pro rata portion
thereof), not including any amount relating to the value of the settlement of
claims asserted in the Milkes Litigation, and reduced by any amount owed by
the holder on the original purchase price of such Unit.
The Settlement will not be consummated unless the Court approves the
fairness of the Settlement (including the terms and conditions of the Purchase
Offer, the Merger and the Amendments) at a hearing at which Unitholders who
have not opted out of the Settlement and who have timely filed the proper
documents with the Court have the right to appear. See the "Notice of Pendency
and Settlement of Claim and Derivative Action Related to Courtyard by Marriott
II LP and Final Approval Hearing," which is being distributed by counsel to
the class action plaintiffs with this Purchase Offer and Consent Solicitation,
for a description of the procedures that must be followed in order to appear
at the hearing.
<PAGE>
A Special Litigation Committee appointed for the Partnership by the General
Partner has determined that the terms of the Settlement (1) are fair and
reasonable to the Partnership (which the Special Litigation Committee
considers, as a practical matter, to have an identity of interest with the
limited partners with respect to the derivative claims in the Milkes
Litigation), and (2) include a fair and reasonable settlement of any and all
derivative claims, expressed or implied, made on behalf of the Partnership in
the Milkes Litigation. Counsel for the class action plaintiffs recommends that
the class action plaintiffs approve the Settlement by tendering their Units in
the Purchase Offer and consenting to the Merger and the Amendments.
The General Partner makes no recommendation to any Unitholder as to whether
to tender his or her Units in the Purchase Offer or whether to consent to the
Merger and the Amendments. The General Partner is a defendant in the Milkes
Litigation and, therefore, has a conflict of interest with respect to the
Purchase Offer, the Merger and the Amendments. Host Marriott Corporation
("Host Marriott") and Marriott International are also defendants in the Milkes
litigation. The Purchaser is an indirect wholly owned subsidiary of CBM Joint
Venture LLC (the "Joint Venture"), a Delaware limited liability company that
is a joint venture between MI CBM Investor LLC ("MI Investor"), a Delaware
limited liability company and a wholly owned indirect subsidiary of Marriott
International, and Rockledge Hotel Properties, Inc., a Delaware corporation
("Rockledge"). Rockledge currently owns a 99% non-managing interest in the
General Partner. Host Marriott, L.P. ("Host LP"), which owns the 1% managing
interest in the General Partner, also owns a 95% non-voting interest in
Rockledge. Host Marriott owns approximately 78% of the equity interests in
Host LP. Marriott International currently does not own an interest in any of
Host Marriott, Rockledge or the General Partner, but one of Marriott
International's subsidiaries is the manager of the hotels owned by the
Partnership. Two individuals who serve on the board of directors of Host
Marriott also serve on the board of directors of Marriott International. All
four of the individuals who serve as officers of Rockledge (two of whom also
serve as directors of Rockledge) are also employees of Host LP and officers of
Host Marriott. In addition, all the members of the General Partner's board of
managers are also employees of Host LP and officers of Host Marriott. As a
result, these entities have a conflict of interest with respect to the
Purchase Offer and the Merger. See "Special Factors--Certain Transactions with
the Partnership" for a more detailed description of these conflicts of
interest.
----------------
In addition to Court approval, consummation of the Purchase Offer and the
Merger is conditioned upon, among other things, (1) not more than ten percent
of the Units in the Partnership and not more than ten percent of the units of
limited partnership interests in any one of the other six partnerships
involved in the Settlement (other than units held by the persons named as
insiders in the Settlement Agreement (the "Insiders")) being held by holders
who have elected to opt out of the Settlement (which condition may be waived
by the Purchaser) and (2) prior to the Expiration Date, the holders of a
majority of the outstanding Units (other than Units held by the General
Partner and other affiliates) having submitted valid written consents to the
Merger and to the Amendments. See "Special Factors--Conditions of the Purchase
Offer and the Merger for a description of the other conditions to the Purchase
Offer and the Merger.
The Partnership has filed with the Securities and Exchange Commission a
Solicitation/Recommendation Statement on Schedule 14D-9, which is being mailed
to limited partners concurrently herewith.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of this transaction, passed upon the
fairness or merits of such transaction or passed upon the accuracy or adequacy
of the disclosure contained in this document. Any representation to the
contrary is a criminal offense.
This Purchase Offer and Consent Solicitation is dated August , 2000 and is
being mailed to Unitholders on or about August , 2000.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
SUMMARY TERM SHEET........................................................ 1
RISK FACTORS.............................................................. 7
SPECIAL FACTORS........................................................... 10
Background of the Settlement............................................ 10
The Settlement Agreement................................................ 13
Position of Marriott International, MI Investor, Rockledge, Host
Marriott, Host LP, the Joint Venture and the Purchaser Regarding
Fairness .............................................................. 15
Position of the General Partner, Marriott International, MI Investor,
Rockledge, Host Marriott, Host LP, the Joint Venture and the Purchaser
Regarding the Purchase Offer and the Merger............................ 19
Determination of the Special Litigation Committee and Recommendation of
Counsel to the Class Action Plaintiffs................................. 19
Purpose and Structure of the Purchase Offer; Merger and Amendments...... 21
Conditions of the Purchase Offer and the Merger......................... 21
Plans for the Partnership; Certain Effects of the Purchase Offer and the
Merger................................................................. 22
Certain Information Concerning the Partnership.......................... 23
Certain Information Concerning the Purchaser, the Joint Venture,
Marriott International, MI Investor, Rockledge, Host Marriott and Host
LP..................................................................... 32
Source and Amount of Funds.............................................. 35
Certain Transactions with the Partnership............................... 35
Security Ownership of Certain Beneficial Owners and Management.......... 39
Regulatory Matters...................................................... 39
Final Court Hearing and Right to Appear................................. 39
Procedures for Opting Out of the Settlement............................. 41
The Merger.............................................................. 41
The Amendments.......................................................... 44
Federal Income Tax Considerations....................................... 48
THE PURCHASE OFFER........................................................ 55
Terms of the Purchase Offer............................................. 55
Settlement Fund; Acceptance for Payment; Payment for Units.............. 57
Procedures for Accepting the Purchase Offer and Tendering Units......... 58
Withdrawal Rights....................................................... 59
Market for the Partnership's Limited Partnership Units and Related
Security Holder Matters................................................ 60
Transfer Fees and Taxes................................................. 60
THE WRITTEN CONSENTS...................................................... 61
Record Date and Outstanding Units....................................... 61
Majority Vote Required; Voting Rights................................... 61
Solicitation Period..................................................... 61
Voting and Revocation of Consents....................................... 61
Effective Time of Amendments............................................ 62
Effective Time of the Merger............................................ 62
No Special Meeting...................................................... 62
Rights of Appraisal..................................................... 62
Interests of Certain Persons in the Matters to be Acted Upon............ 63
OTHER MATTERS............................................................. 64
Fees and Expenses....................................................... 64
Miscellaneous........................................................... 64
WHERE YOU CAN FIND MORE INFORMATION....................................... 65
</TABLE>
Schedule I-- Directors and Executive Officers of Marriott International, Inc.,
MI CBM Investor LLC, Rockledge Hotel Properties, Inc., Host Marriott
Corporation, Host Marriott, L.P., CBM Joint Venture LLC and CBM II
Holdings LLC
Schedule II-- Managers and Executive Officers of CBM Two LLC
<PAGE>
SUMMARY TERM SHEET
We urge you to read carefully this purchase offer and consent solicitation,
particularly the matters discussed under the heading "Special Factors" and
"Risk Factors," before deciding whether to tender or refrain from tendering
your units of limited partnership interest in Courtyard by Marriott II Limited
Partnership and whether to vote for or against the merger and the amendments
to the partnership agreement described below. The following is a summary of
information contained in this purchase offer and consent solicitation. The
summary is not intended to be complete, and you should read carefully this
entire purchase offer and consent solicitation and the related proof of claim,
assignment and release, consent form and the other documents to which we have
referred you. In particular, you should read the information contained under
the heading "Risk Factors." This purchase offer and consent solicitation,
together with the proof of claim, assignment and release, are referred to
herein as the "Purchase Offer and Consent Solicitation."
The term the "general partner" as used in this purchase offer and consent
solicitation refers to CBM Two LLC, the general partner of Courtyard by
Marriott II Limited Partnership. The terms "we", "our" and the "purchaser" as
used in this purchase offer and consent solicitation refer to CBM II Holdings
LLC, a wholly owned indirect subsidiary of CBM Joint Venture LLC, or the
"joint venture," which is a joint venture between MI CBM Investor LLC, or "MI
Investor," a wholly owned indirect subsidiary of Marriott International, Inc.,
or "Marriott International," and Rockledge Hotel Properties, Inc., or
"Rockledge."
WHY ARE YOU MAKING THIS PURCHASE OFFER AND CONSENT SOLICITATION?
This purchase offer and consent solicitation is being made pursuant to the
terms of a settlement agreement relating to the settlement of litigation
involving Courtyard by Marriott II Limited Partnership and six other limited
partnerships, including Courtyard by Marriott Limited Partnership. The
settlement provides for a purchase offer, followed by a merger, and amendments
to the partnership agreement as described in this purchase offer and consent
solicitation. See "Special Factors--Background of the Settlement," pages 10
through 13.
WHO IS OFFERING TO BUY MY UNITS?
Our name is CBM II Holdings LLC. We are a wholly owned indirect subsidiary
of the joint venture and were organized for the sole purpose of making the
purchase offer. The joint venture is a joint venture between MI Investor, a
subsidiary of Marriott International, and Rockledge. See "Special Factors--
Certain Information Concerning the Purchaser, the Joint Venture, Marriott
International, MI Investor, Rockledge, Host Marriott and Host LP," pages 32
through 35.
WHAT CLASSES AND AMOUNTS OF SECURITIES ARE YOU SEEKING IN THE OFFER?
We are offering to purchase all outstanding units of limited partnership
interest in Courtyard by Marriott II Limited Partnership other than units
owned by the general partner.
HOW MUCH ARE YOU OFFERING TO PAY FOR MY SECURITIES AND WHAT IS THE FORM OF
PAYMENT?
We are offering to pay all unitholders the same gross amount of $147,959 per
unit (or a pro rata portion thereof) in cash to purchase each unit, settle the
Milkes litigation and obtain a release of all claims in the Milkes litigation.
The net amount that unitholders will receive after payment of their share of
litigation expenses will vary. If the court approves legal fees and expenses
of approximately $29,000 per unit to counsel to the class action plaintiffs in
the Milkes litigation, the net amount that each holder that is a class member
will receive is approximately $119,000 per unit (or a pro rata portion
thereof). In addition, all unitholders (other than unitholders who have opted
out of the settlement) will receive a pro rata portion of the interest that
has accrued on the settlement funds with respect to the Milkes litigation less
any attorneys' fees and expenses awarded by the court to counsel to the class
action plaintiffs with respect to the accrued interest on the settlement
funds. See "Special Factors--The
1
<PAGE>
Settlement Agreement." This amount will be reduced by any amount owed by the
holder on the original purchase price of his or her units. The aggregate
amount we are offering to pay for all outstanding units (other than the 21.5
units held by the general partner) is $214,318,612. Payment for the units will
be made by deposit of the purchase offer price for the units with Chase Bank
of Texas, N.A., the escrow agent. Upon deposit of such funds with the escrow
agent, unitholders must look solely to counsel to the class action plaintiffs
and the escrow agent for the determination and payment of the amounts owed to
them. See "Special Factors--The Settlement Agreement," pages 12 and 13.
WHAT WILL I RECEIVE IF I PURCHASED A UNIT FROM A CLASS MEMBER, BUT DID NOT
OBTAIN AN ASSIGNMENT OF LITIGATION CLAIMS FROM THAT CLASS MEMBER?
If you purchased a unit from a class member without obtaining an assignment
of that class member's litigation claims, the purchase offer price will have
to be divided between you and the class member from whom you purchased the
unit. See "The Purchase Offer--Terms of the Purchase Offer--Rights of Class
Members Who Sold Their Units But Did Not Assign Their Litigation Claims," on
pages 56 and 57.
DO YOU HAVE THE FINANCIAL RESOURCES TO MAKE PAYMENT?
We will need approximately $218.8 million to purchase all of the units
pursuant to the purchase offer, to consummate the merger and to pay related
fees and expenses. We will obtain the funds indirectly from Marriott
International and Host Marriott. See "Special Factors--Source and Amount of
Funds," page 35.
IS YOUR FINANCIAL CONDITION RELEVANT TO MY DECISION TO TENDER IN THE OFFER?
Because the form of payment consists solely of cash and the purchase offer
is not conditioned on our ability to obtain financing, we do not think our
financial condition is relevant to your decision as to whether to tender in
the purchase offer or consent to the merger and the amendments. Our
obligations in connection with the purchase offer and the merger are
guaranteed by Marriott International and Host Marriott. See "Special Factors--
Source and Amount of Funds," page 35.
HOW LONG DO I HAVE TO DECIDE WHETHER TO TENDER IN THE PURCHASE OFFER?
You will have at least until 12:00 midnight, New York City time, on
September , 2000 to decide whether to tender your units in the purchase
offer. See "The Purchase Offer--Terms of the Purchase Offer," pages 55 through
57.
CAN THE PURCHASE OFFER BE EXTENDED?
Yes. We can elect to extend the purchase offer at any time. See "The
Purchase Offer--Terms of the Purchase Offer," pages 55 through 57.
HOW WILL I BE NOTIFIED IF THE PURCHASE OFFER IS EXTENDED?
If the purchase offer is extended we will issue a press release announcing
the extension no later than 9:00 a.m., New York City time, on the next
business day after the day the purchase offer was scheduled to expire. See
"The Purchase Offer--Terms of the Purchase Offer," pages 55 through 57.
HOW DO I TENDER MY UNITS?
To tender all or any portion of your units, you must either (1) complete and
sign the PINK proof of claim, assignment and release (or a facsimile thereof)
and mail or deliver it and any other required documents to GEMISYS Corporation
at the address set forth on the back cover of this purchase offer and consent
solicitation, or (2) if your units are registered in the name of a broker,
dealer, commercial bank, trust company or other nominee, you must contact such
nominee and instruct it to tender your units. See "The Purchase Offer--
Procedures for Accepting the Purchase Offer and Tendering Units," pages 58 and
59.
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IF I TENDER MY UNITS DO I ALSO NEED TO SUBMIT A CONSENT FORM?
Tendering your units does not in itself constitute your consent to the
merger and the amendments to the partnership agreement. If you wish to have
your units purchased in the purchase offer, you should also consent to the
merger and the amendments by completing and timely returning the enclosed
YELLOW consent form.
WHAT ARE THE SIGNIFICANT CONDITIONS TO THE PURCHASE OFFER AND THE MERGER?
The consummation of the purchase offer and the merger is subject to a number
of conditions, which are described on page 17 under the heading "Special
Factors--Conditions of the Purchase Offer and the Merger."
WHEN WILL I RECEIVE PAYMENT FOR MY UNITS IF I TENDER?
The court will hold a hearing for approval of the settlement once all
conditions to consummating the purchase offer and the merger, other than final
court approval, have been satisfied. Within seven business days after the
judgment order approving the terms of the settlement and the dismissal of the
litigation becomes final, the escrow agent will distribute to each unitholder
who has submitted a valid proof of claim prior to such date the funds to which
such holder is entitled. The earliest that this will occur is after the
expiration of the 30-day period during which an appeal of the judgment order
may be filed. See "The Purchase Offer--Settlement Fund; Acceptance for
Payment; Payment for Units," pages 57 and 58.
MUST I SUBMIT A PROOF OF CLAIM TO RECEIVE FUNDS IN THE SETTLEMENT?
Yes. No unitholder will be entitled to receive any funds from the settlement
until a valid proof of claim is submitted, whether before or after the
judgment order becomes final. However, if you have not submitted a valid proof
of claim within 90 days of the date a judgment order approving the settlement
becomes final and you have not opted out of the settlement, then counsel to
the class action plaintiffs will execute a proof of claim on your behalf. See
"The Purchase Offer--Procedures for Accepting the Purchase Offer and Tendering
Units," pages 58 through 59.
HOW DO I WITHDRAW PREVIOUSLY TENDERED UNITS?
You may withdraw units that you have tendered at any time prior to the
expiration date of the purchase offer or after September , 2000 if the
purchase offer and the merger have not been completed prior to that time. To
withdraw units, you must deliver a written notice to the claims administrator
prior to the expiration of the purchase offer at the address set forth on the
back cover of this purchase offer and consent solicitation. For more
information on your withdrawal rights, see "The Purchase Offer--Withdrawal
Rights," pages 59 and 60.
WHO HAS DETERMINED THAT THE TERMS OF THE SETTLEMENT ARE FAIR?
Counsel to the class action plaintiffs recommends that the class action
plaintiffs approve the settlement by tendering their units in the purchase
offer and consenting to the merger and the amendments. In addition, the
special litigation committee appointed for Courtyard by Marriott II Limited
Partnership by the general partner has determined that the terms of the
settlement are fair and reasonable to the partnership. See "Special Factors--
Determination of the Special Litigation Committee and Recommendation of
Counsel to the Class Action Plaintiffs," pages 19 through 21.
HOW DO I OPT OUT OF THE SETTLEMENT?
If you do not wish to participate in the settlement, you may exclude
yourself from the settlement class by submitting an opt-out notice, no later
than the expiration date, to the claims administrator. The opt-out notice must
contain the information described under the heading "Special Factors--
Procedures for Opting Out of the Settlement," pages 40 and 41. In addition, if
you wish to opt out you should include with your opt-out notice the
certificate of non-foreign status included in the proof of claim to avoid
backup witholding. If you do not timely and validly submit an opt-out notice,
you will be bound by all orders and judgments entered in the litigation,
whether favorable or unfavorable to you.
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DO I HAVE THE RIGHT TO APPEAR AT THE FINAL COURT HEARING?
Unitholders who have not opted out of the settlement have the right to
appear at the final court hearing to be held on September , 2000, if they
follow the procedures described under the heading "Special Factors--Final
Court Hearing and Right to Appear," pages 39 through 41. The settlement will
not be consummated unless the court approves the fairness of the settlement
(including the terms and conditions of the purchase offer, the merger and the
amendments) at the final hearing.
WHY IS THE GENERAL PARTNER SOLICITING CONSENTS?
The general partner is soliciting the consents of the limited partners
pursuant to the terms of the settlement agreement. If the merger and the
amendments to the partnership agreement are not approved by limited partners
holding a majority of the outstanding units (excluding units held by the
general partner and its affiliates), the settlement agreement will not be
consummated and the purchaser will not be obligated to purchase the units. See
"Special Factors--Conditions of the Purchase Offer and the Merger," pages 21
and 22.
WHAT WILL HAPPEN IN THE MERGER?
The terms of the settlement agreement provide for the merger of CBM II
Acquisition, L.P., a subsidiary of the purchaser, with and into Courtyard by
Marriott II Limited Partnership immediately after the consummation of the
purchase offer. Courtyard by Marriott II Limited Partnership will be the
surviving entity in the merger.
In the merger:
. each outstanding unit that has not been tendered in the purchase offer
(other than units held by the general partner, the purchaser and holders
who have elected to opt out of the settlement) will be converted into
the right to receive $147,959 per unit (or a pro rata portion thereof)
in cash. If the court approves legal fees and expenses of approximately
$29,000 per unit to counsel to the class action plaintiffs in the Milkes
litigation, the net amount that each holder that is a class member will
receive is approximately $119,000 per unit (or a pro rata portion
thereof); and
. each outstanding unit held by a unitholder who has elected to opt out of
the settlement will be converted into the right to receive a cash amount
equal to the appraised value of such unit (or a pro rata portion
thereof). The appraised value will not include any amount representing
the value of the settlement of the claims asserted in the Milkes
litigation.
Any amount to be received by any unitholder in the merger will be reduced by
any amount owed by such holder on the original purchase price of his or her
units. See "Special Factors--The Merger," pages 41 through 43.
WHAT ARE THE PROPOSED AMENDMENTS TO THE PARTNERSHIP AGREEMENT?
The proposed amendments to the partnership agreement are necessary to
consummate the purchase offer and the merger. The amendments to the
partnership agreement will not be implemented if, for any reason, the merger
will not be consummated, even if the amendments receive the requisite
approval. The proposed amendments are described in detail under the heading
"Special Factors--The Amendments," pages 43 through 48.
WHO IS ENTITLED TO VOTE ON THE MERGER AND THE PROPOSED AMENDMENTS TO THE
PARTNERSHIP AGREEMENT?
You are entitled to vote on the merger and the proposed amendments to the
partnership agreement if you owned units on July 10, 2000 and have been
admitted as a limited partner, except that if you are in default with respect
to the original purchase price of your units, you are not entitled to vote
with respect to such units. See "The Written Consents--Record Date and
Outstanding Units," page 61.
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HOW DO I CONSENT TO THE MERGER AND THE PROPOSED AMENDMENTS?
If you wish to consent to the merger and the amendments, you should
complete, sign, date and return the YELLOW consent form to the claims
administrator in the enclosed envelope with pre-paid postage. Your vote on
these matters is very important. Your failure to return the enclosed consent
form will have the same effect as not consenting to the merger and the
amendments and, therefore, will constitute a vote against the settlement.
Tendering your units by submitting a proof of claim does not in itself
constitute your consent to the merger and the amendments. See "The Written
Consents--Voting and Revocation of Consents," pages 61 and 62.
HOW DO I REVOKE MY CONSENT?
You may revoke your executed and returned consent form at any time prior to
the expiration date by delivering to the claims administrator a signed and
dated written notice stating that your consent is revoked. After the
expiration date, all consents previously executed and delivered and not
revoked will become irrevocable. See "The Written Consents--Voting and
Revocation of Consents," pages 61 and 62.
HOW LONG DO I HAVE TO CONSENT?
You may submit your signed consent form now. In order for your consent form
to be accepted, it must be received by the claims administrator no later than
12:00 midnight, New York City time, on September , 2000, unless the
expiration date of the purchase offer is extended, in which case the new
expiration date will be the last date on which your consent form will be
accepted. See "The Written Consents--Solicitation Period," page 61.
WHAT HAPPENS IF I DON'T TENDER MY UNITS IN THE PURCHASE OFFER AND I VOTE
AGAINST THE MERGER AND THE AMENDMENTS, BUT THE MERGER AND AMENDMENTS
NEVERTHELESS RECEIVE THE REQUIRED UNITHOLDER APPROVAL?
Whether or not you tender your units in the purchase offer or vote against
the merger and the amendments, if the merger and amendments receive the
approval of unitholders holding a majority of the outstanding units, and the
other conditions to the purchase offer and the merger are satisfied (or
waived, if waivable), the purchase offer and merger will be consummated. In
that case, even if you did not consent to the merger and the amendments or
tender your units in the purchase offer, you will be cashed out in the merger
at the purchase offer price less court-awarded attorneys' fees and expenses,
unless you have opted out of the settlement, in which case you will receive
the appraised value of your units.
WHAT MATERIAL FEDERAL INCOME TAX CONSIDERATIONS SHOULD I CONSIDER IN
CONNECTION WITH THE SETTLEMENT, THE PURCHASE OFFER AND THE MERGER?
The transactions contemplated by the settlement agreement may have adverse
tax consequences for you. See "Special Factors--Federal Income Tax
Considerations," page 48, for a detailed description of the material federal
income tax considerations relevant to unitholders as a result of the
settlement, the purchase offer and the merger.
WHAT WILL BE THE CONSEQUENCES TO THE PARTNERSHIP OF THE PURCHASE OFFER AND THE
MERGER?
Upon consummation of the purchase offer and the merger, the joint venture
will own 100% of the equity interests in Courtyard by Marriott II Limited
Partnership and, as a result, the joint venture's equity owners will have the
sole benefit or detriment of any change in the partnership's value and will
receive all distributions, if any, with respect to the partnership's
operations. Although the partnership will become privately held and will no
longer be subject to the reporting requirements of the Securities Exchange Act
of 1934, it will be required to continue filing periodic reports with the SEC
under the terms of its senior notes. See "Special Factors--Plans for the
Partnership; Certain Effects of the Purchase Offer and the Merger," pages 22
and 23.
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TO WHOM MAY I SPEAK IF I HAVE QUESTIONS ABOUT THE PURCHASE OFFER OR THE
CONSENT SOLICITATION?
Counsel to the class action plaintiffs has retained GEMISYS Corporation as
the claims administrator to answer your questions regarding completion of the
proof of claim and consent form and to provide you with additional copies of
this purchase offer and consent solicitation, the proof of claim, the consent
form, and other related materials. The telephone number of GEMISYS is (800)
326-8222. Because we or our affiliates are defendants in the lawsuit, the
purchaser, the joint venture, MI Investor, Marriott International, Host
Marriott, Host LP and the general partner and its affiliates are prohibited
from discussing the settlement with you. You are encouraged to call David Berg
or Jim Moriarty, counsel to the class action plaintiffs, if you have questions
regarding the terms of the settlement. Mr. Berg's telephone number is (713)
529-5622 and Mr. Moriarty's telephone number is (713) 528-0700.
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RISK FACTORS
Unitholders should carefully consider the following risk factors before
deciding whether or not to tender any of their Units in the Purchase Offer and
whether to consent to the Merger and the Amendments.
. Determination of the Purchase Offer Price; No Fairness Opinion from a
Third Party
The purchase offer price was determined in extensive arms'-length
negotiations among the defendants in the Litigation, the class action
plaintiffs, Palm Investors, LLC, several Equity Resource Funds, and the
special litigation committee appointed for the Partnership by the General
Partner (the "Special Litigation Committee"). See "Special Factors--Background
of the Settlement." The Partnership did not request or obtain an opinion from
a third party regarding the fairness of the purchase offer price from a
financial point of view and the General Partner, as a result of a conflict of
interest, makes no recommendation to Unitholders as to whether to tender their
Units in the Purchase Offer or whether to consent to the Merger and the
Amendments. However, the Special Litigation Committee has determined that the
terms of the Settlement (1) are fair and reasonable to the Partnership (which
the Special Litigation Committee considers, as a practical matter, to have an
identity of interest with the limited partners with respect to the derivative
claims in the Milkes Litigation) and (2) include a fair and reasonable
settlement of any and all derivative claims, expressed or implied, made on
behalf of the Partnership in the Milkes Litigation. In addition, counsel to
the class action plaintiffs in the Milkes Litigation ("Class Counsel")
recommends that the class action plaintiffs approve the Settlement by
tendering their Units in the Purchase Offer and consenting to the Merger and
the Amendments. It should be noted that Class Counsel represents the class
action plaintiffs on a contingency fee basis and has advised the Partnership
that it intends to request the Court for an award of attorneys' fees and
reimbursement of expenses of approximately $29,000 per Unit. If the Court
approves this request, Class Counsel will receive approximately $29,000 for
each Unit that is tendered in the Purchase Offer or converted in the Merger.
However, Class Counsel will not be awarded any attorneys' fees or
reimbursement of expenses with respect to Units held by limited partners who
have elected to opt out of the Settlement. Finally, it is a condition to
consummation of the Purchase Offer and the Merger that the Court approve the
fairness of the Settlement for class members.
. Lack of Trading Market; The Purchase Offer Price May Differ from the
Market Value of the Units
There is currently no established public trading market for the Units, nor
is there another reliable standard for determining the fair market value of
the Units. The Purchase Offer and the Merger afford Unitholders an opportunity
to dispose of their Units for cash, which alternative otherwise might not be
available to them currently or in the foreseeable future. However, the
purchase offer price may be higher or lower than the price that could be
obtained in the open market. Although the purchase offer price includes an
amount representing the value of the settlement of the claims asserted against
the defendants in the Milkes Litigation, any amounts awarded by the Court to
Class Counsel as attorneys' fees and expenses (not to exceed approximately
$29,000 per Unit), will be subtracted from the total amount that Unitholders
(other than Unitholders who have opted out of the Settlement) will receive in
the Purchase Offer or the Merger.
. The Appraised Value of Units May be Higher or Lower than the Net
Settlement Amount
Unitholders who elect to opt out of the Settlement will receive the
appraised value of their Units in the Merger. The appraised value of Units may
be lower or higher than the Net Settlement Amount that Unitholders who do not
opt out of the settlement will receive in the Purchase Offer or the Merger
(assuming all conditions to the Purchase Offer and the Merger are satisfied or
waived, if waivable). If you opt out of the Settlement, the amount you will
receive in the Merger will not include any amount representing the value of
the settlement of the claims asserted against the defendants in the Milkes
Litigation and will include no deductions for attorneys' fees and expenses.
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. Purchase Offer Price May Not Represent the Liquidation Value of the
Units. Accordingly, Opting Out of the Settlement Class and not
Consenting to the Merger and the Amendments May Result in Greater Future
Value
The purchase offer price may be more or less than the net proceeds that
would be realized if the Partnership were liquidated. Neither the General
Partner, the Purchaser, the Joint Venture, Marriott International, MI
Investor, Rockledge, Host Marriott nor Host LP has made or will make an
assessment of the liquidation value of the Units in connection with the
negotiation of the Settlement or the determination of the fairness of the
terms of the Purchase Offer and Merger. If the purchase offer price per Unit
is lower than the per Unit liquidation value, the Purchaser and General
Partner would benefit upon any liquidation of the Partnership from the
difference between the purchase offer price for the tendered Units that are
acquired in the Purchase Offer and the Merger and the amount the Purchaser and
General Partner would receive in such liquidation. Accordingly, Unitholders
may ultimately receive a greater return on their investment if the Settlement
(including the Purchase Offer and the Merger) is not consummated and
Unitholders continue holding their Units. If holders of less than a majority
of the outstanding Units consent to the Merger and the Amendments, the
Settlement will not be consummated.
. Conflicts of Interest with Respect to the Purchase Offer; No General
Partner Recommendation
The General Partner is a defendant in the Milkes Litigation and, therefore,
has a conflict of interest with respect to the Purchase Offer, the Merger and
the Amendments. Accordingly, the General Partner makes no recommendation to
any Unitholder as to whether to tender or refrain from tendering his or her
Units in the Purchase Offer or whether to vote for or against the Merger and
the Amendments. You must make your own decision as to these matters based upon
a number of factors, including several factors that may be personal to you,
such as your financial position, your need or desire for liquidity, your
preferences regarding the timing of when you might wish to sell your Units,
other financial opportunities available to you, and your tax position and the
tax consequences to you of selling your Units.
Host Marriott and Marriott International are also defendants in the Milkes
Litigation. The Purchaser is an indirect wholly owned subsidiary of the Joint
Venture, a joint venture between MI Investor, a wholly owned indirect
subsidiary of Marriott International, and Rockledge. Rockledge currently owns
a 99% non-managing interest in the General Partner. Host LP, which owns the 1%
managing interest in the General Partner, also owns a 95% non-voting interest
in Rockledge. Host Marriott owns approximately 78% of the equity interests in
Host LP. Marriott International currently does not own an interest in any of
Host Marriott, Rockledge or the General Partner, but one of Marriott
International's subsidiaries is the manager of the hotels owned by the
Partnership. Two individuals who serve on the board of directors of Host
Marriott also serve on the board of directors of Marriott International. All
four of the individuals who serve as officers of Rockledge (two of whom also
serve as directors of Rockledge) are also employees of Host LP and officers of
Host Marriott. In addition, all the members of the General Partner's board of
managers are also employees of Host LP and officers of Host Marriott. As a
result, these entities and individuals have a conflict of interest with
respect to the Purchase Offer, the Merger and the Amendments. See "Special
Factors--Certain Transactions with the Partnership" for a more detailed
description of these conflicts of interest.
. Material Federal Income Tax Considerations in Connection with the
Purchase Offer and the Merger
If the Purchase Offer and the Merger occur, the receipt of cash by you under
the terms of the Settlement Agreement will constitute a taxable transaction.
You will recognize taxable gain to the extent that the amount that you are
deemed to receive exceeds your tax basis in your Units. The amount that you
will be deemed to receive will be the sum of the cash amount received by you
(which will be deemed to include any amount owed by you on the original
purchase price of your Units) plus your share of the Partnership's nonrecourse
liabilities (and, if you do not affirmatively "opt out" of the Settlement, may
also include all or a part of your portion of the legal fees paid to Class
Counsel). If you do not affirmatively "opt out" of the Settlement, a portion
of the amount that you are deemed to receive in the Settlement very likely
will be considered to be attributable to the settlement of the claims asserted
in the Milkes Litigation, all or a portion of which may be taxed at the
ordinary
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income tax rate applicable to you. The remaining portion of your taxable gain
will be taxed at applicable capital gain tax rates (including the 25% rate
applicable to your share of the "unrecaptured Section 1250 gain" of the
Partnership).
. Loss of Future Distributions from the Partnership
After consummation of the Purchase Offer and the Merger (assuming all
conditions to the Purchase Offer and the Merger are satisfied or waived, if
waivable), the Joint Venture will hold all right, title and interest in and to
all of the limited partnership interests in the Partnership, as well as the
right to receive any cash dividends, distributions, rights, and other
securities issued or issuable in respect thereof. You will not receive any
future distributions from operating cash flow of the Partnership or upon a
sale or refinancing of properties owned by the Partnership (including any
shares of STSN stock that the Partnership may hereafter acquire (see "Special
Factors--Certain Transactions with the Partnership--STSN")) for any Units that
the Purchaser acquires from you in the Purchase Offer or that are converted in
the Merger. We cannot predict what the future performance of the Partnership
will be. Therefore, retaining the ownership of your Units may be more
beneficial to you.
. Consents Become Irrevocable after Expiration Date; Potential Delay in
Payment
Units tendered pursuant to the Purchase Offer may be withdrawn at any time
on or prior to the Expiration Date and, unless accepted for payment by the
Purchaser pursuant to the Purchaser Offer, may also be withdrawn at any time
after September , 2000. The Purchaser reserves the right to extend the
period of time during which the Purchase Offer is open and thereby delay
acceptance for payment of any tendered Units. Units will be returned promptly
at such time as it is finally determined that the conditions for consummation
of the Purchase Offer and the Merger will not be satisfied (or waived, if
waivable). Written Consent Forms submitted to the Claims Administrator prior
to the Expiration Date may be revoked until the Expiration Date. However,
properly executed and timely received Consent Forms that were not properly
revoked prior to the Expiration Date will become binding and irrevocable after
the Expiration Date and will not expire until the conditions for consummation
of the Purchase Offer and the Merger are satisfied (or waived, if waivable) or
until such time as it is finally determined that such conditions will not be
satisfied or waived. However, until the Court order approving the Settlement
has become final, the Purchase Offer and the Merger will not be consummated.
If there is an appeal of the Court's order approving the Settlement (other
than an appeal that relates solely to counsel fees and expenses), there may be
a lengthy delay before you receive any payment for your Units but your consent
to the Merger and the Amendments will remain valid and irrevocable.
. Alternatives to Tendering Units
If you wish to retain your Units because you believe that the Settlement is
not in your best interests, you should not consent to the Merger and the
Amendments. If the conditions to the Purchase Offer and the Merger are not
satisfied (or waived, if waivable), you will retain your Units and may seek a
private sale of your Units now or later.
However, even if you do not consent to the Merger and the Amendments, the
Purchase Offer and the Merger will be consummated if they receive the approval
of holders of a majority of the outstanding Units and the other conditions to
the Purchase Offer and the Merger are satisfied (or waived, if waivable). In
that case, you will receive the purchase offer price less court-awarded
attorneys' fees and expenses for your Units in the Merger, unless you have
opted out of the Settlement, in which case you will receive the appraised
value of your Units. See "Special Factors--The Merger."
EACH UNITHOLDER MUST MAKE HIS OR HER OWN DECISION REGARDING THE PURCHASE
OFFER, THE MERGER AND THE AMENDMENTS BASED ON HIS OR HER PARTICULAR
CIRCUMSTANCES. UNITHOLDERS SHOULD CONSULT WITH THEIR RESPECTIVE ADVISORS ABOUT
THE FINANCIAL, TAX, LEGAL AND OTHER IMPLICATIONS TO THEM OF TENDERING THEIR
UNITS IN THE PURCHASE OFFER AND CONSENTING TO THE MERGER AND THE AMENDMENTS.
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SPECIAL FACTORS
Background of the Settlement
Organization and Business of the Partnership. The Partnership is a Delaware
limited partnership formed on August 31, 1987 to acquire and own 70 Courtyard
by Marriott hotels (the "Hotels") and the land on which certain of the Hotels
are located. The sole general partner of the Partnership, with a 5% general
partner interest, is CBM Two LLC, which is jointly owned by Host LP, which
holds the sole 1% managing interest, and Rockledge, which holds a 99% non-
managing interest.
On October 30, 1987, the General Partner made a capital contribution of
equipment valued at $11,306,000 for its 5% general partner interest. On
January 18, 1988, 1,470 Units, representing a 95% interest in the Partnership,
were sold in a private placement. The offering price per Unit was $100,000.
The limited partners paid $39,938,000 at the closing of the offering,
representing 1,350 Units purchased on the installment basis and 120 Units paid
in full. The limited partners' obligations to make the installment payments
were evidenced by promissory notes payable to the Partnership and secured by
their Units.
In accordance with the terms of the Partnership Agreement, the General
Partner purchased 20.5 Units from defaulting investors in 1990 and 1991.
Additionally, on July 15, 1995, a limited partner assigned one Unit to the
General Partner. As a result, the General Partner currently owns a total of
21.5 Units representing a 1.39% limited partnership interest in the
Partnership.
In October 1987, the Partnership began operations and executed a purchase
agreement with Marriott Corporation (the predecessor to Host Marriott) to
acquire the Hotels and the land on which certain of the Hotels are located for
a total price of $643.1 million. Of the total purchase price, $507.9 million
was paid in cash from the proceeds of the mortgage financing and sale of the
Units, $40.2 million from assumption of industrial development revenue bond
financing from Marriott Corporation and $95 million from a note payable to
Marriott Corporation. Twenty of the Hotels were conveyed to the Partnership in
1987, 34 Hotels in 1988, 12 Hotels in 1989 and the final four Hotels during
the first half of 1990.
Under the purchase agreement, Marriott Corporation agreed to reduce the
purchase price of the Hotels by up to $9.3 million if the Hotels did not
provide cash flow in excess of debt service, as defined, equivalent to $9.3
million in 1989. The required price adjustment for 1989 was $8,843,000.
The Hotels are managed as part of the Courtyard by Marriott hotel system
under a long-term management agreement with Courtyard Management Corporation
(the "Manager"), currently a wholly owned subsidiary of Marriott
International. For a description of certain terms of the management agreement,
see "--Certain Transactions with the Partnership--Management Agreement" below.
On January 24, 1996, the Partnership completed a refinancing of its existing
debt through private placements of $127.4 million of senior secured notes and
$410.2 million of multi-class commercial mortgage pass-through certificates.
In connection with the refinancing, the limited partners approved certain
amendments to the Partnership Agreement and the management agreement. The
Partnership Agreement amendments, among other things, allowed the formation of
certain subsidiaries of the Partnership. As part of the refinancing, the
Hotels were transferred to wholly owned subsidiaries of the Partnership and
the management agreement was amended in various respects (as so amended, the
"Management Agreement").
The Abandoned 1997 Rollup Transaction. In late 1997, the Partnership and
five other Marriott partnerships that own limited service hotels explored a
potential transaction involving the formation of an "umbrella partnership real
estate investment trust," or UPREIT, that would acquire the limited service
hotels owned by the six partnerships. The transaction was intended to provide
the limited partners in the six partnerships with liquidity and the
opportunity to participate in a public entity with growth potential. As a
result of conditions in the market for limited service hotels, the transaction
was abandoned.
10
<PAGE>
The Unsuccessful Sales Effort. The 1986 Confidential Private Placement
Memorandum relating to the original sale of the Units had contained financial
projections for the Partnership, including a scenario that assumed the sale of
the Hotels in 2001. In mid-1998, the Partnership and four other Marriott
partnerships retained Merrill Lynch, Pierce, Fenner & Smith Incorporated
("Merrill Lynch") as their financial advisor to explore the possibility of
sales of these Marriott partnerships, on a portfolio or individual basis, in
an effort to provide liquidity to limited partners and help them realize the
value of their investments. More than 70 prospective purchasers were
contacted, and certain financial information concerning the Partnership was
made available to a number of them for their review and analysis on a
confidential basis. Although the Partnership received several indications of
interest, due to the large number of Hotels in the Partnership, many
prospective purchasers did not have the ability to consummate a transaction of
this size. The Partnership had preliminary discussions with a group consisting
of persons and entities affiliated with The Blackstone Group, L.P. and
Blackstone Real Estate Associates, L.P. (collectively, the "Blackstone
Entities"), which submitted the most attractive proposal. However, this
proposal was never formalized and an agreement in principle was never reached
in part because of downward revisions in the Manager's budgeted operating
results for the Partnership's Hotels and the Blackstone Entities' resulting
re-evaluation of their own internal projections.
The Litigation. The Settlement Agreement is intended to resolve lawsuits
brought on behalf of limited partners in the Partnership, as well as lawsuits
on behalf of partners in six other partnerships (the "Marriott Partnerships").
On June 7, 1996, certain limited partners of the Partnership filed a lawsuit,
styled Whitey Ford, et al. v. Host Marriott Corporation, et al., Case No. 96-
CI-08327, in the 285th Judicial District Court of Bexar County, Texas (the
"Court") against Host Marriott, Marriott International, various related
entities, and others (collectively, the "Courtyard II Defendants"). On January
29, 1998, two other limited partners, A.R. Milkes and D.R. Burklew, filed a
petition to expand this lawsuit (the "Milkes Litigation") into a class action.
On June 23, 1998, the Court entered an order certifying a settlement class of
limited partners under Texas law in the Milkes Litigation, consisting of all
limited partners that were Unitholders as of January 31, 1998 or March 9,
2000, excluding the Courtyard II Defendants, the Insiders and two groups of
limited partners that elected to opt out of the Milkes Litigation and
intervene and are represented by separate counsel--Palm Investors, LLC and
several Equity Resource Funds (the "Intervenors"). In addition, the settlement
class consists of persons who were named as plaintiffs in the Milkes
Litigation and sold their Units but did not assign their litigation claims.
The plaintiffs in this lawsuit alleged, among other things, that the Courtyard
II Defendants committed fraud, breached fiduciary duties, and violated the
provisions of various contracts.
On March 16, 1998, limited partners in several other Marriott Partnerships
filed a lawsuit, styled Robert M. Haas, Sr. and Irwin Randolph Joint Tenants,
et al. v. Marriott International, Inc., et al., Case No. 98-CI-04092, in the
57th Judicial District Court of Bexar County, Texas against Marriott
International, Host Marriott, various of their subsidiaries, various
individuals, and Hospitality Valuation Services, Inc. (collectively, the "Haas
Litigation Defendants" and, together with the Courtyard II Defendants, the
"Defendants"). This lawsuit now relates to the following Marriott
Partnerships: Courtyard by Marriott Limited Partnership, Marriott Residence
Inn Limited Partnership, Marriott Residence Inn II Limited Partnership,
Fairfield Inn by Marriott Limited Partnership, Host DSM Limited Partnership
(formerly known as Desert Springs Marriott Limited Partnership) and Atlanta II
Limited Partnership (formerly known as Atlanta Marriott Marquis Limited
Partnership) (the "Haas Litigation" and, together with the Milkes Litigation,
the "Litigation"). The plaintiffs in the Haas Litigation alleged, among other
things, that the defendants in that lawsuit conspired to sell hotels to those
Marriott Partnerships at inflated prices and that they charged excessive
management fees to manage the hotels owned by those partnerships. They also
alleged that the Haas Litigation Defendants committed fraud, breached
fiduciary duties, and violated the provisions of various contracts. Following
execution of the Settlement Agreement, counsel to the class action plaintiffs
in the Haas Litigation and counsel for the Haas Litigation Defendants jointly
moved the Court to have the Haas Litigation designated as a "complex" case and
to transfer the case to the Honorable Michael Peden who was already presiding
over the Milkes Litigation. As a result, on March 13, 2000 Judge David A.
Berchelmann of the 57th Judicial District Court of Bexar County, Texas
assigned the Haas Litigation to Judge Michael Peden in the 285th Judicial
District Court of Bexar County, Texas, to hear and consider all matters
pertaining to the Haas Litigation.
The Defendants in both the Milkes Litigation and the Haas Litigation have
filed answers denying the allegations and asserting various defenses,
including the statutes of limitations.
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<PAGE>
The Negotiations. The Settlement is the result of negotiations in connection
with the Milkes and the Haas Litigation that took place over the course of one
year. The parties to the Settlement Agreement engaged in extensive settlement
negotiations and explored numerous preliminary settlement strategies during
the course of the Litigation. In March 1999, the parties proposed to retain a
mediator, and in April 1999, Mr. Finis Cowan, a former federal district judge,
was retained to mediate the dispute. During the summer of 1999, several
mediation sessions were held, both in Houston, Texas and Washington, D.C., at
which representatives of all the parties to the Litigation and their
respective counsel were present. These sessions focused primarily on various
proposed partnership restructurings and cash payments. During these
negotiations, the parties strongly disagreed on the asserted value of the
claims. As no settlement appeared imminent, the parties continued to prepare
diligently for the trial, which was scheduled for February 2000.
On August 27, 1999, the General Partner, in accordance with Section 17-
403(c) of the Delaware Revised Uniform Limited Partnership Act (the
"Partnership Act"), appointed an independent Special Litigation Committee
consisting of The Honorable William H. Webster and The Honorable Charles B.
Renfrew, to investigate, review, and analyze, on behalf of the Partnership,
the facts and circumstances surrounding the derivative claims asserted in the
Milkes Litigation and decide what action the Partnership should take with
respect to such claims. William H. Webster, a partner at the law firm of
Milbank, Tweed, Hadley & McCloy LLP in its Washington, D.C. office, served as
a Judge of the United States District Court for the Eastern District of
Missouri from 1970 until 1973, when he was elevated to the United States Court
of Appeals for the Eighth Circuit. From 1978 until 1987, Mr. Webster served as
Director of the Federal Bureau of Investigation. From 1987 until 1991, he
served as Director of Central Intelligence, where he headed all the foreign
intelligence agencies of the United States and the Central Intelligence
Agency. Charles B. Renfrew, who currently operates law offices under his own
name and practiced at two major U.S. law firms prior to that, served as a
Judge of the United States District Court for the Northern District of
California from 1972-80 and as Deputy Attorney General of the United States
from 1980-81. The general partner of Courtyard by Marriott Limited Partnership
appointed the same persons to serve as a special litigation committee to
investigate the derivative claims asserted in the Haas Litigation. The Special
Litigation Committee retained, as its counsel, Richard C. Tufaro and the law
firm of Milbank, Tweed, Hadley & McCloy, LLP to assist in its investigation
and review.
In January 2000, counsel for the Special Litigation Committee met in
Houston, Texas with Class Counsel in an effort to advance settlement
negotiations between the parties. The Special Litigation Committee believed
that it controlled the determination of the derivative claims and formed its
own views on the value of those claims and an appropriate settlement on behalf
of the Partnership and Courtyard by Marriott Limited Partnership
(collectively, the "Partnerships"). After telephonic conversations between the
Special Litigation Committee's counsel and the Defendants and their counsel,
on February 4, 2000, the parties to the Litigation and their respective
counsel met in Washington, D.C. with the Special Litigation Committee. The
negotiations lasted all day at the office of the Special Litigation
Committee's counsel. It was at this settlement meeting that a settlement
strategy involving a proposed sale of the units of limited partnership
interest in the Partnerships to the Defendants was raised. Class Counsel,
after consultation with its representative clients, viewed the proposal
favorably because it provided an exit strategy and liquidity--two significant
factors desired by the class action plaintiffs.
During the negotiations, liquidation of the Partnership was never seriously
considered because, in order to liquidate the Partnership, the Partnership
would have to sell its assets, consisting of the Hotels. Although, during
Merrill Lynch's unsuccessful efforts to sell the Partnership, a preliminary
nonbinding proposal was received from the Blackstone Entities to acquire all
of the equity of the Partnership at a price equivalent to approximately
$64,000 per Unit, this proposal was never formalized and an agreement in
principle was never reached in part because of downward revisions in the
Manager's budgeted operating results for the Partnership's Hotels and the
Blackstone Entities' resulting re-evaluation of their own internal
projections. See "--The Merger--Rights of Unitholders Who Have Elected to Opt
Out of the Settlement."
During February 2000, numerous telephonic settlement negotiations took place
in an attempt to define the parameters of an acceptable Unit repurchase and
litigation settlement strategy. Throughout this time, Class Counsel was
meeting with its clients, advisors and with counsel to the Special Litigation
Committee to discuss various proposed settlement terms. Similarly, the
Defendants and their respective counsel and advisors continued
12
<PAGE>
to have internal discussions and discussions with counsel to the Special
Litigation Committee regarding the resolution of the Litigation. Additional
meetings were held in Houston in February 2000, culminating in the execution
of a non-binding settlement term sheet on February 23, 2000.
During the settlement process, Class Counsel, counsel to the Special
Litigation Committee, and their respective experts and advisors, or some of
them: (1) obtained additional financial material regarding all of the Marriott
Partnerships; (2) reviewed information regarding the attempted sale of the
Partnerships by Merrill Lynch, including the names of the 70 prospective
purchasers and the terms and conditions of the proposals submitted; (3)
interviewed and deposed a representative of Merrill Lynch; (4) reviewed the
terms of the secondary market purchases of units of limited partnership
interest in the Partnerships; and (5) performed such other reviews and
analyses as they deemed appropriate. The financial information relating to the
Partnership made available to Class Counsel, counsel to the Special Litigation
Committee, and their respective experts and advisors included historical
operating statements of the Partnership showing historical revenues and
expenses, and budgets for the Partnership's Hotels prepared by the Manager.
During the settlement process, the General Partner, Host LP and Marriott
International had available historical operating statements of the Partnership
showing historical revenues and expenses, and budgets for the Partnership's
Hotels prepared by the Manager.
Further settlement negotiations followed, resulting in the execution of the
Settlement Agreement by the Defendants, Class Counsel, the Intervenors and the
Special Litigation Committee on March 9, 2000.
Fees. If the Purchase Offer and the Merger are consummated, the Joint
Venture will pay Merrill Lynch a fee in accordance with the terms of its
engagement letter entered into in mid-1998 in connection with its sales
efforts.
The Settlement Agreement
Insofar as it relates to the limited partners in the Partnership, the
Settlement Agreement provides for a two-step process to effectuate the
Settlement, consisting of the Purchase Offer and the Merger on the terms and
conditions set forth elsewhere in this Purchase Offer and Consent
Solicitation.
The Settlement Agreement provides that the Joint Venture, Host Marriott,
Rockledge and Marriott International, or their designees, will deposit the
settlement funds (the "Settlement Fund") with respect to the Milkes Litigation
(an aggregate amount of $214,318,612 reduced by $147,959 for each Unit held by
a Unitholder who opts out of the Settlement and further reduced by any amounts
owed by Unitholders on the original purchase price of their Units) in escrow
with Chase Bank of Texas, N.A., which has been retained by Class Counsel to
act as escrow agent for the Settlement Fund (the "Escrow Agent"), within three
business days after the Court enters a judgment order approving the Settlement
Agreement. If the judgment order becomes final without an appeal (other than
an appeal that relates solely to counsel fees and expenses), then the Escrow
Agent will be authorized to make distributions within seven business days
after the date on which the judgment order becomes final (such date, the
"Effective Date") of an amount equal to $147,959 per Unit (or a pro rata
portion thereof) in cash to limited partners who have submitted valid Proofs
of Claim on or before the Effective Date. If the Court approves legal fees and
expenses of approximately $29,000 per Unit to Class Counsel, the net amount
that each Unitholder that is a class member in the Milkes Litigation will
receive is approximately $119,000 per Unit (or a pro rata portion thereof)
(the "Net Settlement Amount"). The Net Settlement Amount to be received by any
Unitholder will be reduced by any amount owed by the holder on the original
purchase price of his or her Units. The Escrow Agent will be authorized to
make distributions of the Net Settlement Amount to limited partners who submit
valid Proofs of Claim after the Effective Date within seven days after receipt
of their Proofs of Claim. If a class action plaintiff has not submitted a
valid Proof of Claim to the Claims Administrator within 90 days following the
Effective Date and such plaintiff has not opted out of the Settlement, Class
Counsel will execute a Proof of
13
<PAGE>
Claim on behalf of that limited partner. The execution of the Proof of Claim
by Class Counsel on behalf of a limited partner will entitle the limited
partner to receive the Net Settlement Amount for each Unit held by such
limited partner and release, on behalf of such limited partner, all claims
that are released, settled and discharged as part of the Settlement as
provided in the Proof of Claim.
Under the terms of the Settlement Agreement, the Defendants have agreed
that, in the event that 60 days after execution of the Settlement Agreement
all third-party lender and other consents necessary to consummate the
Settlement Agreement (other than the consents that constitute conditions to
the Purchase Offer and the Merger) had not been obtained, they would pay
interest on the settlement funds with respect to the Litigation from the 61st
day forward at the rate set forth in the Settlement Agreement until such
third-party lender and other consents are obtained. As of August , 2000, not
all of such consents have been obtained and approximately $ million in
interest accrued on the Settlement Fund. See "--Conditions of the Purchase
Offer and the Merger." Upon receipt by the Partnership of the necessary third-
party consents, the interest will cease to accrue. In addition, additional
interest may accrue following the final approval hearing of the Court. The
accrued interest, less certain expenses relating to the Escrow Agent and the
Claims Administrator and less any fees that may be awarded by the Court to
Class Counsel, inures to the benefit of all Unitholders (except for those
Unitholders who elect to opt out of the Settlement). Class Counsel intends to
request the Court for a portion of the interest that has accrued on the
Settlement Fund in an amount equal to the interest that has accrued on that
portion of the Settlement Fund that the Court grants to Class Counsel as
attorneys' fees and expenses. See "--Source and Amount of Funds."
By execution and delivery of a Proof of Claim, you will be granting a
release of any and all claims, whether known or unknown, relating to the
purchase and sale of Units, the operation of the Partnership or management of
the Hotels, and other related matters, as set forth in greater detail in the
Proof of Claim. Pursuant to a Proof of Claim delivered prior to the Expiration
Date, you will also transfer your Units to the Purchaser, free and clear of
any liens or encumbrances. If you do not opt out of the settlement class, you
will also be deemed to have granted such a release by virtue of the judgment
order, even if you fail to execute and deliver a valid Proof of Claim.
The Courtyard II Defendants have agreed with the Intervenors to pay $147,959
per Unit in the Purchase Offer pursuant to the same Settlement Agreement
entered into with Class Counsel. The Intervenors have agreed to grant releases
to the Courtyard II Defendants as provided in the Proofs of Claim and to pay
their own counsel fees and expenses. The Intervenors have also agreed to
exercise their best efforts to accomplish the terms and conditions of the
Settlement Agreement and, accordingly, are expected to tender their Units in
the Purchase Offer and to consent to the Merger and the Amendments. Insiders
who own Units also are not members of the plaintiff class in the Milkes
Litigation. They will receive $147,959 per Unit tendered in the Purchase
Offer. If any of the persons discussed in this paragraph who are not members
of the settlement class in the Milkes Litigation do not tender their Units,
their Units will be converted in the Merger in the same manner as Units held
by other Unitholders who have not opted out of the Settlement.
Upon the terms and subject to the conditions of the Purchase Offer and the
Merger, payment for the Units (other than Units held by holders who have opted
out of the Settlement) will be made by deposit of the consideration therefor
with the Escrow Agent. Upon deposit of the Settlement Fund with respect to the
Milkes Litigation with the Escrow Agent for the purpose of making payment to
the Partnership's validly tendering Unitholders, the Purchaser's obligation to
make such payment shall be satisfied and such tendering Unitholders must
thereafter look solely to Class Counsel and the Escrow Agent for payment of
the amounts owed to them by reason of acceptance for payment of Units pursuant
to the Purchase Offer or the Merger. The Defendants in the Litigation have no
responsibility for or liability whatsoever with respect to the investment or
distribution of the Settlement Fund, the determination, administration,
calculation or payment of claims, or any losses incurred in connection
therewith, or with the formulation or implementation of the plan of allocation
of the Settlement Fund, or the giving of any notice with respect to the same.
If you or any other plaintiffs file an appeal of the judgment order (other
than an appeal that relates solely to counsel fees and expenses), the Escrow
Agent will return the Settlement Fund, with interest, to the Joint Venture,
Host Marriott, Rockledge and Marriott International, or their designees,
within two days after receiving
14
<PAGE>
documentation of the event. If an order of an appellate court affirming the
judgment order subsequently becomes final, then the Joint Venture, Host
Marriott, Rockledge and Marriott International, or their designees, will
return the Settlement Fund to the Escrow Agent within three business days
thereafter, without interest.
The Settlement Agreement provides that the limited partners of the
Partnership will continue to own their respective Units until the judgment
order becomes final. The General Partner will cause the Partnership to make
distributions of Cash Available for Distribution (as defined in the
Partnership Agreement) for the period until the judgment order is entered.
Following entry of the judgment order, and until the judgment order becomes
final, assuming there is no appeal, no additional distribution of Cash
Available for Distribution will be made, but the limited partners will be
entitled to receive interest accumulated on the Settlement Fund, less
administrative expenses. If an appeal is filed, the General Partner will cause
the Partnership to make distributions of Cash Available for Distribution for
the period until the judgment order becomes final.
There may be a delay in such distribution to the extent the judgment order
becomes final in the middle of an accounting period or the General Partner is
otherwise unable to finally determine the amount of the distribution prior to
the judgment order becoming final.
Position of Marriott International, MI Investor, Rockledge, Host Marriott,
Host LP, the Joint Venture and the Purchaser Regarding Fairness
The following position of Marriott International, MI Investor, Rockledge,
Host Marriott, Host LP, the Joint Venture and the Purchaser regarding the
fairness of the Purchase Offer and the Merger are included herein pursuant to
the requirements of Rule 13e-3 promulgated under the Securities Exchange Act
of 1934 (the "Exchange Act") and should not be construed by you as a
recommendation by any of these entities to tender your Units in the Purchase
Offer or consent to the Merger and the Amendments. In reviewing the following
discussion, you should take into account the conflicts of interest of these
persons described under "--Certain Transactions with the Partnership."
Marriott International, MI Investor, Rockledge, Host Marriott, Host LP, the
Joint Venture and the Purchaser believe that the Purchase Offer and the Merger
are fair to the unaffiliated limited partners of the Partnership, based on the
factors set forth below:
(1) The purchase price of $147,959 per Unit (a) exceeds the going concern
value of the Units, described below, as estimated by Host LP, Host
Marriott, the General Partner and Rockledge (the "Host Parties"), (b)
exceeds any proposal received during a comprehensive attempt to sell the
Hotels conducted by Merrill Lynch in 1998 and 1999, including the proposal
of approximately $64,000 per Unit that was received by the Partnership from
the Blackstone Entities, and (c) exceeds the average trading price of the
Units in 1999 in private market transactions.
(2) In connection with the Purchase Offer and the Merger, limited
partners who do not affirmatively opt out of the settlement class are
releasing the claims asserted in the Milkes Litigation, which the
Defendants believe have no merit and have therefore contested. There is
substantial uncertainty as to whether the limited partners would recover
any value from the claims if the Milkes Litigation were to go to trial.
Defendants therefore considered the risks of litigation to all parties, the
existence of legal defenses that might defeat the claims in whole or in
part, the appeal process and the delay in any recovery to the plaintiffs
even in the event of a verdict favorable to the plaintiffs in the trial
court, and the possibility that any verdict in favor of plaintiffs would be
reversed on appeal. Because the purchase offer price per Unit exceeds the
value of the Units as estimated by Rockledge, Host Marriott and Host LP, a
portion of the purchase offer price represents an amount relating to the
value of the settlement of the claims asserted in the Milkes Litigation;
(3) The fact that the consummation of the Purchase Offer and the Merger
requires the approval of a majority of the limited partners (other than
affiliates) in the form of a consent to the Merger and the Amendments;
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<PAGE>
(4) The Purchase Offer and the Merger provide the limited partners an
opportunity to realize the value of their Units for which there is not an
existing active trading market;
(5) Neither the General Partner, the Purchaser, the Joint Venture,
Marriott International, MI Investor, Rockledge, Host Marriott nor Host LP
has made or will make an assessment of the liquidation value of the Units
in connection with the negotiation of the Settlement or the determination
of the fairness of the Purchase Offer and the Merger. Any liquidation of
the Partnership would have required the sale of the Hotels, but, based on
the unsuccessful attempt to do so in 1998 and 1999, it appeared that such a
sale was not feasible on terms acceptable to the Partnership;
(6) The terms of the Settlement (including the terms of the Purchase
Offer and the Merger) were the result of extensive arms' length
negotiations between Class Counsel, the Intervenors, the Defendants and the
Special Litigation Committee;
(7) The fact that holders of Units who do not want to participate in the
Settlement (and, therefore, do not tender their Units in the Purchase
Offer) have the right to opt out of the Settlement, to pursue their
individual claims outside of the settlement class and to have the value of
their Units appraised in the Merger pursuant to an appraisal mechanism set
forth in the Merger Agreement, much the way dissenting shareholders are
afforded appraisal rights under Delaware corporate law;
(8) The fact that the fairness of the Settlement, including the terms of
the Purchase Offer and the Merger, is subject to Court approval;
(9) The right of the limited partners who do not opt out of the
settlement class to appear at the final hearing to determine the fairness
of the Settlement and oppose the Settlement or the fees and expenses
requested by Class Counsel in connection therewith; and
(10) The determination of the Special Litigation Committee appointed for
the Partnership by the General Partner that the terms of the Settlement
(which include the Purchase Offer and the Merger) (a) are fair and
reasonable to the Partnership (which the Special Litigation Committee
considered, as a practical matter, to have an identity of interest with the
limited partners with respect to the derivative claims in the Milkes
Litigation), and (b) include a fair and reasonable settlement of any and
all derivative claims, expressed or implied, made on behalf of the
Partnership in the Milkes Litigation.
In making the determination described in paragraph (1)(a) above, the Host
Parties are relying on the Host Parties' own internally prepared estimates of
the value of the Units on a going concern basis. In making these estimates,
the Host Parties used a discounted cash flow method for future cash available
for distribution to the equity owners of the Partnership after debt service
and management fees and owner-funded capital expenditures.
The estimated values range from $55,075 per Unit, using a discount rate of
30%, to $69,459 per Unit, using a discount rate of 25%, and $89,455 per Unit,
using a discount rate of 20%.
The methodology and the numerical assumptions used to derive the estimated
range of values are described below. The foregoing projections were prepared
by the Host Parties solely for purposes of the determination of fairness
required by applicable SEC rules, and not with a view to compliance with the
published guidelines of the Securities and Exchange Commission or the
guidelines established by the American Institute of Certified Public
Accountants regarding projections and forecasts and are included in this
Purchase Offer and Consent Solicitation only for informational purposes.
Neither the Partnership's independent auditors, nor any other independent
accountants, have examined, compiled or applied any procedures with respect to
this data, nor have they expressed any opinion or given any kind of assurance
thereon. While presented with numerical specificity, this projected data is
based upon a variety of assumptions relating to the business of the
Partnership which may not be realized and is subject to significant
uncertainties and contingencies, all of which are difficult or impossible to
predict and many of which are beyond the control of the Partnership and,
therefore, this projected data is inherently imprecise and subject to
substantial uncertainty, and there can be no assurance that projected
financial results or any valuation assumed therein will be realized. It is
expected that there will be a difference between actual and estimated or
projected results and actual results may vary materially from those shown. The
estimates contained in the projected data and the valuation ranges resulting
therefrom do not
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<PAGE>
necessarily indicate actual values or predict future results or values, which
may be significantly more or less favorable than those suggested by this
analysis. In addition, analyses relating to the value of the Units are not
appraisals and do not reflect the prices at which the Units or the Hotels may
actually be sold. We do not intend to update, correct or otherwise revise the
foregoing projections to reflect circumstances existing after the date when
prepared or to reflect the occurrence of future events, even in the event that
any or all of the assumptions underlying the foregoing projections are shown
to be in error.
The following paragraphs describe the methodology and assumptions used to
derive the estimated range of values stated above.
. Estimated Future Cash Distributions. The Host Parties prepared estimates
of future partnership cash flow for the Partnership for the 8-year
period from January 1, 2000 through December 31, 2007 based upon the
actual sales and net house profit (which represents sales less hotel
operating expenses, base management fees, system fees, chain services
fees, capital expenditure reserves, property taxes, insurance, and
ground rent) for the first two fiscal quarters of 2000, estimated sales
and net house profit included in the Manager's budget for the remainder
of fiscal year 2000, and estimated sales and net house profit for each
subsequent year in the projection period, assuming an average annual
growth rate for both sales of and net house profit of 2.3%, which growth
rates were based on discussions with the Manager.
For each year in the projection period, the Host Parties estimated the
amount of cash available for distribution to limited partners after
payment of all management fees, debt service, owner-funded capital
expenditures, and other partnership expenses and after application of
the applicable partnership agreement and management agreement
provisions. For purposes of the valuation analysis, the aggregate amount
of capital expenditures estimated for the period 2000 to 2004 was equal
to the amount included in the Manager's capital budget for that period.
For years 2005 to 2007, the Host Parties assumed annual owner-funded
capital expenditures equal to 1.5% of sales.
. Determination of Residual Value. To estimate the residual value of the
limited partners' interest in the Partnership at the end of the 8-year
period, the Host Parties assumed that the Partnership's Hotels would be
sold as of December 31, 2007 at their then market value. The Host
Parties estimated the market value of the portfolio of Hotels as of such
date by applying an exit capitalization rate of 12.0% to an amount equal
to estimated net house profit for 2007 less incentive management fees
and owner-funded capital expenditures. The Host Parties then subtracted
estimated sales costs equal to 2.0% of the estimated market value and
subtracted the estimated outstanding principal balance of debt as of
December 31, 2007 to arrive at net sales proceeds available for
distribution to partners. The Host Parties then determined what portion
of such estimated net sales proceeds would be distributable to the
Partnership's limited partners and general partner under the partnership
agreement. The Host Parties selected a 12.0% exit capitalization rate,
which in their experience is the implied capitalization rate in sales of
hotel properties generally, and selected a rate that they believed to be
appropriate based on the age of the Partnership's Hotels, their relative
quality of construction, and the competitive environment in which
limited service hotels operate. The Host Parties also noted that the
12.0% capitalization rate was comparable to the rate implied in the
proposal received from the Blackstone Entities in 1999.
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The following table summarizes the foregoing calculations of the residual
value of the limited partners' interest in the Partnership (dollars in
thousands, except per Unit amounts):
<TABLE>
<S> <C>
2007 Net house profit (est.)................................ $108,485
Less: Incentive management fees (est.)...................... (16,273)
Less: Owner funded capital expenditures (est.).............. (5,269)
--------
Capitalized cash flow..................................... $ 86,943
========
Estimated gross portfolio sale price (12.0% capitalization
rate)...................................................... $724,526
Less:
Transaction costs (2%).................................... (14,491)
Mortgage debt............................................. (180,272)
Senior notes.............................................. (127,400)
--------
Net sales proceeds....................................... $402,364
========
Partners' shares:
Limited partners.......................................... $332,725
General partner........................................... $ 69,639
Per LP Unit (1,470 Units)................................... $226,343
</TABLE>
. Discounting Distributions to Present Value. As a final step, the Host
Parties discounted the estimated future cash distributions to the
limited partners from operations and estimated net sales proceeds to
their present value as of January 1, 2000, using discount rates ranging
from 20% per annum to 30% per annum. The Host Parties believe that these
discount rates reflect the range of return on investment that investors
expect from leveraged investments in hotel limited partnerships. The
Host Parties believe that a discount rate in the lower to middle portion
of this range would be most appropriate for this hypothetical valuation,
because of the amount of leverage of the Partnerships, the age of the
Partnership's Hotels, and the competitive environment in which limited
service hotels operate. The following table sets forth the range of
values that resulted by discounting the future distributions to limited
partners to their present value:
<TABLE>
<CAPTION>
Discount Rate
-------------------------
20% 25% 30%
-------- -------- -------
<S> <C> <C> <C>
Net present value of distributions:
Total (in thousands)....................... $131,498 $102,104 $80,961
======== ======== =======
Per LP Unit (1,470 Units).................. $ 89,455 $ 69,459 $55,075
======== ======== =======
</TABLE>
In late February and early-March, contemporaneously with the completion and
announcement of the Settlement Agreement, the Host Parties prepared a
valuation of the equity in the Joint Venture (which is acquiring the Units of
the Partnership) taking into account adjustments that will take effect after
the consummation of the Settlement. In preparing that post-settlement
valuation analysis, the Host Parties used the same average growth rates and
other hotel operating assumptions and the same residual value capitalization
rate as are used in their fairness analysis set forth above. The post-
settlement analysis, however, also gave effect to a number of post-settlement
adjustments, including the anticipated changes to the Management Agreement for
the Partnership and the additional indebtedness to be incurred by the Joint
Venture to acquire the Units. In the post-settlement valuation, the Host
Parties considered a range of discount rates from 25% to 30%. The estimated
value of the post-settlement equity interests in the Joint Venture for the
portion allocable to the Partnership was determined to be less than the
valuations set forth above.
Marriott International, MI Investor, the Host Parties the Joint Venture and
the Purchaser believe that the Purchase Offer and Merger are procedurally fair
to the unaffiliated limited partners in light of the factors set forth in (3),
(6), (7), (8), (9) and 10 above, and believe that the terms of the Purchase
Offer and the Merger are
18
<PAGE>
substantively fair to the unaffiliated limited partners in light of the
factors set forth in (1), (2), (4), (5) and (10) above. Marriott
International, MI Investor, the Host Parties, the Joint Venture and the
Purchaser assigned relatively more weight and importance to the comparison to
the estimated value of the Units described in paragraphs (1) and (2) above and
the procedural safeguards described in paragraphs (3), (6), (7), (8), (9) and
(10) above. In view of the wide variety of factors considered in connection
with their evaluation of the Purchase Offer and the Merger, Marriott
International, MI Investor, the Host Parties, the Joint Venture and the
Purchaser did not find it practicable to, and did not, otherwise quantify or
attempt to assign relative weights to the individual factors.
Each of Marriott International, MI Investor, Rockledge, Host Marriott, Host
LP, the Joint Venture and the Purchaser believes that the procedural
safeguards set forth in factors (3), (6), (7), (8), (9) and (10) above were
sufficient to ensure fairness of the transaction notwithstanding the absence
of an unaffiliated representative to act on behalf of the unaffiliated limited
partners.
The terms of the Purchase Offer and the Merger (as well as all of the other
terms of the Settlement Agreement) were established through extensive arms'
length negotiations between and among Class Counsel, the Defendants, the
Intervenors and the Special Litigation Committee and their respective counsel.
The board of managers of the General Partner, for and on behalf of the
Partnership, has approved the terms of the Settlement Agreement (including the
Purchase Offer and the Merger). All the members of the General Partner's board
of managers are employees of Host LP and Host Marriott.
The conflicts of interest of the parties were considered but determined by
the parties not to detract from the fairness of the transaction due to the
numerous procedural safeguards afforded the unaffiliated limited partners set
forth in factors (3), (6), (7), (8) and (9) above. In addition, the parties
considered that, following consummation of the Purchase Offer and the Merger,
the unaffiliated limited partners would not participate in any increases or
decreases in the Partnership's business or properties, but concluded that this
did not justify foregoing the opportunity for the limited partners to receive
an immediate and substantial cash purchase price for their Units and the
settlement of their litigation claims. The parties did not consider any other
negative factors in evaluating the fairness of the transaction.
Because the terms of the Purchase Offer and the Merger were negotiated in
the context of settlement of a class action lawsuit, Marriott International,
MI Investor, Rockledge, Host Marriott, Host LP, the Joint Venture and the
Purchaser did not additionally retain an unaffiliated representative to act
solely on behalf of unaffiliated limited partners for the purpose of
negotiating the terms of the Purchase Offer and the Merger. Instead, the
limited partners were represented by multiple law firms approved by the Court
as appropriate counsel to represent the limited partners, and the Partnership
was represented by those same attorneys (who filed derivative claims on behalf
of the Partnerships) and by the Special Litigation Committee.
Position of the General Partner, Marriott International, MI Investor,
Rockledge, Host Marriott, Host LP, the Joint Venture and the Purchaser
Regarding the Purchase Offer and the Merger
The General Partner, Marriott International and Host Marriott are Courtyard
II Defendants and therefore have a conflict of interest. None of Marriott
International, MI Investor, Rockledge, Host Marriott, Host LP, the Joint
Venture, the Purchaser or the General Partner makes any recommendation with
respect to the Purchase Offer, the Merger, the Amendments, or the other terms
of the Settlement Agreement, including as to whether any Unitholder should
tender or to refrain from tendering his or her Units. YOU MUST EACH MAKE YOUR
OWN DECISION WHETHER OR NOT TO TENDER YOUR UNITS IN THE PURCHASE OFFER AND
WHETHER OR NOT TO CONSENT TO THE MERGER AND THE AMENDMENTS.
Determination of the Special Litigation Committee and Recommendation of
Counsel to the Class Action Plaintiffs
On August 27, 1999, the General Partner, in accordance with Section 17-
403(c) of the Partnership Act, appointed an independent Special Litigation
Committee to investigate, review, and analyze, on behalf of the Partnership,
the facts and circumstances surrounding the derivative claims asserted in the
Milkes Litigation and
19
<PAGE>
decide what action the Partnership should take with respect to such claims.
With respect to the evaluation and disposition of the derivative claims in the
Milkes Litigation, no limitation was placed on the Special Litigation
Committee by the General Partner.
The Special Litigation Committee engaged the law firm of Milbank, Tweed,
Hadley & McCloy LLP to act as counsel and assist in the investigation. The
Special Litigation Committee also retained the law firm of Bouchard
Friedlander & Maloneyhuss, P.A. to advise on matters of Delaware law and
Jackson & Walker LLP to advise on matters of Texas law. In addition to these
three law firms, the Special Litigation Committee retained experts, Cushman
Realty Corporation and Maurice Robinson & Associates, LLC (the "Advisors"), to
assist in analyzing the claims. The Special Litigation Committee selected the
Advisors based on their knowledge of the real estate or hotel industries. The
Advisors, as part of their analysis of the Milkes Litigation, performed an
analysis of the damages claimed by the plaintiffs in the Milkes Litigation.
This analysis focused on calculating a range of damages based on various
scenarios using the historical financial information of the Partnership and
projections, and assumptions underlying such projections, contained in the
Confidential Private Placement Memorandum relating to the original sale of the
Units in 1986. The analysis was provided to counsel to the Special Litigation
Committee and used by such counsel in connection with legal advice to the
Special Litigation Committee.
The Special Litigation Committee advised the General Partner orally of its
conclusions and did not prepare a report on its findings. However, the Special
Litigation Committee is a party to the Settlement Agreement, which contains
statements of the Special Litigation Committee's conclusions.
The Special Litigation Committee, its counsel and the Advisors are and were
unaffiliated with the Partnership and have no relationship with the
Partnership other than in connection with the Litigation.
After extensive analysis of the factual and legal issues, the Special
Litigation Committee concluded that the terms of the proposed Settlement (1)
are fair and reasonable to the Partnership (which the Special Litigation
Committee considers, as a practical matter, to have an identity of interest
with the limited partners with respect to the derivative claims in the Milkes
Litigation) and (2) include a fair and reasonable settlement of any and all
derivative claims, expressed or implied, made on behalf of the Partnership in
the Milkes Litigation. The Special Litigation Committee has advised the
Partnership it considered the following factors in determining that the
proposed Settlement is fair and reasonable:
(1) the Settlement fairly reflects the substantial risks of litigation to
the Partnership and the limited partners;
(2) the Settlement fairly accounts for the inherent value of the Units
based upon market tested offers to purchase the Partnership obtained by
Merrill Lynch in the summer of 1999;
(3) holders of Units who do not want to participate in the Settlement may
opt out of the Settlement and have the value of their Units appraised and
pursue their individual claims separately;
(4) the fairness of the Settlement is subject to Court approval;
(5) the Settlement requires the approval of the limited partners holding
a majority of the Units in the form of a consent to the Merger and the
Amendments;
(6) limited partners who do not opt out of the class may appear at the
hearing to determine the fairness of the Settlement and oppose the
Settlement;
(7) the lack of an existing active trading market for the Units;
(8) the terms of the Settlement were the result of extensive arms' length
negotiations between Class Counsel and the Defendants; and
(9) the advice of independent financial experts, Cushman Realty
Corporation and Maurice Robinson & Associates, LLC, retained by the Special
Litigation Committee in connection with the investigation.
In addition, Class Counsel has recommended to its clients that they approve
the Settlement by tendering their Units in the Purchase Offer and consenting
to the Merger and the Amendments. Class Counsel has
20
<PAGE>
determined that the Settlement represents a fair, reasonable and attractive
settlement. Class Counsel came to this conclusion after engaging in extensive
investigation and discovery on the claims asserted in the Milkes Litigation
that lasted over eighteen months. According to documents filed with the Court,
the investigations and discovery conducted by Class Counsel included:
(1) inspecting thousands of pages of documents produced by the Defendants
in the Litigation and by third parties;
(2) deposing numerous present and former employees of the Defendants in
the Litigation;
(3) deposing plaintiffs;
(4) deposing third party witnesses;
(5) employing and consulting with experts, including reviewing and
producing expert reports and attending and taking expert depositions;
(6) reviewing public and on-line filings; and
(7) researching applicable legal issues with respect to the claims
asserted in the Milkes Litigation.
According to documents filed with the Court, Class Counsel, based on its
collective experience in handling hundreds of limited partnership claims,
believes that the Settlement confers substantial benefits upon the class and
each member of the class and is in the best interests of the class members.
Purpose and Structure of the Purchase Offer; Merger and Amendments
The purpose of the Purchase Offer and the Merger is to fulfill the
obligations of Marriott International, Host Marriott and Rockledge under the
Settlement Agreement. See "--The Settlement Agreement." The acquisition of the
Units has been structured as a cash purchase offer followed by a merger in
order to ensure that all of the Units are acquired, to permit different
consideration for Unitholders that participate in the Settlement and
Unitholders that elect to opt out of the Settlement, and to provide for a
majority vote on the Merger and the Amendments.
The Settlement Agreement and the Merger Agreement provide that, if the
judgment order approving the Settlement becomes final, Unitholders who fail to
tender their Units, other than Unitholders who opt out of the Settlement, will
receive the same consideration in the Merger as Unitholders whose Units are
purchased in the Purchase Offer. If the judgment order approving the
Settlement becomes final, each holder of Units who has opted out of the
Settlement will be entitled to receive a cash amount per Unit determined
through an appraisal process set forth in the Settlement Agreement and the
Merger Agreement, but such appraised amount will not include any amount
representing the value of the settlement of the claims that were asserted in
the Milkes Litigation. See "--The Merger."
Conditions of the Purchase Offer and the Merger
Notwithstanding any other provisions of the Purchase Offer and Consent
Solicitation, the Purchaser is not obligated to accept for payment, purchase
or pay for, subject to Rule 14e-1(c) under the Exchange Act, any Units
tendered, or to consummate the Merger, unless the following conditions are
satisfied:
(1) the order of the Court approving the terms of the Settlement and the
dismissal of the Litigation shall have become final (other than by reason
of an appeal relating solely to counsel fees and expenses),
(2) not more than ten percent of the Units in the Partnership and not
more than ten percent of the units of limited partnership interest in any
one of the other six Marriott Partnerships involved in the Settlement
(other than Units held by Insiders) shall be held by holders who have
elected to opt out of the Settlement,
(3) holders of a majority of the outstanding units of limited partnership
interest in each of the Partnership and Courtyard by Marriott Limited
Partnership (other than the general partners of these partnerships and
their affiliates) shall have submitted valid written consents to each
Partnership's merger,
(4) holders of a majority of the limited partnership interest in each of
the Partnership and Courtyard by Marriott Limited Partnership (other than
the general partner of those partnerships and their affiliates) shall have
submitted valid written consents to the proposed amendments to each
Partnership's partnership agreement, and
21
<PAGE>
(5) each of the Partnership, Courtyard by Marriott Limited Partnership
and one other Marriott Partnership shall have received the consents of its
lenders, to the extent required, to the consummation of the Settlement and
the transactions contemplated thereby, including the Purchase Offer and the
Merger, and such other transactions necessary to consummate the
transactions contemplated thereby.
The conditions set forth in (2) and (5) above are for the sole benefit of
the Purchaser and may be asserted by the Purchaser regardless of the
circumstances giving rise to these conditions and may be waived by the
Purchaser in writing, in whole or in part, at any time and from time to time,
in its sole discretion. The failure by the Purchaser at any time to exercise
this right will not be deemed a waiver of such right and this right will be
deemed an ongoing right which may be asserted at any time and from time to
time until the Expiration Date. Approval of the amendments of Sections 4.05,
4.07, 7.01A and 7.01B of the Partnership Agreement is a condition only to the
Purchase Offer, not the Merger, and, accordingly, may be waived by the
Purchaser. However, conditions (1) and (3) and approval of the amendment to
Section 5.01C of the Partnership Agreement may not be waived by the Purchaser.
Accordingly, in the event that holders of a majority of the outstanding Units
fail to consent to the Merger and the amendment to Section 5.01C of the
Partnership Agreement, the Purchase Offer and the other transactions
contemplated by the Settlement will not be consummated.
Plans for the Partnership; Certain Effects of the Purchase Offer and the
Merger
Plans for the Partnership. The Purchaser, the Joint Venture, Marriott
International, MI Investor, Rockledge, Host Marriott and Host LP currently
intend that, upon consummation of the Purchase Offer and the Merger, the
Partnership will continue its business and operations, substantially as, and
in such places as, they are currently being conducted. Except as set forth in
this Purchase Offer and Consent Solicitation, the Purchaser, the Joint
Venture, Marriott International, MI Investor, Rockledge, Host Marriott and
Host LP have no present plans or proposals regardless of the outcome of the
Purchase Offer that would result in an extraordinary transaction, such as a
merger, reorganization, liquidation, or sale or transfer of a material amount
of assets, involving the Partnership or its subsidiaries, or any material
changes in the Partnership's capitalization, distribution policy, structure or
business. Immediately prior to the consummation of the Purchase Offer,
Rockledge will contribute its 99% non-managing interest in the General Partner
to the Joint Venture as a capital contribution and Host LP will contribute its
1% managing interest to the Joint Venture as a capital contribution. As a
result, following the consummation of the Purchase Offer and the Merger, the
Partnership will be 100% owned indirectly by the Joint Venture (through the
General Partner and the Purchaser) and, therefore, by the Joint Venture's
equity owners, which are MI Investor, Rockledge and Host LP.
Subject to contractual obligations to third parties, Rockledge, MI Investor
and Host LP intend to make certain changes to the arrangements under which the
Manager provides management services to the subsidiaries of the Partnership
that own the Hotels to make such arrangements more consistent with
arrangements that the Manager and its affiliates currently have with other
properties in which Rockledge and Host Marriott have an interest. See "--
Certain Transactions with the Partnership." In addition, following
consummation of the Purchase Offer and the Merger, the Partnership or an
affiliate of the Partnership will be required, under the terms of its senior
notes, to make an offer to purchase all outstanding senior notes as a result
of a change in control of the Partnership.
Effects of the Purchase Offer and the Merger. Through their direct ownership
of the General Partner, Rockledge and Host LP each currently have an indirect
4.95% and .05% general partner interest, respectively (5% in total), and an
indirect 1.38% and .01% limited partner interest, respectively (1.39% in
total), in the Partnership's net book value and net earnings/losses. Host LP
owns a 95% economic non-voting interest in Rockledge and therefore recognizes
pursuant to the equity method of accounting 95% of Rockledge's net
earnings/losses. Marriott International does not own any interest in the
Partnership. Following completion of the Purchase Offer and the Merger, the
interest of the Joint Venture, and therefore the Joint Venture's equity
owners, Marriott International, Rockledge and Host LP, in the Partnership's
net book value and net earnings/losses will increase to 100%. According to the
Partnership's Form 10-Q for the quarter ended March 24, 2000, the
Partnership's net book value as of March 24, 2000 was a deficit of
approximately $16.3 million (of which the 5% general partner interest
represented capital of approximately $8.4 million and a 1.39% limited partner
interest represented a deficit of approximately $361,000), and the
Partnership's net earnings for the quarter ended March 24, 2000 was
approximately $2.2 million (which means that the 5% general partner and 1.39%
limited partner interests represented approximately $114,000 and $32,000,
respectively).
22
<PAGE>
Following the consummation of the Purchase Offer and the Merger, the Joint
Venture and its subsidiaries will be entitled to all of the benefits of owning
100% of the Partnership, including all income generated by the Partnership's
operations and any future increase in the Partnership's value. Similarly, the
Joint Venture will also bear the risk of all of the losses resulting from the
Partnership's operations and from any decline in the value of the Partnership
after the Merger. Accordingly, following the consummation of the Purchase
Offer and the Merger, you will have no further opportunity to participate in
the benefit of increases, if any, in the value of the Partnership's business
and properties or to receive future distributions, if any, in respect of the
Partnership's operations. The Purchase Offer and the Merger may have adverse
tax consequences to the limited partners, see "--Federal Income Tax
Considerations." For a discussion of certain benefits of the Purchase Offer
and the Merger to the limited partners, see "-- Determination of the Special
Litigation Committee and Recommendation of Counsel to the Class Action
Plaintiffs" and "--Position of Marriott International, MI Investor, Rockledge,
Host Marriott, Host LP, the Joint Venture and the Purchaser."
The Units are currently registered under the Exchange Act and, as a result,
the Partnership is subject to the periodic reporting requirements of that Act.
Such registration may be terminated upon application of the Partnership to the
SEC if there are fewer than 300 holders of record of the Units. Following the
consummation of the Purchase Offer and the Merger, all of the Units will be
owned by the General Partner and the Purchaser. The General Partner and the
Purchaser intend to cause the Partnership to make an application for
termination of registration of the Units as soon as possible after
consummation of the Merger. However, under the terms of the Partnership's
senior notes, the Partnership is required to continue filing periodic reports
with the SEC for so long as the notes remain outstanding and, as a result, the
Partnership will continue to file such reports after the Merger.
Certain Information Concerning the Partnership
Business Description. The Partnership is a Delaware limited partnership with
its principal offices located at 10400 Fernwood Road, Bethesda, Maryland
20817. The Partnership was formed on August 31, 1987 to acquire and own the
Hotels and the respective fee or leasehold interests in the land on which the
Hotels are located. The Hotels are located in 29 states and contained a total
of 10,331 guest rooms as of December 31, 1999. The Partnership is engaged
solely in the business of owning and operating hotels. The Hotels are operated
as part of the Courtyard by Marriott system, which includes over 471 hotels
worldwide in the moderately-priced segment of the lodging industry. The Hotels
are managed by the Manager, a wholly owned subsidiary of Marriott
International, under the Management Agreement. See "--Certain Transactions
with the Partnership."
The Partnership has no directors or officers. The business policymaking
functions of the Partnership are carried out through the managers and
executive officers of the General Partner. The name, business address,
principal occupation, five-year employment history, and citizenship of the
managers and executive officers of the General Partner are set forth in
Schedule II to this Purchase Offer and Consent Solicitation.
Except as otherwise described in this Purchase Offer and Consent
Solicitation, neither the Partnership nor any of its affiliates nor, to the
best of the Partnership's knowledge, any of the persons listed in Schedule II
hereto, nor any associate or majority-owned subsidiary of any of the
foregoing, beneficially owns or has a right to acquire any Units. Except as
otherwise described in this Purchase Offer and Consent Solicitation, neither
the Partnership nor any of its affiliates nor, to the best of the
Partnership's knowledge, any of the persons or entities referred to above, nor
any subsidiary of the Partnership, has effected any transaction in such Units
during the past 60 days.
Except as described in this Purchase Offer and Consent Solicitation, neither
the Partnership nor any of its affiliates nor, to the best of the
Partnership's knowledge, any of the persons listed on Schedule II hereto, has
any contract, arrangement, understanding or relationship with another person
with respect to any securities of the Partnership, including, but not limited
to, any contract, arrangement, understanding or relationship concerning the
transfer or voting of such securities, joint ventures, loan or option
arrangements, puts or calls, guarantees or loans, guarantees against loss or
the giving or withholding of proxies.
23
<PAGE>
The selected historical consolidated financial information of the
Partnership set forth below has been excerpted and derived from Items 8 and 14
of the Partnership's Annual Report on Form 10-K for the fiscal year ended
December 31, 1999 and Part I of the Partnership's Quarterly Report on Form 10-
Q for the quarter ended March 24, 2000. More comprehensive financial and other
information is included in those reports (including management's discussion
and analysis of financial condition and results of operations), and in other
reports and documents filed by the Partnership with the SEC. The financial
information set forth below is qualified in its entirety by reference to the
reports and documents filed by the Partnership with the SEC and the
financial statements and related notes that they contain. You can examine
these reports and other documents and obtain copies of them by following the
procedures set forth under the heading "Where You Can Find More Information."
Selected Historical Consolidated Financial Data
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------------------------
1Q 2000 1Q 1999 1999 1998 1997 1996 1995
--------- --------- -------- -------- --------- -------- --------
(in thousands, except for per unit amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
Income Statement Data:
Revenues................ $ 68,017 $ 67,799 $292,982 $284,251 $ 275,021 $263,707 $245,825
Operating profit........ 11,961 14,776 59,671 58,960 58,771 54,012 46,296
Net Income.............. 2,277 4,691 17,838 16,950 15,691 10,541 11,215
Net Income per Unit
(1,470 Units).......... 1,471 3,031 11,528 10,954 10,140 6,812 7,248
Ratio of earnings to
fixed charges(1)....... 1.21 1.41 1.37 1.35 1.31 1.21 1.27
<CAPTION>
As of As of As of December 31
March 24, March 26, -------------------------------------------------
2000 1999 1999 1998 1997 1996 1995
--------- --------- -------- -------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Book value per Unit
(1,470 Units).......... $(16,799) $(18,266) $(15,771) $(21,299) $ (25,353) $(25,665) $(27,728)
Total assets............ 516,197 528,604 522,943 528,340 536,715 547,099 567,530
Total liabilities....... 532,467 547,803 537,815 552,230 567,412 579,040 603,030
Cash distributions per
Unit (1,470 Units)..... 2,500 -- 6,000 6,900 9,850 4,750 1,846
</TABLE>
--------
(1) The ratio of earnings to fixed charges is unaudited and is computed by
dividing the Partnership's net income before interest expense and other
fixed charges by the total fixed charges. Fixed charges consist of
interest expense (including amortization of deferred financing costs) and
the portion of rent expense attributed to interest.
Description of Real Estate
Hotels. The Partnership was formed to acquire and own the Hotels and the
respective fee or leasehold interests in the land on which the Hotels are
located. The Hotels are located in 29 states and contain a total of 10,331
guest rooms as of December 31, 1999. The Partnership commenced operations on
October 30, 1987 and will terminate on December 31, 2087, unless earlier
dissolved.
Each of the Partnership's Courtyard by Marriott Hotels is designed around a
courtyard area containing a swimming pool (indoor pool in northern climates),
walkways, landscaped areas and a gazebo. Each Hotel generally contains a small
lobby, a restaurant with seating for approximately 50 guests, a lounge, a
hydrotherapy pool, a guest laundry, an exercise room and two small meeting
rooms. The Hotels do not contain as much public space and related facilities
as full-service hotels.
The properties consisted of 70 Hotels as of December 31, 1999. The Hotels
have been in operation for at least 10 years. The Hotels range in age between
10 and 14 years. The Hotels are geographically diversified among 29 states,
and no state has more than nine Hotels.
24
<PAGE>
The following table summarizes certain attributes of each of the Hotels.
Courtyard By Marriott II Limited Partnership
Summary of Properties
(70 Courtyard Hotels)
<TABLE>
<CAPTION>
# of Opening
Property Title to Land Rooms Date
-------- ------------- ----- --------
<C> <S> <C> <C> <C>
1 Birmingham/Homewood, AL......... Owned in fee 140 12/21/85
500 Shades Creek Parkway
Homewood, AL 35209
2 Birmingham/Hoover, AL........... Leased from Essex House 153 08/08/87
1824 Montgomery Highway Condominium Corp.*
South Hoover, AL 35244
3 Huntsville, AL.................. Leased from Essex House 149 08/15/87
4808 University Drive Condominium Corp.*
Huntsville, AL 35816
4 Phoenix/Mesa, AZ................ Leased from Essex House 148 03/19/88
1221 S. Westward Avenue Condominium Corp.*
Mesa, AZ 85210
5 Phoenix/Metrocenter, AZ......... Leased from Essex House 146 11/29/87
9631 N. Black Canyon Condominium Corp.*
Phoenix, AZ 85021
6 Tucson Airport, AZ.............. Leased from Essex House 149 10/01/88
2505 E. Executive Drive Condominium Corp.*
Tucson, AZ 85706
7 Little Rock, AR................. Leased from Essex House 149 05/28/88
10900 Financial Centre Parkway Condominium Corp.*
Little Rock, AR 72211
8 Bakersfield, CA................. Leased from Essex House 146 02/13/88
3601 Marriott Drive Condominium Corp.*
Bakersfield, CA 93308
9 Cupertino, CA................... Leased from Vallco Park, 149 05/14/88
10605 N. Wolfe Road Ltd.
Cupertino, CA 95014
10 Foster City, CA................. Leased from Essex House 147 09/26/87
550 Shell Blvd. Condominium Corp.*
Foster City, CA 94404
11 Fresno, CA...................... Leased from Richard, 146 09/13/86
140 E. Shaw Avenue Miche, Aram & Aznive
Fresno, CA 93710 Erganian
12 Hacienda Heights, CA............ Leased from Essex House 150 03/28/90
1905 Azusa Avenue Condominium Corp.*
Hacienda Heights, CA 91745
13 Marin/Larkspur Landing, CA...... Leased from Essex House 146 07/25/87
2500 Larkspur Landing Circle Condominium Corp.*
Larkspur, CA 94939
</TABLE>
--------
* Essex House is a subsidiary of Marriott International
25
<PAGE>
<TABLE>
<CAPTION>
# of Opening
Property Title to Land Rooms Date
-------- ------------- ----- --------
<C> <S> <C> <C> <C>
14 Palm Springs, CA............... Leased from Essex House 149 10/08/88
300 Tahquitz Canyon Way Condominium Corp.*
Palm Springs, CA 92262
15 Torrance, CA................... Leased from Essex House 149 10/15/88
2633 West Sepulveda Boulevard Condominium Corp.*
Torrance, CA 90505
16 Boulder, CO.................... Leased from Essex House 148 08/06/88
4710 Pearl East Circle Condominium Corp.*
Boulder, CO 80301
17 Denver, CO..................... Owned in fee 146 08/15/87
7415 East 41st Avenue
Denver, CO 80301
18 Denver/Southeast, CO........... Leased from Essex House 152 05/30/87
6565 S. Boston Street Condominium Corp.*
Englewood, CO 80111
19 Norwalk, CT.................... Leased from Mary Fabrizio 145 07/30/88
474 Main Avenue
Norwalk, CT 06851
20 Wallingford, CT................ Leased from Essex House 149 04/21/90
600 Northrop Road Condominium Corp.*
Wallingford, CT 06492
21 Ft. Myers, FL.................. Leased from Essex House 149 08/27/88
4455 Metro Parkway Condominium Corp.*
Ft. Myers, FL 33901
22 Ft. Lauderdale/Plantation, FL.. Leased from Essex House 149 09/21/88
7780 S.W. 6th Street Condominium Corp.*
Plantation, FL 33324
23 St. Petersburg, FL............. Leased from Essex House 149 10/14/89
3131 Executive Drive Condominium Corp.*
Clearwater, FL 34622
24 Tampa/Westshore, FL............ Leased from Hotsinger, 145 10/27/86
3805 West Cypress Inc. and Owned in fee
Tampa, FL 33607
25 West Palm Beach, FL............ Leased from Essex House 149 01/14/89
600 Northpoint Parkway Condominium Corp.*
West Palm Beach, FL 33407
26 Atlanta Airport South, GA...... Owned in fee 144 06/15/86
2050 Sullivan Road
College Park, GA 30337
27 Atlanta/Gwinnett Mall, GA...... Leased from Essex House 146 03/19/87
3550 Venture Parkway Condominium Corp.*
Duluth, GA 30136
28 Atlanta/Perimeter Ctr., GA..... Leased from Essex House 145 12/12/87
6250 Peachtree-Dunwoody Road Condominium Corp.*
Atlanta, GA 30328
29 Atlanta/Roswell, GA............ Leased from Roswell 154 06/11/88
1500 Market Boulevard Landing Associates
Roswell, GA 30076
</TABLE>
--------
* Essex House is a subsidiary of Marriott International
26
<PAGE>
<TABLE>
<CAPTION>
# of Opening
Property Title to Land Rooms Date
-------- ------------- ----- --------
<C> <S> <C> <C> <C>
30 Arlington Heights-South, IL.... Owned in fee 147 12/20/85
100 W. Algonquin Road
Arlington Heights, Il 60005
31 Chicago/Deerfield, IL.......... Owned in fee 131 01/02/86
800 Lake Cook Road
Deerfield, IL 60015
32 Chicago/Glenview, IL........... Leased from Essex House 149 07/08/89
180l Milwaukee Avenue Condominium Corp.*
Glenview, IL 60025
33 Chicago/Highland Park, IL...... Leased from Essex House 149 06/10/88
1505 Lake Cook Road Condominium Corp.*
Highland Park, IL 60035
34 Chicago/Lincolnshire, IL....... Owned in fee 146 07/20/87
505 Milwaukee Avenue
Lincolnshire, IL 60069
35 Chicago/Oakbrook Terrace, IL... Owned in fee 147 05/09/86
6 TransAm Plaza Drive Oakbrook
Terrace, IL 60181
36 Chicago/Waukegan, IL........... Leased from Essex House 149 05/28/88
800 Lakehurst Road Condominium Corp.*
Waukegan, Il 60085
37 Chicago/Wood Dale, IL.......... Leased from Essex House 149 07/02/88
900 N. Wood Dale Road Condominium Corp.*
Wood Dale, IL 60191
38 Rockford, IL................... Owned in fee 147 04/12/86
7676 East State Road
Rockford, IL 61108
39 Indianapolis/Castleton, IN..... Leased from Essex House 146 06/06/87
8670 Allisonville Road Condominium Corp.*
Indianapolis, IN 46250
40 Kansas City/Overland Park, KS.. Leased from Essex House 149 01/14/89
11301 Metcalf Avenue Condominium Corp.*
Overland Park, KS 66212
41 Lexington/North, KY............ Leased from Essex House 146 06/04/88
775 Newtown Court Condominium Corp.*
Lexington, KY 40511
42 Annapolis, MD.................. Leased from Essex House 149 03/04/89
2559 Riva Road Condominium Corp.*
Annapolis, MD 21401
43 Silver Spring, MD.............. Leased from Essex House 146 08/06/88
12521 Prosperity Drive Condominium Corp.*
Silver Spring, MD 20904
44 Boston/Andover, MA............. Leased from Essex House 146 12/03/88
10 Campanelli Drive Condominium Corp.*
Andover, MA 01810
45 Detroit Airport, MI............ Leased from Essex House 146 12/12/87
30653 Flynn Drive Condominium Corp.*
Romulus, MA 48174
</TABLE>
--------
* Essex House is a subsidiary of Marriott International
27
<PAGE>
<TABLE>
<CAPTION>
# of Opening
Property Title to Land Rooms Date
-------- ------------- ----- --------
<C> <S> <C> <C> <C>
46 Detroit/Livonia, MI............. Leased from Essex House 148 03/12/88
17200 N. Laurel Park Drive Condominium Corp.*
Livonia, MI 48152
47 Minneapolis Airport, MN......... Leased from Essex House 146 06/13/87
1352 Northland Drive Condominium Corp.*
Mendota Heights, MN 55120
48 St. Louis/Creve Coeur, MO....... Leased from Essex House 154 07/22/87
828 N. New Ballas Road Condominium Corp.*
Creve Coeur, MO 63146
49 St. Louis/Westport, MO.......... Leased from Essex House 149 08/20/88
11888 Westline Industrial Drive Condominium Corp.*
St. Louis, MO 63146
50 Lincroft/Red Bank, NJ........... Leased from Essex House 146 05/28/88
245 Half Mile Road Condominium Corp.*
Red Bank, NJ 07701
51 Poughkeepsie, NY................ Leased from Pizzgalli 149 06/04/88
408 South Road Investment Company
Poughkeepsie, NY
52 Rye, NY......................... Leased from Essex House 145 03/19/88
631 Midland Avenue Condominium Corp. *
Rye, NY 10580
53 Charlotte/South Park, NC........ Leased from Queens 149 03/25/89
6023 Park South Drive Properties, Inc.
Charlotte, NC 28210
54 Raleigh/Cary, NC................ Leased from Essex House 149 06/25/88
102 Edinburgh Drive South Condominium Corp.*
Cary, NC 27511
55 Dayton Mall, OH................. Leased from Essex House 146 09/19/87
100 Prestige Place Condominium Corp.*
Miamisburg, OH 45342
56 Toledo, OH...................... Leased from Essex House 149 04/30/88
1435 East Mall Drive Condominium Corp.*
Holland, OH 43528
57 Oklahoma City Airport, OK....... Leased from Essex House 149 07/23/88
4301 Highline Boulevard Condominium Corp.*
Oklahoma City, OK 73108
58 Portland-Beaverton, OR.......... Leased from Essex House 149 02/11/89
8500 S.W. Nimbus Drive Condominium Corp.*
Beaverton, OR 97005
59 Philadelphia/Devon, PA.......... Leased from Three Devon 149 11/19/88
762 W. Lancaster Ave. Square Associates
Wayne, PA 19087
60 Columbia, SC.................... Leased from Essex House 149 01/28/89
347 Zimalcrest Drive Condominium Corp.*
Columbia, SC 29210
61 Greenville, SC.................. Leased from Essex House 146 03/05/88
70 Orchard Park Drive Condominium Corp.*
Greenville, SC 29615
</TABLE>
--------
* Essex House is a subsidiary of Marriott International
28
<PAGE>
<TABLE>
<CAPTION>
# of Opening
Property Title to Land Rooms Date
-------- ------------- ------ --------
<C> <S> <C> <C> <C>
62 Memphis Airport, TN..... Leased from Essex House 145 07/15/87
1780 Nonconnah Boulevard Condominium Corp.*
Memphis, TN 38132
63 Nashville Airport, TN... Leased from Essex House 145 01/23/88
2508 Elm Hill Pike Condominium Corp.*
Nashville, TN 37214
64 Dallas/Northeast, TX.... Leased from Essex House 149 01/16/88
1000 South Sherman Condominium Corp.*
Richardson, TX 75081
65 Dallas/Plano, TX........ Owned in fee 149 05/07/88
4901 W. Plano Parkway
Plano, TX 75093
66 Dallas/Stemmons, TX..... Leased from Essex House 146 09/12/87
2383 Stemmons Trail Condominium Corp.*
Dallas, TX 75220
67 San Antonio/Downtown, Leased from Essex House 149 02/03/90
TX...................... Condominium Corp.*
600 Santa Rosa South
San Antonio, TX 78204
68 Charlottesville, VA..... Leased from Essex House 150 01/21/89
638 Hillsdale Drive Condominium Corp.*
Charlottesville, VA
22901
69 Manassas, VA............ Leased from Essex House 149 03/04/89
10701 Battleview Parkway Condominium Corp.*
Manassas, VA 22110
70 Seattle/Southcenter, Leased from Essex House 149 03/11/89
WA...................... Condominium Corp.*
400 Andover Park West
Tukwila, WA 98188
------
Grand Total:........................................... 10,331 Rooms
======
</TABLE>
--------
* Essex House is a subsidiary of Marriott International
Leases. The land on which 53 of the Hotels are located is leased from an
affiliate of Marriott International. In addition, eight of the Hotels are
located on land leased from third parties. The land leases have remaining
terms (including all renewal options) expiring between the years 2024 and
2068. The Marriott International land leases and the third-party land leases
provide for rent based on specific percentages (from 2% to 15%) of certain
revenue categories subject to minimum amounts. The minimum rentals are
adjusted at various anniversary dates throughout the lease terms, as defined
in the agreements. See also "--Certain Transactions with the Partnership."
Competitive Conditions. The United States lodging industry generally is
comprised of two broad segments: full-service hotels and limited-service
hotels. Full-service hotels generally offer restaurant and lounge facilities
and meeting spaces, as well as a wide range of services, typically including
bell service and room service. Limited-service hotels generally offer
accommodations with limited or no services and amenities. As moderately-priced
hotels, the Hotels compete effectively with both full-service and limited-
service hotels in their respective markets by providing streamlined services
and amenities exceeding those provided by typical limited-service hotels at
prices that are significantly lower than those available at full-service
hotels.
Significant competitors in the moderately priced lodging segment include
Holiday Inn, Ramada Inn, Four Points by Sheraton, Hampton Inn and Hilton
Garden Inns. The lodging industry in general, and the moderately- priced
segment in particular, is highly competitive, but the degree of competition
varies from location to location. An increase in supply growth began in 1996
with the introduction of a number of new national brands. The
29
<PAGE>
Courtyard brand is continuing to carefully monitor the introduction or
expansion of new mid-priced brands including Wingate Hotels, Hilton Garden
Inns, Four Points by Sheraton, AmeriSuites, Hampton Inn and Hampton Inn and
Suites.
Property Improvement Fund. The Hotels routinely purchase furniture and
equipment. The Partnership has a repairs and equipment reserve (property
improvement fund) for the Hotels. The funding of this reserve is based on a
percentage of gross Hotel revenues. The contribution to the property
improvement fund has been established at 5% for all Hotels and may be
increased, at the option of the Manager, to 6% of gross Hotel revenues in
2001.
Insurance. The General Partner believes that the Hotels are adequately
covered by insurance.
Debt. On January 24, 1996, the Partnership completed a refinancing of the
Partnership's existing debt through the private placements of $127.4 million
of senior secured notes (the "Senior Notes") and $410.2 million of multi-class
commercial mortgage pass-through certificates (the "Certificates" or "Mortgage
Loan").
Senior Notes. The Senior Notes of $127.4 million were issued by the
Partnership and Courtyard II Finance Company ("Finance"), a wholly owned
subsidiary of the Partnership, as co-issuers. The Senior Notes bear interest
at 10 3/4%, require semi-annual payments of interest and require no payments
of principal until maturity on February 1, 2008. The Senior Notes are secured
by a first priority pledge by the Partnership of (1) its 99% partnership
interest (consisting of a 98% limited partner interest and a 1% general
partner interest) in Courtyard II Associates, L.P. ("Associates"), a Delaware
limited partnership and (2) its 100% equity interest in a wholly owned
subsidiary, Courtyard II Associates Management Corporation. The Partnership
owns the Hotels through Associates (in which the Partnership is a 98% limited
partner and a 1% general partner), and through Courtyard II Associates
Management Corporation (the 1% managing general partner of Associates).
Finance has nominal assets, does not conduct any operations and does not
provide any additional security for the Senior Notes.
The terms of the Senior Notes require the Partnership to establish and fund
a debt service reserve account in an amount equal to one six-month interest
payment on the Senior Notes ($6,848,000) and to maintain certain levels of
excess cash flow, as defined. In the event the Partnership fails to maintain
the required level of excess cash flow, the Partnership will be required to
(i) suspend distributions to its partners and other restricted payments, as
defined, (ii) to fund a separate supplemental debt service reserve account
(the "Supplemental Debt Service Reserve") in an amount up to two six-month
interest payments on the Senior Notes and (iii) if such failure were to
continue, to offer to purchase a portion of the Senior Notes at par.
The Senior Notes are not redeemable prior to February 1, 2001. Thereafter,
the Senior Notes may be redeemed, at the option of the Partnership, at a
premium declining to par in 2004. The Senior Notes are non-recourse to the
Partnership and its partners.
On December 29, 1998, Host Marriott announced that it had completed
substantially all the steps necessary to reorganize its business operations to
qualify as a real estate investment trust ("REIT") and expected to qualify as
a REIT under the applicable Federal income tax laws beginning January 1, 1999
(the "REIT Conversion"). In connection with the REIT Conversion, Host Marriott
contributed substantially all of its hotel assets to Host LP (which is owned
78% by Host Marriott and 22% by outside partners). In connection with Host
Marriott's conversion to a REIT, a change of control occurred when Host
Marriott ceased to own, directly or indirectly, all of the outstanding equity
interest of the General Partner of the Partnership. Although such a change of
control occurred, Host Marriott continues to own, indirectly, a substantial
majority of the economic interest in the General Partner of the Partnership
and, through Host LP, has certain voting rights with respect to the General
Partner.
The change in control described above resulted in a "Change in Control"
under the indenture governing the Senior Notes. As a result, in accordance
with the terms of the indenture, Host LP commenced a tender offer for the
Senior Notes at a purchase price equal to 101% of the aggregate principal
amount thereof, plus accrued and unpaid interest thereon to February 18, 1999.
The tender offer was commenced on January 14, 1999 and expired on February 12,
1999. No Senior Notes were tendered to Host LP in connection with the tender
offer.
30
<PAGE>
Certificates. The Certificates were issued by CBM Funding Corporation ("CBM
Funding"), a wholly owned subsidiary of Associates, for an initial principal
amount of $410.2 million. Proceeds from the sale of the Certificates were
utilized by CBM Funding to provide a Mortgage Loan to Associates. The
Certificates/Mortgage Loan requires monthly payments of principal and interest
based on a 17-year amortization schedule. The Mortgage Loan matures on January
28, 2008. However, the maturity date of the Certificates/Mortgage Loan may be
extended until January 28, 2013 with the consent of 66 2/3% of the holders of
the outstanding Certificates affected thereby. The Certificates were issued in
the following classes and pass-through rates of interest.
<TABLE>
<CAPTION>
Initial Pass-Through
Class Certificate Balance Rate
----- ------------------- ------------
<S> <C> <C>
Class A-1............................... $ 45,500,000 7.550%
Class A-2............................... $ 50,000,000 6.880%
Class A-3P & I.......................... $ 129,500,000 7.080%
Class A-3IO............................. Not Applicable 0.933%
Class B................................. $ 75,000,000 7.480%
Class C................................. $ 100,000,000 7.860%
Class D................................. $ 10,200,000 8.645%
</TABLE>
The Class A-3IO Certificates require payments of interest only based on a
notional balance equal to the Class A-3P & I Certificate balance.
The balances of the Certificates were $355.8 million and $371.2 million at
December 31, 1999 and 1998, respectively. Principal payments of $15.4 million
and $14.3 million on the Certificates were made during 1999 and 1998,
respectively. The weighted average interest rate on the Certificates was 7.8%
for 1999 and 1998.
The Certificates/Mortgage Loan maturities as of December 31, 1999 are as
follows (in thousands):
<TABLE>
<S> <C>
2000............................................................ $ 16,642
2001............................................................ 17,934
2002............................................................ 19,326
2003............................................................ 20,827
2004............................................................ 22,444
Thereafter...................................................... 258,608
--------
$355,781
========
</TABLE>
The Mortgage Loan is secured primarily by 69 cross-defaulted and cross-
collateralized mortgages representing first priority mortgage liens on (i) the
fee or leasehold interest in 69 of the Hotels (excluding the Deerfield Hotel),
related furniture, fixtures and equipment and the property improvement fund,
(ii) the fee interest in the land leased from Marriott International or its
affiliates on which 53 Hotels are located, (iii) a pledge of Associates'
membership interest in and the related right to receive distributions from
Associates II, which owns the Deerfield Hotel, and (iv) an assignment of the
Management Agreement, as defined below. The Mortgage Loan is non-recourse to
Associates, the Partnership and its partners.
Operating profit from the Hotels in excess of debt service on the Mortgage
Loan is available to be distributed to the Partnership. Amounts distributed to
the Partnership are used for the following, in order of priority: (i) for debt
service on the Senior Notes, (ii) to fund the Supplemental Debt Service
Reserve, if necessary, (iii) to offer to purchase a portion of the Senior
Notes at par, if necessary, (iv) for working capital and (v) for distributions
to the partners of the Partnership. The net assets (all of which are
restricted) of Associates was $101.7 million and $87.3 million as of December
31, 1999 and 1998, respectively.
Prepayments of the Mortgage Loan are permitted with the payment of a premium
(the "Prepayment Premium"). The Prepayment Premium is equal to the greater of
(i) one percent of the Mortgage Loan being prepaid or (ii) a yield maintenance
amount based on a spread of .25% or .55% over the U.S. treasury rate, as
defined.
31
<PAGE>
Pursuant to the terms of the Certificate/Mortgage Loan, the Partnership is
required to establish with the lender a separate escrow account for payments
of insurance premiums and real estate taxes for each mortgaged property if the
credit rating of Marriott International is downgraded by Standard and Poor's
Rating Services. The assumption of additional debt associated with Marriott
International's acquisition of Renaissance Hotel Group N.V. resulted in a
single downgrade of Marriott International's long-term senior unsecured debt,
effective April 1, 1997. The escrow reserve is included in restricted cash and
the resulting tax and insurance liability is included in accounts payable and
accrued liabilities in the accompanying consolidated balance sheet. The
balance in the real estate tax and insurance reserve as of December 31, 1999
and 1998, was $6.3 million and $5.4 million, respectively.
Operating Data
The following chart sets forth the combined average occupancy and the
combined average daily room rates of the Hotels for each of the last five
years.
<TABLE>
<CAPTION>
1Q 2000 1Q 1999 1999 1998 1997 1996 1995
------- ------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Combined Average
Occupancy................. 76.2% 78.3% 79.0% 79.0% 80.3% 80.4% 81.4%
Combined Average Daily Room
Rate...................... $92.84 $89.61 $89.09 $86.99 $82.09 $76.48 $71.49
</TABLE>
The Partnership's tax basis of its property and equipment is recorded at
cost. The Partnership depreciates its assets using the Modified Accelerated
Cost Recovery System method ("MACRS") for tax purposes. Under MACRS, buildings
and improvements are depreciated over 15 to 39 years while furniture and
equipment is depreciated over five years.
The Partnership's 70 Hotels are located in various real estate taxing
jurisdictions. Therefore, the real estate tax rates vary by jurisdiction. The
Partnership's real estate tax expense for 1999 was $10.6 million.
The Partnership is engaged solely in the business of owning and operating
hotels and therefore, is engaged in one industry segment.
Certain Information Concerning the Purchaser, the Joint Venture, Marriott
International, MI Investor, Rockledge, Host Marriott and Host LP
The Purchaser. The Purchaser, a Delaware limited liability company and a
wholly owned subsidiary of the Joint Venture, was formed on April 19, 2000,
for the purpose of acquiring the Units pursuant to the Purchase Offer, and has
engaged in no activities to date, other than those incidental to its
organizing as an entity and making the Purchase Offer. Because the Purchaser
is newly formed and has minimal assets and capitalization, no meaningful
financial information with respect to the Purchaser is available. Similarly,
because the Purchaser has yet to establish an office, it should be contacted
through either MI Investor or Rockledge at the address and telephone numbers
shown below.
The Joint Venture. The Joint Venture, a Delaware limited liability company,
is owned 50% by Marriott International, through MI Investor, and 50% by
Rockledge. The Joint Venture was formed by MI Investor and Rockledge on April
19, 2000 in order to effectuate the terms of the Settlement Agreement and has
engaged in no activities to date, other than those incidental to its
organization and satisfying the terms of the Settlement Agreement. Because the
Joint Venture has yet to establish an office, it should be contacted through
either MI Investor or Rockledge at the address and telephone numbers shown
below.
MI Investor. MI Investor, a Delaware limited liability company, is a wholly
owned indirect subsidiary of Marriott International. MI Investor was formed on
April 13, 2000, for the purpose of investing in the Joint Venture, and has
engaged in no activities to date, other than those incidental to its
organization and the formation of the Joint Venture. The principal office of
MI Investor is located at 10400 Fernwood Road, Bethesda, Maryland 20817 and
its telephone number is (301) 380-3000.
32
<PAGE>
Marriott International. Marriott International, a Delaware corporation, was
incorporated on September 19, 1997 and became a public company when it was
spun off as a separate entity by the company formerly named "Marriott
International, Inc." (now known as Sodexho Marriott Services, Inc.) on March
27, 1998. Marriott International is a worldwide operator and franchisor of
hotels and related lodging facilities, an operator of senior living
communities, and a provider of distribution services. Its operations are
grouped in three business segments, lodging, senior living services and
distribution services, which represented 81, six, and 13 percent,
respectively, of total sales in the fiscal year ended December 31, 1999. The
principal office of Marriott International is located at 10400 Fernwood Road,
Bethesda, Maryland 20817 and its telephone number is (301) 380-3000.
Marriott International is subject to the information and reporting
requirements of the Exchange Act and, in accordance therewith, files reports
and other information with the SEC relating to its business, financial
condition and other matters. Certain information, as of particular dates,
concerning Marriott International's directors and officers, the principal
holders of Marriott International's securities, any material interests of
these persons in transactions with Marriott International and other matters is
required to be disclosed in proxy statements distributed to Marriott
International's stockholders and filed with the SEC. Such reports, proxy
statements, and other information can be inspected at the public reference
facilities maintained by the SEC in Washington, D.C., New York, New York and
Chicago, Illinois. Information regarding the public reference facilities may
be obtained from the SEC by telephoning 1-800-SEC-0330. Marriott
International's filings are also available to the public on the SEC's Internet
site (http://www.sec.gov). Copies of such materials may also be obtained by
mail from the Public Reference Section of the SEC at 450 Fifth Street, N.W.,
Washington, D.C. 20549. Such reports, proxy statements and other information
can be inspected and copied at prescribed rates. Such information should also
be available for inspection at the New York Stock Exchange at 20 Broad Street,
New York, NY 10005.
Rockledge. Rockledge, a Delaware corporation, was formed in connection with
Host Marriott's efforts to reorganize its business operations to qualify as a
"real estate investment trust," or REIT, for federal income tax purposes.
Rockledge was formed to own various assets through a contribution of
approximately $264 million from Host Marriott to Host LP, its operating
partnership, the direct ownership of which by Host Marriott or Host LP could
jeopardize Host Marriott's status as a REIT. These assets primarily consist of
partnership or other interests in hotels which are not leased and certain
furniture, fixtures and equipment used in the hotels. In exchange for the
contribution of these assets, Host LP received only non-voting common stock,
representing 95% of the total economic interests therein. The Host Marriott
Statutory Employee/Charitable Trust, the beneficiaries of which are certain
employees of Host LP, concurrently acquired all of the voting common stock
representing the remaining 5% of the total economic interest. The principal
office of Rockledge is 10400 Fernwood Road, Bethesda, Maryland 20817 and its
telephone number is (301) 380-9000.
Host Marriott. Host Marriott is a self-managed and self-administered REIT,
owning full-service hotel properties. Host Marriott was formed as a Maryland
corporation in 1998, under the name HMC Merger Corporation, as a wholly owned
subsidiary of Host Marriott Corporation, a Delaware corporation, in connection
with Host Marriott Corporation's efforts to reorganize its business operations
to qualify as a REIT for federal income tax purposes. As part of this
reorganization, on December 29, 1998, HMC Merger Corporation merged with Host
Marriott Corporation and changed its name to Host Marriott Corporation. As a
result, it succeeded to the hotel ownership business formerly conducted by
Host Marriott Corporation. Host Marriott's operations are conducted solely
through Host LP and its subsidiaries. As of March 1, 2000, Host Marriott owned
122 hotels, containing approximately 58,000 rooms, located throughout the
United States and Canada. The principal office of Host Marriott is located at
10400 Fernwood Road, Bethesda, Maryland 20817 and its telephone number is
(301) 380-9000.
Host Marriott is subject to the information and reporting requirements of
the Exchange Act and, in accordance therewith, files reports and other
information with the SEC relating to its business, financial condition and
other matters. Certain information, as of particular dates, concerning Host
Marriott's directors and officers, the principal holders of Host Marriott's
securities, any material interests of these persons in transactions with Host
Marriott and other matters is required to be disclosed in proxy statements
distributed to Host Marriott's
33
<PAGE>
stockholders and filed with the SEC. Such reports, proxy statements, and other
information can be inspected at the public reference facilities maintained by
the SEC in Washington, D.C., New York, New York and Chicago, Illinois.
Information regarding the public reference facilities may be obtained from the
SEC by telephoning 1-800-SEC-0330. Host Marriott's filings are also available
to the public on the SEC's Internet site (http://www.sec.gov). Copies of such
materials may also be obtained by mail from the Public Reference Section of
the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549. Such reports, proxy
statements and other information can be inspected and copied at prescribed
rates. Such information should also be available for inspection at the New
York Stock Exchange at 20 Broad Street, New York, NY 10005.
Host LP. Host LP is a limited partnership owning full-service hotel
properties as part of an umbrella partnership real estate investment trust
with Host Marriott as its sole general partner. Host LP was formed as a
Delaware limited partnership in 1998 as a wholly owned subsidiary of Host
Marriott Corporation in connection with Host Marriott Corporation's efforts to
reorganize its business operations to qualify as a REIT for federal income tax
purposes. As part of this reorganization, on December 29, 1998, Host Marriott
Corporation and various subsidiaries contributed to Host LP substantially all
of their assets and Host LP assumed substantially all of their liabilities. As
a result, Host LP has succeeded to the hotel ownership business formerly
conducted by Host Marriott Corporation. Host Marriott is the sole general
partner of Host LP and Host Marriott holds approximately 78% of the
outstanding partnership interests in Host LP. The principal office of Host LP
is located at 10400 Fernwood Road, Bethesda, Maryland 20817 and its telephone
number is (301) 380-9000.
Host LP is subject to the information and reporting requirements of the
Exchange Act and, in accordance therewith, files reports and other information
with the SEC relating to its business, financial condition and other matters.
Such reports, proxy statements, and other information can be inspected at the
public reference facilities maintained by the SEC in Washington, D.C., New
York, New York and Chicago, Illinois. Information regarding the public
reference facilities may be obtained from the SEC by telephoning 1-800-SEC-
0330. Host LP's filings are also available to the public on the SEC's Internet
site (http://www.sec.gov). Copies of such materials may also be obtained by
mail from the Public Reference Section of the SEC at 450 Fifth Street, N.W.,
Washington, D.C. 20549. Such reports and other information can be inspected
and copied at prescribed rates.
The name, business address, present principal occupation, five-year
employment history and citizenship of each of the directors and executive
officers of the Purchaser, the Joint Venture, Marriott International, MI
Investor, Rockledge, Host Marriott and Host LP are set forth in Schedule I
hereto.
Except as set forth in this Purchase Offer and Consent Solicitation and in
Schedule I, neither the Joint Venture, the Purchaser, Marriott International,
MI Investor, Rockledge, Host Marriott or Host LP, nor any person controlling
the Joint Venture, the Purchaser, Marriott International, MI Investor,
Rockledge, Host Marriott or Host LP, nor, to the best knowledge of the Joint
Venture, the Purchaser, Marriott International, MI Investor, Rockledge, Host
Marriott or Host LP, any of the persons listed in Schedule I or any associate
or majority-owned subsidiary of any of the foregoing, beneficially owns or has
a right to acquire any Units or has effected any transactions in the Units
during the past 60 days. Except as described in this Purchase Offer and
Consent Solicitation, neither the Joint Venture, the Purchaser, Marriott
International, MI Investor, Rockledge, Host Marriott or Host LP, nor any of
their affiliates nor, to the knowledge of the Joint Venture, the Purchaser,
Marriott International, MI Investor, Rockledge, Host Marriott or Host LP, any
of the persons listed on Schedule I hereto, has any contract, arrangement,
understanding or relationship with another person with respect to any
securities of the Partnership, including, but not limited to, any contract,
arrangement, understanding or relationship concerning the transfer or voting
of such securities, joint ventures, loan or option arrangements, puts or
calls, guarantees or loans, guarantees against loss or the giving or
withholding of proxies, consents, or authorizations. Except as described in
this Purchase Offer and Consent Solicitation, neither the Joint Venture, the
Purchaser, Marriott International, MI Investor, Rockledge, Host Marriott or
Host LP, nor any of their affiliates nor, to the knowledge of the Joint
Venture, the Purchaser, Marriott International, MI Investor, Rockledge, Host
Marriott or Host LP, any of the persons listed on Schedule I hereto, has since
January 1, 1998 engaged in any business relationship or transaction with the
Partnership or any of its affiliates that would require disclosure herein
under
34
<PAGE>
the rules and regulations of the SEC applicable to the Purchase Offer. Except
as described in this Purchase Offer and Consent Solicitation, there have been
no contacts, negotiations or transactions since January 1, 1998 between the
Purchaser, the Joint Venture, Marriott International, MI Investor, Rockledge,
Host Marriott or Host LP, and their respective affiliates or any of the
persons listed on Schedule I hereto, on the one hand, and the Partnership or
its affiliates on the other hand, concerning a merger, consolidation,
acquisition, tender offer or other acquisition of securities, election of
directors or sale or other transfer of a material amount of assets of the
Partnership.
Source and Amount of Funds
The total amount of funds required to purchase the Units in the Purchase
Offer, to consummate the Merger and pay related fees and expenses will be up
to approximately $218.5 million, depending upon the number of Units held by
limited partners who elect to opt out of the class and the appraised value
determined for those Units under the Merger Agreement. The Purchaser will
obtain the necessary funds, indirectly, from Marriott International and from
Rockledge, which will obtain funds from Host LP or Host Marriott through a
loan or capital contribution. MI Investor and Rockledge will provide a portion
of the funds for the Purchase Offer and the Merger by equity contributions to
the Joint Venture, and a subsidiary of Marriott International will provide a
portion of the funds through a loan. There is no financing contingency to
consummation of the Purchase Offer and the Merger. Host Marriott and Marriott
International have guaranteed the obligations of the Courtyard II Defendants
and Rockledge to provide the funds necessary to fund payments under the
Settlement Agreement, if the judgment order becomes final.
Under the terms of the Settlement Agreement, the Defendants agreed that, in
the event that 60 days after execution of the Settlement Agreement all third-
party lender and other consents necessary to consummate the Settlement
Agreement (other than the consents that constitute conditions to the Purchase
Offer and the Merger) had not been obtained, they would pay interest on the
settlement funds with respect to the Milkes and the Haas Litigation from the
61st day forward at the rate set forth in the Settlement Agreement until such
third-party lender and other consents are obtained. As of August , 2000, not
all of such consents have been obtained and approximately $2.7 million in
interest accrued on the Settlement Fund. Upon receipt by the Partnership of
the necessary third-party consents, the interest will cease to accrue.
If the Court approves the Settlement following the fairness hearing
(assuming that all conditions to the Purchase Offer and the Merger are
satisfied (or waived, if waivable)), Defendants are required to deposit the
full amount of the settlement funds for all of the Marriott Partnerships,
including the Partnership, with the Escrow Agent, and interest on the balance
will accrue to the benefit of class action plaintiffs that have not opted out
of the Settlement (less certain expenses relating to the Escrow Agent and the
Claims Administrator) until the settlement funds are distributed. Any accrued
interest will then get distributed to the class action plaintiffs in
proportion to their share of the settlement funds, less any fees awarded by
the Court to Class Counsel, under a plan of allocation to be prepared by Class
Counsel and to be approved by the Court. Class Counsel intends to request the
Court for a portion of the interest that has accrued on the settlement funds
in an amount equal to the interest that has accrued on that portion of the
settlement funds that the Court grants to Class Counsel as attorneys' fees and
expenses. The Defendants will have no responsibility or liability whatsoever
with respect to the formulation or implementation of the plan of allocation or
the giving of notice with respect to the same.
The Joint Venture, Marriott International, Host Marriott and Rockledge will
be responsible for payment of the expenses of the Purchase Offer and the
Merger. See "Other Matters--Fees and Expenses."
Certain Transactions with the Partnership
The following paragraphs describe certain transactions between the
Partnership, on the one hand, and Host Marriott, Rockledge, Marriott
International, and certain affiliates and related persons, on the other hand.
35
<PAGE>
Conflicts of Interest. Host Marriott and Marriott International are
defendants in the Litigation. The Purchaser is an indirect wholly owned
subsidiary of the Joint Venture, which is a joint venture between a wholly
owned indirect subsidiary of Marriott International and Rockledge. Rockledge
currently owns a 99% non-managing interest in the General Partner. Host LP,
which owns the 1% managing interest in the General Partner, also owns a 95%
non-voting interest in Rockledge. Host Marriott owns approximately 78% of the
equity interests in Host LP. Marriott International currently does not own an
interest in any of Host Marriott, Rockledge or the General Partner, but one of
Marriott International's subsidiaries is the Manager of the Hotels. All four
of the individuals who serve as officers of Rockledge (two of whom also serve
as directors of Rockledge) are also employees of Host LP and officers of Host
Marriott. All the members of the General Partner's board of managers are also
employees of Host LP and officers of Host Marriott. In addition, as of
December 31, 1999, J.W. Marriott, Jr. and Richard E. Marriott and their
respective immediate family members beneficially owned approximately 10.8% and
10.6%, respectively, of the common stock of Marriott International and
approximately 5.9% and 6.6%, respectively, of the common stock of Host
Marriott. J.W. Marriott, Jr. is the Chairman of the Board and Chief Executive
Officer of Marriott International and a director of Host Marriott. Richard E.
Marriott is the Chairman of the Board of Host Marriott and a director of Host
Marriott. As a result, these entities and individuals have a conflict of
interest with respect to the Purchase Offer and the Merger.
In December 1998, Host Marriott reorganized its business operations to
qualify as a REIT. In conjunction with its conversion to a REIT, Host Marriott
spun off, in a taxable transaction, a new company called Crestline Capital
Corporation ("Crestline"). As part of the Crestline spinoff, Host Marriott
transferred to Crestline all of the senior living communities previously owned
by Host Marriott, and Host Marriott entered into lease or sublease agreements
with Crestline for substantially all of Host Marriott's lodging properties.
Marriott International's lodging and senior living community management and
franchise agreements with Host Marriott were also assigned to Crestline. In
the case of the lodging agreements, Host LP remains obligated under such
agreements in the event that Crestline fails to perform its obligations
thereunder. The lodging agreements now provide for Marriott International to
manage the Marriott hotels, Ritz-Carlton hotels, Courtyard hotels and
Residence Inns leased by Crestline. Marriott International's consent is
required for Crestline to take certain major actions relating to leased
properties that Marriott International manages.
Marriott International recognized sales of $2,553 million and operating
profit before corporate expenses and interest of $221 million during 1999 from
lodging properties owned or leased by Host LP and its subsidiaries.
Additionally, subsidiaries of Host LP are the general partners in several
unconsolidated partnerships that own lodging properties operated by Marriott
International under long-term agreements. Marriott International recognized
sales of $562 million and operating profit before corporate expenses and
interest of $64 million in 1999, from the lodging properties owned by these
unconsolidated partnerships. Marriott International also leased land to
certain of these partnerships and recognized land rent income of $24 million
in 1999.
Marriott International has provided Host LP with financing for a portion of
the cost of acquiring properties to be operated or franchised by Marriott
International, and may continue to provide financing to Host LP or Crestline
in the future. The outstanding principal balance of these loans was $11
million and $9 million at December 31, 1999 and January 1, 1999, respectively,
and Marriott International recognized $1 million in 1999 in interest and fee
income under these credit agreements with Host LP.
Marriott International has guaranteed the performance of Host LP and certain
of its affiliates to lenders and other third parties. These guarantees were
limited to $14 million at December 31, 1999. No payments have been made by
Marriott International pursuant to these guarantees. Marriott International
continues to have the right to purchase up to 20 percent of Host Marriott's
outstanding common stock upon the occurrence of certain events generally
involving a change of control of Host Marriott. This right expires in 2017,
and Host Marriott has granted an exception to the ownership limitations in its
charter to permit full exercise of this right, subject to certain conditions
related to ownership limitations applicable to REITs generally. Marriott
International leases land to Host LP and its subsidiaries that had an
aggregate book value of $264 million at December 31, 1999. Most of this land
has been pledged to secure debt of the lessees. Marriott International has
agreed to defer receipt of rentals on this land, if necessary, to permit the
lessees to meet their debt service requirements.
36
<PAGE>
Management Agreement. The Hotels owned by the Partnership's subsidiaries are
managed by the Manager, a wholly owned subsidiary of Marriott International,
under two management agreements (collectively, the "Management Agreement").
The following paragraphs summarize the principal provisions of the Management
Agreement.
The Management Agreement has an initial term expiring in 2013. The Manager
may renew the term, as to one or more of the Hotels, at its option, for up to
three successive terms of 10 years each and one final term of five years. The
Partnership may terminate the Management Agreement if, during any three
consecutive years after 1992, specified minimum operating results are not
achieved. However, the Manager may prevent termination by paying to the
Partnership the amount by which the minimum operating results were not
achieved. Upon the sale of a Hotel, the Management Agreement may be terminated
with respect to that Hotel with payment of a termination fee. Prior to
December 31, 2007, a maximum of 20 Hotels may be sold free and clear of the
Management Agreement with payment of the termination fee. The termination fee
is calculated by the Manager as the net present value of reasonably
anticipated future incentive management fees.
The Management Agreement provides for annual payments of (1) the base
management fee equal to 3.5% of gross revenues from the Hotels, (2) the
Courtyard management fee equal to 2.5% of gross revenues from the Hotels, and
(3) the incentive management fee equal to 15% of operating profit subject to
certain limitations based on available cash flow, as defined therein.
Payment of one percentage point of the Courtyard management fee, all
incentive fees, and certain other deferred management fees is subordinated to
payment of debt service on the Partnership's Senior Notes and Mortgage Loan.
Deferred management fees accrue without interest, and will be payable out of
50% of available cash flow available after payment of certain priority
amounts. Upon termination of the Management Agreement as to all the Hotels,
any remaining deferred management fees will not be payable. During 1999 and
1998, the Partnership reported payment of $609,000 and $415,000, respectively,
of deferred incentive management fees. The Partnership also reported deferred
incentive management fees of $3,560,000 and $4,169,000 as of December 31, 1999
and 1998, respectively; deferred Courtyard management fees totaling
$22,341,000 as of December 31, 1999 and 1998; and deferred base management
fees totaling $7,904,000 as of December 31, 1999 and 1998.
The Management Agreement requires that the owner of the Hotels maintain a
repairs and equipment reserve for the Hotels. The funding of this reserve is
based on a percentage of annual gross Hotel revenues. The contribution to the
property improvement fund currently is 5% for all Hotels and may be increased,
at the option of the Manager, to 6% of gross Hotel revenues in fiscal year
2001.
Following the Merger, the Partnership will be owned indirectly by Marriott
International, Rockledge and Host LP. See "--Plans for the Partnership;
Certain Effects of the Purchase Offer." Subject to contractual obligations to
third parties, Rockledge and MI Investor intend to make certain changes to the
arrangements under which the Manager provides management services to the
subsidiaries of the Partnership that own the Hotels to make such arrangements
more consistent with arrangements that the Manager and its affiliates
currently have with other properties in which Rockledge and Host LP have an
interest. These changes include eliminating the ability of the Management
Agreement to be terminated with respect to a Hotel upon the sale of such Hotel
by payment of a termination fee, decreasing the amount to which the incentive
fee would increase under certain circumstances and increasing annual
contributions to the repairs and equipment reserve.
The following table sets forth the Partnership's reported breakdown of
amounts paid to Marriott International and affiliates under the Management
Agreement for the years ended December 31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
------- -------
(in thousands)
<S> <C> <C>
Incentive management fees................................... $13,322 $12,895
Chain services and MRP allocations.......................... 14,550 13,755
Base management fees........................................ 10,254 9,949
Courtyard management fees................................... 7,325 7,106
Deferred incentive management fees.......................... 609 415
------- -------
$46,060 $44,120
======= =======
</TABLE>
37
<PAGE>
Ground Leases. The land on which 53 of the Hotels are located is leased from
affiliates of Marriott International. The ground leases have remaining terms
(including all renewal options) expiring in 2068. The ground leases with
affiliates of Marriott International provide for rent based on specific
percentages (from 3% to 8%) of certain revenue categories subject to minimum
amounts. The minimum rentals are adjusted at various anniversary dates
throughout the lease terms, as defined in the agreements.
In connection with the refinancing, the ground lessors agreed to defer
receipt of their ground lease payments to the extent that the Partnership or
its subsidiaries have insufficient funds for debt service payments on the
Partnership's Senior Notes and Mortgage Loan.
The Partnership reported total rent expense on ground leases paid to
Marriott International and its subsidiaries of $11,282,000 for 1999 and
$10,991,000 for 1998.
Payments to Host Marriott and Subsidiaries. The following sets forth amounts
paid by the Partnership to Host Marriott and its subsidiaries for the years
ended December 31, 1999 and 1998.
<TABLE>
<CAPTION>
1999 1998
----- -----
(in
thousands)
<S> <C> <C>
Administrative expenses reimbursed.............................. $ 179 $ 274
Cash distributions (as a limited partner*)...................... 129 148
----- -----
$ 308 $ 422
===== =====
</TABLE>
--------
* These cash distributions were made with respect to the Units of limited
partnership interest held by the General Partner. Prior to December 28,
1998, the General Partner was a wholly owned subsidiary of Host Marriott. On
December 28, 1998, Host Marriott, which owns approximately 78% of the equity
interests in Host LP, transferred its interest in the General Partner to
Host LP. Host LP currently owns a 1% managing partnership interest in the
General Partner.
STSN. In August 1999, Marriott International entered into a transaction
covering all Courtyard hotels (not just those owned by the Partnership), as
well as all Ritz-Carlton, Marriott Hotel, Resorts and Suites, and Residence
Inn hotels, for high speed internet access in hotel rooms, with a company
named STSN, Inc. ("STSN"). STSN is a private company located in Salt Lake
City, Utah, that at the time of the transaction was unaffiliated with Marriott
International or the Manager. Marriott International also obtained equity in
STSN at the price of $.50 per share, and acquired additional equity at the
price of $9.12 per share. On June 23, 2000, Marriott International announced a
program to permit all owners of Marriott-managed hotels in which STSN is
planned to be installed (including the Partnership) to purchase from Marriott
International a ratable portion of the equity obtained at $.50 per share based
on the number of rooms owned by each owner divided by the total number of
managed rooms in North America through the end of the second quarter of 2000
in Marriott hotels in which the service is to be installed. The total number
of such rooms is estimated to be approximately 180,000. On the present
allocation proposal, the Partnership would be offered approximately 28,000
shares of STSN stock at a cost of approximately $14,000. STSN stock is not
publicly traded and there is currently no secondary market for the shares. The
shares currently held by Marriott International are restricted and if the
Partnership were to accept the proposal and purchase the shares at $.50, its
ability to resell the shares would be restricted by the United States
securities laws. STSN is currently undergoing an additional round of private
financing in which it is raising capital by selling additional shares at the
price of $29.52 per share. Therefore, based on the price being paid in that
financing, the shares offered for acquisition by the Partnership likely have
appreciated in value.
The General Partner has not accepted the proposed transaction on behalf of
the Partnership, and, indeed, there are constraints under the Partnership's
debt agreements on its ability to invest in another company without lender
consent. Host Marriott and its subsidiaries also have not accepted the
transaction on behalf of hotels that they own. If accepted, the transaction
would not be expected to close until after the closing of the Merger and,
38
<PAGE>
accordingly, the benefits, if any, from the transaction would inure to the
Purchaser and the Joint Venture. If the transaction closes prior to the
closing of the Merger, the value, if any, of the STSN stock, would be included
in the appraised value of the Units of limited partners who elect to opt out
of the Settlement. As with changes in the results of operations of the
Partnership or other events relating to the Partnership, the Net Settlement
Amount will not be increased as a result of any acquisition of STSN stock
prior to the closing of the Merger.
Security Ownership of Certain Beneficial Owners and Management
As of December 31, 1999, Equity Resource Group owned 6.91% of the 1,470
Units outstanding. No other person owned of record, or to the Partnership's
knowledge owned beneficially, more than 5% of the total number of Units. The
General Partner owns a total of 21.5 Units representing a 1.39% limited
partnership interest in the Partnership. The General Partner will not tender
its Units in the Purchase Offer. Instead, in the Merger, the General Partner's
21.5 Units will be converted into a 1.39% limited partnership interest in the
Partnership, and its 5% general partnership interest will be unaffected by the
Merger.
Neither the Purchaser, Rockledge, Marriott International, Host Marriott,
Host LP, the Joint Venture nor MI Investor own any Units. However, Rockledge
owns a 99% non-managing interest in the General Partner and Host LP owns a 1%
managing interest in the General Partner. The executive officers and managers
of the General Partner, Rockledge, Marriott International, Host Marriott, Host
LP, MI Investor and their respective affiliates do not own any Units.
In connection with the Settlement Agreement, the Purchaser intends to
acquire all of the outstanding Units (other than Units held by the General
Partner). The Purchaser is a subsidiary of the Joint Venture.
Regulatory Matters
General. The Purchaser is not aware of any license or regulatory permit that
appears to be material to the business of the Partnership that might be
adversely affected by the Purchaser's acquisition of Units as contemplated
herein, the Merger or the other provisions of the Settlement Agreement.
Based upon an examination of available information relating to the
businesses in which the Partnership is engaged, the Purchaser, the Joint
Venture, Marriott International, MI Investor, Rockledge, Host Marriott and
Host LP believe that the acquisition of Units pursuant to the Purchase Offer
or the Merger would not violate the antitrust laws. The Purchaser, the Joint
Venture, Marriott International, MI Investor, Rockledge, Host Marriott and
Host LP believe that retention of all of the operations of the Partnership
should be permitted under the antitrust laws. Nevertheless, no one can assure
you that a challenge to the Purchase Offer on antitrust grounds will not be
made or, if such challenge is made, what the result will be.
Except as set forth in this section entitled "--Regulatory Matters," the
Purchaser, the Joint Venture, Marriott International, MI Investor, Rockledge,
Host Marriott and Host LP are not aware of any filings, approvals or other
action by any federal or state governmental administrative or regulatory
authority that would be required for the acquisition of Units by the Purchaser
as contemplated herein or in the Merger. Should any such other approval or
action be required, it is currently contemplated that such approval or other
action would be sought. We cannot assure you that any such additional approval
or other action, if needed, would be obtained without substantial conditions
or that adverse consequences might not result to the Partnership's business in
the event that such other approvals were not obtained or such other actions
were not taken.
Final Court Hearing and Right to Appear
At the present time, the Court has only determined that the Settlement falls
within a range of reasonableness that justifies sending class members the
Notice of Pendency and Settlement of Claim and Derivative Action related to
Courtyard by Marriott II LP and Final Approval Hearing (the "Notice"), which
is being distributed by Class Counsel with this Purchase Offer and Consent
Solicitation, and the holding of a formal final approval hearing on the merits
of the proposed Settlement.
39
<PAGE>
The Court must determine whether the proposed Settlement is fair,
reasonable, and adequate, whether a judgment order should be entered
dismissing the Milkes Litigation, and whether the Court will retain
jurisdiction over implementation of the Settlement. The factors the Court will
consider in making this determination are:
(1) whether the Settlement was negotiated at arms' length or was a
product of fraud or collusion;
(2) the complexity, expense and likely duration of the Litigation;
(3) the stage of the proceedings, including the status of discovery;
(4) the factual and legal obstacles that could prevent the plaintiffs
from prevailing on the merits;
(5) the possible range of recovery and the certainty of damages; and
(6) the respective opinions of the participants, including Class Counsel,
class representatives and the absent class members.
The Court will make these determinations on the fairness of the proposed
Settlement at the final approval hearing, which is scheduled for September ,
2000 at 9 a.m. in the courtroom of the Honorable Michael Peden, 285th District
Court, Bexar County Courthouse, 100 Dolorosa Street, San Antonio, Texas. The
final approval hearing may be continued or adjourned from time to time by the
Court without further notice to you.
Any class member who has not opted out of the Settlement may appear at the
final approval hearing to demonstrate why the proposed Settlement should not
be approved as fair, reasonable, and adequate, why the Milkes Litigation
should not be dismissed with prejudice, or to present any opposition to the
proposed distribution of the Settlement Fund or to Class Counsel's application
for an award of attorneys' fees and expenses.
Unitholders will only be heard at the final approval hearing if they, on or
prior to September , 2000, submit written notice of their intention to
appear at the hearing to:
A. R. Milkes and D. R. Burlew, et al. v. Host Marriott Corporation, No. 96-
CI-08327
District Clerk
Bexar County Courthouse
100 Dolorosa Street
San Antonio, Texas 78205
and copies to:
Co-lead counsel:
Stephen M. Hackerman
Hackerman Peterson Frankel & Manela
1122 Bissonnet Street
Houston, Texas 77005
and counsel for Defendants:
Tom A. Cunningham, Esq.
Cunningham, Darlow, Zook & Chapoton, LLP
600 Travis, Suite 1700
Houston, Texas 77002
Attorneys for Host Marriott Corporation
40
<PAGE>
Seagal V. Wheatley, Esq.
Jenkens & Gilchrist, P.C.
1800 Frost Bank Tower
100 West Houston Street
San Antonio, Texas 78205
Attorneys for Marriott International, Inc.
As indicated in the Notice, the written notice of intention to appear at the
hearing should state: (1) all grounds for objection or other statement of
position, (2) a detailed description of the facts underlying each objection,
(3) a detailed description of the legal authorities supporting each objection,
(4) a statement of whether the objector intends to appear and argue at the
hearing and, if so, how long the objector anticipates needing to present the
objection, (5) a list of witnesses whom the objector may call by testimony or
affidavit, (6) a list of exhibits which the objector may offer during the
hearing, along with copies of such exhibits, showing proof of service on the
attorneys of record for all parties as indicated above.
Failure to timely submit a written notice of intention to appear at the
hearing will constitute a waiver of any objections and will foreclose the
raising of objections to the Settlement, to the dismissal with prejudice of
the action, to the proposed distribution of the Settlement Fund, and to the
fees and expenses requested by Class Counsel.
Procedures for Opting Out of the Settlement
Unitholders who do not wish to participate in the Settlement may exclude
themselves from the Settlement class by submitting to GEMISYS Corporation,
which has been retained by Class Counsel to act as the claims administrator
(the "Claims Administrator"), at the address set forth on the back cover page
of the Purchase Offer and Consent Solicitation, a written request to be
excluded (an "Opt-Out Notice"). The Opt-Out Notice must be received by the
Claims Administrator on or prior to the Expiration Date. As indicated in the
Notice, the Opt-Out Notice must include: (1) the name of the case (Milkes),
(2) the Unitholder's name, address and telephone number, social security
number or taxpayer identification number, (3) the number of Units held by the
Unitholder, (4) the date on which the Unitholder purchased the Units, (5) the
name of the Partnership (Courtyard by Marriott II Limited Partnership), (6) a
statement that the Unitholder is requesting to be excluded from the settlement
class, and (7) the Unitholder's signature. Units held by holders who have
opted out of the Settlement will be converted into the right to receive a cash
amount equal to the appraised value of such Units as determined in accordance
with the procedures described under the heading "--The Merger--Rights of
Unitholders Who Have Elected to Opt Out of the Settlement." The appraised
value of Units will not include any amount representing the value of the
settlement of the claims in the Milkes Litigation. Any amounts to be received
by any Unitholder in the Merger will be reduced by any amount owed by such
holder on the original purchase price of his or her Units.
Unitholders who wish to opt out of the Settlement should also complete,
execute and include with their Opt-Out Notice the Certificate of Non-Foreign
Status included in the Proof of Claim. Failure to include the Certificate of
Non-Foreign Status will result in certain amounts being withheld from the cash
payment representing the appraised value of Units to be received by
Unitholders who opt out of the Settlement. See "--Federal Income Tax
Considerations--Federal Tax Withholding Applicable to Participating and
Nonparticipating Unitholders" and Instruction 8 to the Proof of Claim.
Unitholders who fail to timely and validly submit an Opt-Out Notice will be
bound by all orders and judgments entered in the Milkes Litigation, whether
favorable or unfavorable to them.
The Merger
Pursuant to the Settlement Agreement, and in accordance with the provisions
of Section 17-211 of the Partnership Act, the Partnership, the Joint Venture
and CBM II Acquisition, L.P., a Delaware limited partnership
41
<PAGE>
and a subsidiary of the Purchaser ("Merger Sub"), have entered into the Merger
Agreement. The following summary of certain provisions of the Merger Agreement
is qualified in its entirety by reference to the complete text of the Merger
Agreement. A copy of the Merger Agreement may be obtained from the
Partnership, without charge, by requesting it in writing or by telephone from
the Partnership at the following address: Courtyard by Marriott II Limited
Partnership, 10400 Fernwood Road, Bethesda, Maryland 20817, Telephone: (301)
380-2070.
The Merger Agreement provides that Merger Sub will be merged with and into
the Partnership, with the holders of Units receiving cash in specified amounts
(except that the Units held by the General Partner and the Purchaser will be
converted into percentage interests in the surviving entity), and the General
Partner and the Purchaser will become the only holders of partnership
interests in the Partnership. The Partnership will be the surviving entity in
the Merger and Merger Sub will cease to exist. The Partnership will continue
its existence as a limited partnership under the laws of the State of
Delaware, and its name shall continue to be "Courtyard by Marriott II Limited
Partnership."
Effects of the Merger
The Merger will have the effects set forth in the Partnership Act. The sole
General Partner of the Partnership following the Merger will continue to be
CBM Two LLC, until it withdraws or is removed in accordance with the
Partnership Agreement, as amended, and the General Partner and the Purchaser
will be the only limited partners of the Partnership following the Merger.
Assuming the Unitholders consent to the Merger and the Amendments and the
other conditions to the Purchase Offer and the Merger are satisfied (or
waived, if waivable), the Partnership Agreement will be amended immediately
prior to the consummation of the Purchase Offer to give effect to the
Amendments. The Partnership Agreement will be amended and restated as soon as
practicable after the Merger to reflect the acquisition of the Units by the
Purchaser and other changes in accordance with the terms and conditions
thereof and applicable Delaware law.
Conversion of Partnership Interests in the Merger
In connection with the Merger: (1) all partnership interests in Merger Sub
will be cancelled, (2) each Unit held by a Unitholder (other than the
Purchaser or the General Partner) who has not delivered a Proof of Claim prior
to the Expiration Date and who has not elected to opt out of the Settlement
will be converted into the right to receive $147,959 per Unit (or a pro rata
portion thereof) in cash plus interest as described under "--The Settlement
Agreement." If the Court approves legal fees and expenses of approximately
$29,000 per Unit to Class Counsel, the net amount that each Unitholder will
receive in the Merger is approximately $119,000 per Unit, which amount will be
reduced by any amount owed by the holder on the original purchase price of his
or her Units, (3) the Units held by the Purchaser (including Units acquired in
the Purchase Offer) will be converted into a 93.61% limited partnership
interest in the Partnership, and (4) the 21.5 Units held by the General
Partner will be converted into a 1.39% limited partnership interest in the
Partnership, and the General Partner's general partnership interest in the
Partnership will remain outstanding so that the General Partner will continue
to own a 5% general partnership interest in the Partnership.
Rights of Unitholders Who Have Elected to Opt Out of the Settlement
If you elect not to participate in the Settlement by timely delivering an
Opt-Out Notice to the Claims Administrator as described herein, your Units
will be converted in the Merger into the right to receive cash in an amount
equal to the appraised value of such Units, determined in the following
manner. The appraised value of your Units in the Merger will be an amount that
you would receive if the entire equity interest in the Partnership were sold
for an amount equal to (i) the average of the appraised value of the
Partnership's portfolio of Hotels determined by two appraisers (in the manner
described in the paragraph below) plus (or minus) (ii) the net working capital
of the Partnership (to the extent not distributed to the partners) minus (iii)
the aggregate amount of indebtedness of the Partnership and its subsidiaries
minus (iv) the fair value of deferred management fees
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accrued under the Management Agreement minus (v) the amount of any commitments
for owner-funded capital expenditures and the estimated cost of any deferred
maintenance with respect to the Partnership's properties, and the proceeds of
such sale were then distributed among the partners of the Partnership in the
same manner as liquidation proceeds in accordance with the terms of the
Partnership Agreement. The liquidity of the Units will not be a factor in
determining the fair market value of the Units.
In order to determine the appraised value of the Partnership's portfolio of
Hotels, two independent, nationally recognized hotel valuation firms American
Appraisal Associates, Inc. and Pannell Kerr Forster Consulting, Inc., were
selected in consultation with Class Counsel and approved by the Court. These
independent valuation firms will appraise the market value of the
Partnership's portfolio of Hotels as of the Effective Date, which appraisals
will be completed within 60 days after the effective time of the Merger and
set forth in a report certified by a MAI appraiser as having been prepared in
accordance with the requirements of the Standards of Professional Practice of
the Appraisal Institute and the Uniform Standards of Professional Appraisal
Practice of the Appraisal Foundation (which may be based on site visits to 10
or more Hotels and a limited scope review to the extend deemed appropriate by
such appraisal firm). The Court will have no involvement in the appraisal
process. Unitholders who have opted out of the Settlement may obtain a copy of
the summary of the appraisal, free of charge, by requesting it in writing or
by telephone from the Partnership at the following address: Courtyard by
Marriott II Limited Partnership, 10400 Fernwood Road, Bethesda, Maryland
20817, Telephone: (301) 380-2070.
The valuation firms will not perform appraisals of each Hotel in the
Partnership's portfolio, which would involve assessing the local real estate
and lodging market condition, capitalization rates, capital expenditure
requirements, and other relevant factors for each Hotel separately, but rather
will value the portfolio of Hotels as a whole, which is likely to entail
employing more generalized assumptions regarding market and lodging conditions
and appropriate capitalization rates and portfolio wide capital expenditure
requirements, and other portfolio wide assumptions. Although it is not
expected that there would be material differences between the aggregate
results of individual Hotel appraisals and a portfolio appraisal, the results
would likely differ and the differences could be material.
In the fall of 1999, in connection with Merrill Lynch's efforts to sell the
Partnership, the Partnership received a preliminary nonbinding proposal from
the Blackstone Entities to acquire all of the equity of the Partnership at a
price equivalent to approximately $64,000 per Unit. The proposal was based on
a methodology of adjustments similar to the methodology described in the first
paragraph of this section. This proposal was never formalized and an agreement
in principle was never reached in part because of downward revisions in the
Manager's budgeted operating results for the Partnership's Hotels and the
Blackstone Entities' resulting re-evaluation of its own internal projections.
As of December 31, 1999, the Blackstone Entities owned approximately 17% of
the outstanding limited partnership units of Host LP (which are redeemable by
Host Marriott for shares of its common stock) and one of Blackstone Real
Estate Advisors, L.P.'s senior advisors and partners serves on the board of
directors of Host Marriott.
The appraised value of Units payable in the Merger to persons who opt out of
the Settlement may be more or less than $64,000 per Unit, depending upon the
market values of the Hotels determined by the independent appraisers and the
actual amount of the foregoing adjustments at the time of the Merger, which
may differ materially from the amounts on which the 1999 acquisition proposal
was based. In addition, the appraised value of the Hotels may differ from the
price that a third party would be willing to pay for the Partnership's entire
portfolio of Hotels and the appraised value per Unit may be lower or higher
than the Net Settlement Amount per Unit. If you opt out of the settlement
class and elect not to participate in the Settlement, the amount you will
receive in the Merger will not include any amount representing the value of
the settlement of the claims asserted against the Defendants in the Milkes
Litigation. Any consideration to be received in the Merger by any Unitholder
will be reduced by any amount owed by such holder on the original purchase
price of his or her Units. The Joint Venture will pay any expenses incurred in
connection with the appraisal process.
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The Amendments
The proposed amendments to the Partnership Agreement are discussed below.
Capitalized terms used herein but not defined have the meanings set forth in
the Partnership Agreement. In general, the proposed amendments are necessary
to consummate the Purchase Offer and the Merger. Approval of all four of the
Amendments by Unitholders holding a majority of the Units outstanding
(excluding the General Partner and its affiliates) is one of the conditions to
consummation of the Purchase Offer and the Merger. If for any reason the
Purchase Offer is not consummated, the Amendments to the Partnership Agreement
will not be implemented, even if they receive Unitholder approval. A copy of
the Partnership Agreement may be obtained from the Partnership, without
charge, by requesting it in writing or by telephone from the Partnership at
the following address: Courtyard by Marriott II Limited Partnership, 10400
Fernwood Road, Bethesda, Maryland 20817, Telephone: (301) 380-2070.
1. Elimination of Fifty Percent Transfer Restriction. Section 7.01.B of the
Partnership Agreement effectively prohibits the transfer of 50% or more of the
outstanding Units within a 12-month period. The proposed Amendment would
eliminate this restriction on the transfer of Units.
Purpose and Effect of the Amendment. Under Section 708 of the Internal
Revenue Code of 1986, as amended (the "Code"), a partnership is considered to
"terminate" for federal income tax purposes if 50% or more of the interests in
profits and capital are sold within a 12-month period (a "Section 708
Termination"). The Partnership Agreement, as currently written, prohibits any
assignment of Units that would result in a Section 708 Termination. Thus, the
Partnership Agreement, when read in conjunction with Section 708, permits the
transfer of up to, but not including, 50% of the total number of outstanding
Units in any consecutive 12-month period. The Purchase Offer and the Merger
would result in a transfer of all of the outstanding Units (except the 21.5
Units held by the General Partner). Accordingly, the General Partner is
proposing, at the request of the Joint Venture and the Purchaser, the deletion
of Section 7.01.B from the Partnership Agreement to facilitate consummation of
the Purchase Offer and the Merger.
The effect of this Amendment is to permit the Purchaser to acquire Units in
the Purchase Offer without regard to a 50% limit. This Amendment will not have
an adverse tax effect on limited partners, because they will not be limited
partners after the Merger.
Text of the Amendment. Section 7.01.B of the Partnership Agreement, which
currently reads as follows, would be deleted entirely by the Amendment:
No assignment of any Interest may be made if the assignment is pursuant
to a sale or exchange of the Interest and if the Interest sought to be
assigned, when added to the total of all other Interests assigned within a
period of 12 consecutive months prior thereto, would, in the opinion of
legal counsel for the Partnership, result in the Partnership being deemed
to have been terminated within the meaning of section 708 of the Code. The
General Partner shall give Notification to all Limited Partners in the
event that sales or exchanges should be suspended for such reason. Any
deferred sales or exchanges shall be made (in chronological order to the
extent practicable) as of the first day of an Accounting Period after the
end of any such 12-month period, subject to the provisions of this Article
Seven.
2. Revision of Restriction on Timing of Transfers. Section 7.01.A of the
Partnership Agreement permits the assignment of Units only on the first day of
an Accounting Period. The Amendment to Section 7.01.A would eliminate this
restriction for the transfer of Units to the Purchaser pursuant to the
Purchase Offer, and would exempt the Purchaser from this restriction for any
subsequent transfer of Units to another entity.
Purpose and Effect of the Amendment. Section 7.01A of the Partnership
Agreement permits the assignment of Units only on the first day of each
Accounting Period. Without amending the Partnership Agreement to permit the
waiver of this requirement, the closing date for the Purchase Offer would have
to fall on the first day of an Accounting Period, rather than an earlier or
later date that otherwise would be chosen as the closing date. Accordingly,
the General Partner has proposed, at the request of the Joint Venture and the
Purchaser, the inclusion in Section 7.01.A of a provision that would eliminate
the Section 7.01.A transfer
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restrictions for Units transferred pursuant to the Purchase Offer. The General
Partner also has proposed, at the request of the Joint Venture and the
Purchaser, that Unitholders exempt the Purchaser from this restriction for all
subsequent assignments of its Units to any other entity in order to provide
the Purchaser with the flexibility to transfer its Units on such date as may
be necessary to facilitate the transfer. Because such transfers would occur in
isolated transactions, the General Partner does not believe that, as a result
of such transfers, the Partnership would be treated as an association taxable
as a corporation under Section 7704 of the Code.
The effect of this Amendment is to permit the closing of the Purchase Offer
to occur on the earliest date practicable following the expiration of the
Purchase Offer, and in any event, on such date as is necessary to facilitate
the orderly consummation of the Purchase Offer. This Amendment will not have
an adverse tax effect on limited partners, because they will not be limited
partners after the Merger.
Text of the Amendment. Section 7.01.A of the Partnership Agreement would be
revised to add the underlined language set forth below:
No assignment of any Interest may be made other than on the first day of
an Accounting Period, provided, however, that this restriction on the
timing of assignment shall not apply to (i) any transfer of Units by
Limited Partners to CBM II Holdings LLC or (ii) any subsequent assignment
of any Units by CBM II Holdings LLC.
3. Amendments to Provisions Relating to Allocations of Profits and Losses
and Distributions of Cash. Section 4.05 of the Partnership Agreement provides
that net profits, gains, net losses or losses attributable to Units that are
transferred during the taxable year shall be allocated between the transferor
and transferee according to the number of accounting periods in such taxable
year that each owned the Units. If Units are transferred on a date other than
the first day of an accounting period, in violation of the transfer
restriction imposed by Section 7.01.A of the Partnership Agreement (discussed
above under "--Revision of Restriction on Timing of Transfers"), Section 4.05
requires that net profits, gains, net losses or losses attributable to the
Units for the accounting period in which the transfer occurs shall be prorated
between the transferor and the transferee if, and to the extent, legally
required in the opinion of legal counsel. Section 4.07.A of the Partnership
Agreement provides that cash available for distribution with respect to each
fiscal year of the Partnership shall be distributed at least annually. Section
4.10 of the Partnership Agreement provides that cash available for
distribution with respect to Units shall be distributed to the limited
partners pro rata in accordance with the number of Units held by each as of
the end of the accounting period with regard to which the distribution
relates. The Amendments to these provisions would clarify that Unitholders (1)
would receive allocations of profit or loss on their Units up through the
Effective Date rather than through the end of the preceding accounting period,
(2) would receive a distribution from cash available for distribution for the
period ending on the day prior to the date of the entry of the judgment order,
and (3) would not receive any additional cash distributions (including any
sale or refinancing proceeds) relating to periods beginning on or after the
date of the entry of the judgment order (which cash distributions would inure
to the benefit of the Purchaser), unless an appeal is filed with regard to the
judgment order (other than an appeal that relates solely to counsel fees and
expenses), in which case the Unitholders also would receive a distribution of
cash available for distribution for the period beginning on the date the
judgment order is entered and ending on the Effective Date.
Purpose and Effect of the Amendments. The change to Section 4.07 of the
Partnership Agreement has been proposed to permit Unitholders to receive a
distribution of cash available for distribution from the Partnership for the
period ending on the day prior to the date of the entry of the judgment order,
as required by the terms of the Settlement Agreement. In the event an appeal
is timely filed with regard to the judgment order after it is entered (other
than an appeal that relates solely to counsel fees and expenses), the proposed
change to Section 4.07 also would permit the Unitholders to receive a
distribution of cash available for distribution from the Partnership for the
period beginning on the date the judgment order is entered and ending on the
Effective Date. Because the Partnership distributes cash available for
distribution on an annual basis in accordance with Section 4.07.A, Section
4.10 otherwise would cause all cash distributions (including sale or
refinancing proceeds) with respect to the Units to be made to the Purchaser if
the Unitholders disposed of their Units before the end of the
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accounting period ending prior to the date of any such distributions from the
Partnership. As a result of amending Section 4.07 so as to require the
distributions described in the Settlement Agreement, the Unitholders will
receive a distribution of cash available for distribution for the period
ending on the day prior to the entry of the judgment order and, if an appeal
is filed with regard to the judgment order (other than an appeal that relates
solely to counsel fees and expenses), a distribution of cash available for
distribution for the period beginning on the date the judgment order is filed
and ending on the Effective Date but will receive no distributions for any
period after the Effective Date.
The proposed Amendment to Section 4.05 would require the Partnership to
allocate net profits, gains, net losses and losses with respect to the Units
for the fiscal year of the Partnership in which the judgment order becomes
final between the Purchaser and each Unitholder based upon the number of days
that each held such Units during such fiscal year (including any short fiscal
year for tax purposes resulting from a "technical" termination of the
Partnership pursuant to Section 708(b)(1)(B) of the Code). Because the
Partnership currently is generating net income, if the judgment order becomes
final on a date other than the first day of an Accounting Period, the
Amendment would result in a greater amount of taxable income being allocated
to the Unitholders than would be the case currently under the Partnership
Agreement. However, the additional allocation of taxable income would increase
each Unitholder's adjusted tax basis in his Units and, thus, would decrease
the amount of capital gain, or increase any capital loss, recognized by the
Unitholder in the Purchase Offer or as a result of the Merger. See "--Federal
Income Tax Considerations--Allocations of Profits and Losses to Participating
and Nonparticipating Unitholders."
The effect of this Amendment is to conform the allocation and distribution
provisions of the Partnership Agreement to the provisions of the Settlement
Agreement, so that the respective parties will have the cash and tax benefits
and burdens for the respective periods contemplated in the Settlement
Agreement, as described above.
Text of the Amendments. Section 4.05 of the Partnership Agreement would be
amended to add the underlined language set forth below:
Any Net Profits or Net Losses for any Fiscal Year allocable to the
Limited Partners shall be allocated among the Limited Partners pro rata in
accordance with the number of Units owned by each as of the end of such
Fiscal Year; provided that if any Unit is assigned during the Fiscal Year
in accordance with this Agreement, the Net Profits or Net Losses that are
so allocable to such Unit shall be allocated between the assignor and
assignee of such Unit according to the number of Accounting Periods in such
Fiscal Year each owned such Unit. Any Gains or Losses allocable to the
Limited Partners shall be allocated among the Limited Partners who held
Units on the last day of the Accounting Periods in which the sale or
disposition giving rise to such Gains or Losses occurred, pro rata in
accordance with the number of Units owned by each such Limited Partner. If
any Unit is assigned by a Limited Partner other than on the first day of an
Accounting Period (in contravention of the Agreement), then the Partnership
shall recognize such assignment for the purposes of allocating Net Profits,
Gains, Net Losses or Losses if, and to the extent, it is legally required
to do so in the opinion of legal counsel. Notwithstanding the foregoing,
each transfer of Units to CBM II Holdings LLC or acquisition of Units
pursuant to the merger of CBM II Acquisition L.P., an affiliate of CBM II
Holdings LLC, with and into the Partnership (the "Merger") pursuant to an
agreement and plan of merger (the "Merger Agreement"), with the Partnership
surviving, in connection with the settlement of certain claims brought by
the Limited Partners against the General Partner and other defendants, as
described in the Settlement Agreement, dated as of March 9, 2000 (the
"Settlement Agreement"), shall be considered to be in accordance with this
Agreement and the Net Profits, Gains, Net Losses or Losses for the Fiscal
Year (including any short Fiscal Year resulting from the termination of the
Partnership pursuant to Section 708(b)(1)(B) of the Code) in which the
transfer occurs shall be allocated between the transferor and the
transferee based upon the number of days that each held such Units during
such Fiscal Year.
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Section 4.07 of the Partnership Agreement would be amended to add new
Section 4.07.C, as set forth below:
Section 4.07.C. To effectuate the terms of the Settlement Agreement, the
Partnership shall make the following extraordinary distributions of Cash
Available for Distribution within 90 days after the end of the relevant
distribution period:
(i) To each Limited Partner, his pro rata share of Cash Available for
Distribution, as determined in accordance with the provisions of Section
4.07.A. above, with regard to the period ending on the day prior to the
date of the entry of the judgment order relating to the Settlement
Agreement (the "Judgment Order"). Subject to Section 4.07.C(ii) below,
after receipt of this distribution, no Limited Partner shall have a right
to any other distribution from the Partnership pursuant to this Article
Four or any other provision of this Agreement.
(ii) To each Limited Partner, if and only if an appeal with regard to the
Judgment Order is timely filed within the time permitted for such appeal
(other than an appeal that relates solely to counsel fees and expenses),
his pro rata share of Cash Available for Distribution, as determined in
accordance with the provisions of Section 4.07.A. above, with regard to the
period beginning on the date of the entry of the Judgment Order and ending
on the day on which the Judgment Order becomes "final" (as such term is
defined in the Settlement Agreement).
Notwithstanding the last sentence of Section 4.10, for allocation and
distribution purposes, each Limited Partner who transfers Units pursuant to
the Settlement Agreement or the Merger shall be deemed to be a Limited
Partner of record as of the end of the Accounting Period prior to each
distribution described in Section 4.07.C(i) and (ii) and Section 4.10 shall
be applied accordingly.
4. Amendment to Provisions Relating to Authority of the General Partner to
Manage the Partnership. Partnership Agreement contains provisions providing
for appraisal procedures in the event that the Partnership sells any Hotels to
the General Partner or an affiliate of the General Partner, and in the event
of a distribution of the Partnership's assets in connection with a
liquidation. Those appraisal procedures are intended to establish a fair
purchase price for the Hotels and the Partnership's assets in those limited
circumstances. Special Delaware counsel to the General Partner has advised the
General Partner that, because the Partnership is not selling any Hotels or
liquidating the Partnership, in connection with the Purchase Offer and the
Merger, the Partnership Agreement does not require the Partnership to conduct
an appraisal procedure of the type that would be required in the event of a
sale of Hotels to the General Partner or any of its affiliates or in the event
of a distribution of the Partnership's assets in connection with a
liquidation.
The procedure set forth in the Settlement Agreement and the Merger Agreement
providing for appraisal of the fair market value of the Units by one or more
third parties to establish the value of Units held by holders who have elected
to opt out of the Settlement is not required by the Partnership Agreement.
Rather, in connection with the Settlement, a purchase price for the Units in
the Purchase Offer, as well as the appraisal process for determining the value
of Units held by limited partners who have elected to opt out of the
Settlement, was established through arms'-length negotiations between
Defendants and Class Counsel.
Purpose and Effect of the Amendment. Section 5.01A of the Partnership
Agreement currently provides that, except as expressly provided in the
Partnership Agreement, the authority of the General Partner to conduct the
business of the Partnership shall be exercised only by the General Partner.
Section 5.01C of the Partnership Agreement delineates certain powers that the
General Partner may exercise without the consent of the limited partners. To
the extent that the appraisal procedure for determining the value of Units
held by limited partners who have elected to opt out of the Settlement could
otherwise be deemed to fall within the exclusive authority of the General
Partner to conduct the business of the Partnership, the proposed Amendment to
Section 5.01C would clarify that the General Partner has the power to delegate
the authority to conduct such appraisal procedures in accordance with the
Settlement Agreement and the Merger Agreement.
The effect of this Amendment is to permit the appraised value of Units held
by limited partners who opt out of the Settlement to be determined by
independent valuation firms for purposes of the Merger.
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Text of the Amendment. Section 5.01.C of the Partnership Agreement, would be
amended to add the underlined language set forth below:
(vii) sell up to 20 hotels (no more than five Hotels at less than the
Partnership's purchase price); and
(viii) retain such persons or entities as the General Partner, in its
sole discretion, shall deem necessary or appropriate in order to appraise
the fair market value of the Hotels and the value of the Units in
accordance with the terms of the Settlement Agreement and the Merger
Agreement; and
(ix) take such actions as the General Partner determines are advisable or
necessary, and will not result in any material adverse effect on the
economic position of holders of a majority of the Units, to preserve the
tax status of the Partnership as a partnership for Federal income tax
purposes.
Federal Income Tax Considerations
Summarized below are the material United States federal income tax
considerations of the Settlement.
General. The following discussion summarizes certain federal income tax
considerations related to the Settlement that may be relevant to (i) a
Unitholder who tenders his Units and submits the required Proof of Claim to
the Claims Administrator pursuant to the terms of the Purchase Offer and a
Unitholder who does not tender his Units and submit the Proof of Claim but who
does not affirmatively "opt out" of the Settlement (in either case,
hereinafter, a "Participating Unitholder"), or (ii) a Unitholder who
affirmatively "opts out" of the Settlement and therefore exchanges his Units
in the Merger (hereinafter, a "Nonparticipating Unitholder").
The information in this section is based upon the Internal Revenue Code of
1986, as amended (the "Code"), Treasury Regulations thereunder, rulings, and
other pronouncements and decisions now in effect, all of which are subject to
change (perhaps with retroactive effect). The General Partner has not
requested, and does not plan to request, any rulings from the IRS concerning
the tax treatment of the Unitholders in connection with the Settlement. Thus,
it is possible that the IRS would challenge the statements in this discussion,
which do not bind the IRS or the courts, and that a court would agree with the
IRS.
The discussion set forth herein is not intended to be exhaustive of all
possible tax considerations. For example, this summary does not give a
detailed discussion of any state, local, or foreign tax considerations. Nor
does it discuss all aspects of federal income taxation that may be relevant to
specific Unitholders in light of their particular circumstances. Except where
specifically indicated, the discussion below describes general federal income
tax considerations applicable to individuals who are citizens or residents of
the United States. Accordingly, the following discussion has limited
application to domestic corporations and persons subject to specialized
federal income tax treatment, such as foreign persons, tax-exempt entities,
regulated investment companies and insurance companies.
The following discussion includes an estimate by the General Partner, on a
per Unit basis, of a Unitholder's adjusted tax basis in his Units (including
the amount of syndication costs includible in his basis), the amount of the
Partnership's liabilities allocable to such Unitholder, the passive activity
loss carry forward, if any, attributable to his ownership of Units and the
amount of "unrecaptured Section 1250 gain" that such Unitholder would
recognize at the time of the disposition of his Units. These amounts are only
estimates, and there could be material differences between these estimated
amounts and the actual numbers due to a variety of factors. In addition, these
estimates apply only to a Unitholder who purchased his Units on the date of
the original offering of the Units and who has held his Units continuously
since that time. The estimated amounts could differ considerably for a
Unitholder who acquired some or all of his Units after the date of the
original offering. The amount of gain recognized by such Unitholders in
connection with the disposition of their Units pursuant to the Settlement will
depend upon when they acquired their Units and the price they paid for the
Units (as adjusted for subsequent allocations of Partnership income and loss
and subsequent Partnership distributions).
UNITHOLDERS SHOULD BOTH REVIEW THE FOLLOWING DISCUSSION AND CONSULT WITH
THEIR TAX ADVISORS TO DETERMINE THE TAX CONSEQUENCES TO THEM--INCLUDING ANY
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STATE, LOCAL OR NON-U.S. TAX CONSEQUENCES--IN LIGHT OF THEIR PARTICULAR TAX
SITUATION, OF CHOOSING TO PARTICIPATE IN THE SETTLEMENT OR OPTING OUT OF THE
SETTLEMENT.
The class of Participating Unitholders is represented by Class Counsel, who
have engaged Chamberlain, Hrdlicka, White, Williams, and Martin ("Chamberlain
Hrdlicka") as special tax counsel. Chamberlain Hrdlicka is separately
providing to the Unitholders its summary regarding the potential federal
income tax consequences resulting from the Settlement. You should review this
summary carefully with your tax advisor. That summary is solely the
responsibility of such special tax counsel, and none of the Purchaser, the
Partnership, the General Partner, the Joint Venture, Rockledge, the MI
Investor, any of the Defendants nor any of their affiliates or advisors
express any views with respect to the matters set forth therein or have any
responsibility with respect thereto.
Tax Treatment of Participating Unitholders. Each Participating Unitholder
will receive, either in the Purchase Offer or pursuant to the Merger, cash in
the amount of $147,959 per Unit (or a pro rata portion thereof), before
reduction (in the case of class members) for such Unitholder's pro rata share
of legal fees and expenses ("Class Counsel's Attorneys' Fees") awarded by the
court to Class Counsel (the "Gross Per Unit Settlement Amount"). Each
Participating Unitholder very likely will be deemed, solely for federal income
tax purposes, to have received two separate amounts, on a per Unit basis: (1)
an amount in exchange for his Units (for purposes of this discussion, the
"Deemed Unit Purchase Amount"), and (2) a separate amount in settlement of the
claims asserted in the Milkes Litigation (for purposes of this discussion, the
"Deemed Claim Value," which, as described below, may or may not be considered
to include the Unitholder's pro rata share of Class Counsel's Attorneys'
Fees).
The correct allocation of the Gross Per Unit Settlement Amount between the
Deemed Unit Purchase Amount and the Deemed Claim Value for federal income tax
purposes is a question of fact and may depend in part upon the fair market
value of the Units. None of the Defendants nor any of their affiliates are
taking any position regarding the allocation by the Participating Unitholders
of the Gross Per Unit Settlement Amount between the Deemed Unit Purchase
Amount and the Deemed Claim Value for federal income tax purposes. As
described above in "The Merger--Rights of Unitholders Who Have Elected to Opt
Out of the Settlement," however, Nonparticipating Unitholders will receive
cash in the Merger in an amount per Unit equal to the appraised value of a
Unit, as determined pursuant to a separate appraisal process that will be
completed within 60 days after the Merger. In addition, Class Counsel will
assert in court, for purposes of determining their legal fees, that the
plaintiffs are receiving in the Settlement benefits resulting from the Milkes
Litigation with a value that is in excess of the value of the Units under the
existing partnership structure and agreements. Finally, the Purchaser and the
Defendants will make an allocation between the Deemed Unit Purchase Amount and
the Deemed Claim Value for the purpose of determining the Purchaser's initial
tax basis in the Units acquired by it through the Purchase Offer and pursuant
to the Merger, the Purchaser's share of the Partnership's tax basis in its
property and the consequences to the Defendants of the Settlement for tax and
financial accounting purposes. There can be no assurance that the IRS would
not assert that a Participating Unitholder must treat the appraised value of
the Units held by the Nonparticipating Unitholders, the value of the benefits
received by the plaintiffs in settlement of the Milkes Litigation that is
asserted by Class Counsel in their petition for legal fees and expenses, the
amounts used by the Purchaser and the Defendants for determining the tax and
financial accounting consequences to them of the Settlement, or some other
measurement of value as determinative for purposes of allocating the Gross Per
Unit Settlement Amount between the Deemed Unit Purchase Amount and the Deemed
Claim Value.
Federal Tax Consequences of Disposition of Units. Each Participating
Unitholder will be treated as having made a taxable disposition of his Units
in the Purchase Offer or pursuant to the Merger. The disposition likely would
be deemed to occur, with regard to a Participating Unitholder who tenders his
Units and submits the Proof of Claim, on the date his right to receive the
Gross Per Unit Settlement Amount becomes fixed, which would be the Effective
Date, and, with regard to a Participating Unitholder who does not tender his
Units and submit the
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Proof of Claim, on the effective date of the Merger. The gain or loss
recognized by a Unitholder upon the disposition of his Units will equal the
difference between the amount considered realized by the Unitholder for tax
purposes in exchange for his Units (as described in the next paragraph) and
the Unitholder's adjusted tax basis in such Units (described below under
"Basis of Units of Participating and Nonparticipating Unitholders").
The amount considered realized by each Participating Unitholder will equal
the sum of the following items: (1) the cash received for his Units at the
time of the disposition (which will equal the Deemed Unit Purchase Amount and
will be deemed to include any amount owed by the Unitholder on the original
purchase price of his Units), and (2) the portion of the Partnership's
liabilities allocable to the Participating Unitholder's Units for federal
income tax purposes immediately prior to the date of the disposition of such
Units. The General Partner estimates that, as of December 31, 1999, the dollar
amount of the Partnership's liabilities allocable to each Participating
Unitholder was approximately $242,000 per Unit.
A Unitholder will recognize gain to the extent that the amount realized by
him in exchange for his Units (as determined in the preceding paragraph)
exceeds his adjusted tax basis in the Units (as described below under "Basis
of Units of Participating and Nonparticipating Unitholders"). The taxable gain
recognized by the Participating Unitholder will exceed the cash amount
received with respect to his Units by an amount equal to the excess (if any)
of his share of the Partnership's liabilities allocable to him for federal tax
purposes over his adjusted tax basis in his Units (which is commonly referred
to as a "negative capital account").
For a discussion of the federal income tax rates applicable to the gain
recognized by a Unitholder from the disposition of a Unit that has been held
as a capital asset by the Unitholder, see "Federal Income Tax Rates Applicable
to Gain from Disposition of Units by Participating and Nonparticipating
Unitholders" below.
Federal Tax Consequences of Receipt of Deemed Claim Value. As noted above,
there can be no certainty as to what portion of the Gross Per Unit Settlement
Amount would be considered allocable to the Deemed Claim Value (rather than
the Deemed Unit Purchase Amount). Moreover, there is considerable uncertainty
in the law as to how amounts that are treated as allocable to the Deemed Claim
Value received by a Participating Unitholder would be characterized for
federal income tax purposes.
The determination of the character and amount of income and gain recognized
by a plaintiff in connection with payments received in settlement of
litigation depends on many factors, including the nature and relative merits
of the claims made in the litigation that is being settled, and whether a
portion of the settlement payment that may otherwise be characterized as
capital in nature is subject to recharacterization as ordinary income to
reflect certain tax benefits realized by the plaintiff in prior years. In
general, an amount received in settlement of a claim may be characterized as
ordinary income (if the amount relates to lost profits or punitive damages) or
a return of capital or capital gain (if the amount relates to injury to
capital assets).
The complaints of the plaintiffs in the Milkes Litigation are specified in
their pleadings filed in that litigation. As described in the preceding
paragraph, to the extent the plaintiffs' complaints might be construed as
relating to injury to capital assets, a recovery attributable to those
complaints may result in the recognition of capital gain by the plaintiffs.
Conversely, to the extent the plaintiffs' complaints might be construed as
asking for lost profits or punitive damages, a recovery attributable to those
complaints may result in the recognition of ordinary income by the plaintiffs.
The Settlement Agreement does not address the relative merits of any of the
claims and does not provide for an allocation of all or a part of the Gross
Per Unit Settlement Amount to any specific claim. Moreover, there will be no
judicial determination of the merits of any of the various claims or the
proper allocation of the Gross Per Unit Settlement Amount among the claims. To
the extent that a Participating Unitholder takes the position that the Deemed
Claim Value should be characterized as a return of capital or capital gain,
there can be no assurance that the IRS would not challenge this position and
determine that some or perhaps even all of the Deemed Claim Value should be
treated by a Participating Unitholder as ordinary income for federal income
tax purposes.
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In the event that any interest accrued on the Deemed Claim Value is payable
to a Participating Unitholder, such Participating Unitholder will be required
to treat the interest as ordinary income for federal income tax purposes.
Tax Treatment of Class Counsel's Attorneys' Fees. As described above in
"Special Factors--The Settlement Agreement," the Net Settlement Amount
reflects a reduction for each Participating Unitholder's pro rata share of
Class Counsel's Attorneys' Fees. The IRS could take the position that each
Participating Unitholder must include in income his share of Plaintiff's
Counsel's Attorneys' Fees. There is existing judicial authority that would
support a position that, under certain circumstances, a plaintiff's attorneys'
fees and expenses that are paid by a defendant in litigation pursuant to a
judgment or settlement are excludable from the income of the plaintiff;
however, the facts in these cases are distinguishable from the facts
underlying the Milkes Litigation, and there can be no assurance that a court
would follow the decisions in those cases. The determination of whether a
Participating Unitholder must include in income his share of Class Counsel's
Attorneys' Fees may depend upon the laws of Texas or that of another state
(including the Participating Unitholder's state of residence) regarding the
relative rights under state law of a particular Participating Unitholder and
of Class Counsel to that portion of the Deemed Claim Value represented by
legal fees and expenses.
In the event that a Participating Unitholder must include his share of the
Class Counsel's Attorneys' Fees in income, the characterization of that amount
as ordinary income or capital gain would depend on the manner in which the
balance of the Deemed Claim Value is correctly characterized. For example, if
the Deemed Claim Value were determined to be allocable between claims for lost
profits and claims for injury to a capital asset, the legal fees allocated to
lost profits will be treated as ordinary income and the legal fees allocated
to the capital asset claim likely will be treated as a return of capital or
capital gain.
A Participating Unitholder may be able to claim a deduction on his federal
income tax return with regard to all or a portion of the Class Counsel's
Attorneys' Fees paid on his behalf by the Defendants to the extent those
amounts are required to be included in income. If the Participating Unitholder
is required to treat part of the Deemed Claim Value as ordinary income, the
corresponding part of the legal fees and expenses paid on his behalf that are
required to be included in income may be deductible currently under Section
162 (which addresses trade or business expenditures) or Section 212 (which
addresses expenditures for the production of income) of the Code. Because
(among other things) each Participating Unitholder is a limited partner rather
than a general partner, such Participating Unitholder may not be able to prove
that legal fees and expenses incurred in the Litigation are properly
characterized as trade or business expenditures, which is the necessary
prerequisite for an ordinary deduction under Section 162. Even if a
Participating Unitholder takes the position that all or a portion of the Class
Counsel's Attorneys' Fees that he is required to include in income relates to
the production of income and such position is respected (with the result that
the fees and expenses fall under Section 212), if such Participating
Unitholder is an individual, the Class Counsel's Attorneys' Fees would be
treated as a miscellaneous itemized deduction that is allowable as a deduction
only to the extent that the Participating Unitholder's total miscellaneous
itemized deductions (including the Class Counsel's Attorneys' Fees) exceeds
two percent (2%) of his adjusted gross income. Such deduction will be subject
to reduction if the Participating Unitholder's "adjusted gross income" for the
tax year with regard to which the deduction relates exceeds a specified amount
(which amount, for 2000, is $128,950 (or $64,475 in the case of a married
individual filing a separate return)). In calculating his "alternative minimum
taxable income," a Participating Unitholder who is an individual will not be
able to utilize any miscellaneous itemized deductions.
A Participating Unitholder will be required to capitalize (i.e., add to the
adjusted tax basis in his Units) any portion of the Class Counsel's Attorneys'
Fees that are paid on his behalf by the Defendants and that relate to capital
asset claims, resulting in a reduction of the total amount of capital gain, or
an increase in any capital loss, recognized by the Participating Unitholder as
a result of the Settlement.
Tax Treatment of Nonparticipating Unitholders. Each Nonparticipating
Unitholder will be treated as having made a taxable disposition of his Units
pursuant to the Merger, which disposition would be deemed to
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occur on the effective date of the Merger. The gain or loss recognized by a
Nonparticipating Unitholder upon the disposition of his Units will equal the
difference between the amount considered realized by the Unitholder for tax
purposes in exchange for his Units in the Merger and the Unitholder's adjusted
tax basis in such Units. See "Basis of Units of Participating and
Nonparticipating Unitholders" below.
The amount realized by each Nonparticipating Unitholder will equal the sum
of the following items: (1) the cash received for his Units at the time of the
Merger (as determined in accordance with the procedures described above in "--
The Merger--Rights of Unitholders Who Have Elected to Opt-Out of the
Settlement"), which will be deemed to include any amount owed by the
Nonparticipating Unitholder on the original purchase price of his Units, and
(2) the portion of the Partnership's liabilities allocable to the
Nonparticipating Unitholder's Units for federal income tax purposes
immediately prior to the Merger. The General Partner estimates that, as of
December 31, 1999, the dollar amount of the Partnership's liabilities
allocable to each Nonparticipating Unitholder was approximately $242,000 per
Unit.
To the extent that the amount realized, as determined in the preceding
paragraph, exceeds the Nonparticipating Unitholder's adjusted tax basis in the
Units, such Nonparticipating Unitholder will recognize gain. The taxable gain
recognized by the Nonparticipating Unitholder will exceed the cash amount
received with respect to his Units by an amount equal to the excess (if any)
of his share of the Partnership's liabilities allocable to him for federal tax
purposes over his adjusted tax basis in his Units (which is commonly referred
to as a "negative capital account").
For a discussion of the federal income tax rates applicable to the gain
recognized by a Nonparticipating Unitholder from the disposition of a Unit
that has been held as a capital asset by the Nonparticipating Unitholder, see
"--Federal Income Tax Rates Applicable to Gain from Disposition of Units by
Participating and Nonparticipating Unitholders" below.
Allocations of Profits and Losses to Participating and Nonparticipating
Unitholders. Pursuant to the Amendments, Unitholders will be allocated
Partnership profits and losses through the period ending on the date that the
judgment order relating to the Settlement becomes final. However, if no appeal
is filed after the judgment order is entered, Unitholders will receive a final
distribution of cash available for distribution (in accordance with the terms
of the Partnership Agreement) for the period ending on the day before the date
the judgment order is entered. Unitholders will not receive any distribution
that relates to the period beginning on the date of the entry of the judgment
order and ending on the date the judgment order becomes final (the "Appeal
Period") unless an appeal is filed with regard to the judgment order during
the Appeal Period (other than an appeal relating solely to counsel's fees), in
which event Unitholders also will receive a distribution of cash available for
distribution (in accordance with the terms of the Partnership Agreement) for
the Appeal Period. Any allocation of taxable income received by a Unitholder
with regard to the Appeal Period will increase such Unitholder's adjusted tax
basis in his Units and, thus, will decrease the amount of capital gain, or
increase any capital loss, recognized by the Unitholder as a result of the
disposition of his Units in the Purchase Offer or pursuant to the Merger. Any
distribution received by a Unitholder will decrease such Unitholder's adjusted
tax basis in his Units and, consequently, will increase the amount of capital
gain, or decrease any capital loss, recognized by the Unitholder as a result
of the disposition of his Units.
Basis of Units of Participating and Nonparticipating Unitholders. In
general, a Unitholder had an initial tax basis in his Units ("Initial Basis")
equal to his cash investment in the Partnership, plus his share of the
Partnership's liabilities allocable to him for tax purposes at the time he
acquired his Units. A Unitholder's Initial Basis generally has been increased
by (1) such Unitholder's share of Partnership taxable income, and (2) any
increases in his share of liabilities of the Partnership. Generally, such
Unitholder's Initial Basis has been decreased (but not below zero) by (a) his
share of Partnership cash distributions, (b) any decreases in his share of
liabilities of the Partnership, (c) his share of losses of the Partnership,
and (d) his share of nondeductible expenditures of the Partnership that are
not chargeable to capital. A Unitholder's basis in his Units would include his
share of the syndication costs incurred by the Partnership at formation if he
acquired his Units in the original offering.
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The General Partner estimates that, as of December 31, 1999, a Unitholder
who acquired his Units at the time of the original offering of such Units and
has held such Units at all times since the offering would have an adjusted
basis in each Unit of approximately $297,000 (which amount includes
approximately $242,000 attributable to his share of the Partnership's
nonrecourse liabilities). Such Unitholder's share of syndication costs would
be approximately $10,000 per Unit.
Federal Income Tax Rates Applicable to Gain from Disposition of Units by
Participating and Nonparticipating Unitholders. The disposition of Units by a
Unitholder in the Purchase Offer or pursuant to the Merger generally will
result in the recognition of capital gain by the Unitholder with respect to
the Deemed Unit Purchase Amount if the Units have been held by the Unitholder
as a capital asset. For corporations, the maximum rate of tax on the net
capital gain from a sale or exchange of a capital asset held for more than
twelve months is currently 35%. Generally, non-corporate Unitholders (i.e.,
individuals, trusts and estates) who have held their Units as capital assets
for more than 12 months will be taxed at a maximum long-term capital gain rate
of 20% on the disposition of those Units. However, a maximum rate of 25% for
non-corporate Unitholders may apply to capital gain that is recognized as a
result of the transfer of Units in the Purchase Offer or pursuant to the
Merger to the extent such capital gain is treated as "unrecaptured section
1250 gain" (i.e., previously claimed depreciation deductions with respect to
depreciable real property that would not be recaptured as ordinary income
pursuant to Sections 751 and 1250 of the Code, as described in the next
paragraph). While there is some uncertainty regarding the issue, the IRS takes
the position, for which there is support in legislative history, that a
Unitholder who has held his Units for more than one year prior to the
disposition of those Units will be subject to the 25% capital gain tax rate on
his share of the Partnership's "unrecaptured Section 1250 gain." Regulations
proposed by the IRS that were issued in August of 1999 would treat the amount
of "unrecaptured Section 1250 gain" that a partner must recognize upon the
disposition of his partnership interest as his share of the amount that would
result if his partnership had transferred all of its Section 1250 property in
a fully taxable transaction immediately prior to the disposition of his
partnership interest. There can be no assurance that such proposed
regulations, if adopted, would be adopted in their proposed form without
substantive revisions. Accordingly, Unitholders are urged to consult with
their own tax advisors with respect to their capital gain tax liability.
In addition, to the extent that the amount realized on the disposition of
the Units attributable to a Unitholder's share of the Partnership's inventory
items and/or "unrealized receivables" (as defined in Section 751 of the Code)
exceeds the basis attributable to those assets, such excess will be treated as
ordinary income, taxable to non-corporate Unitholders at a maximum statutory
rate of 39.6%. Unrealized receivables include amounts that would be subject to
recapture as ordinary income if the Partnership had sold its assets at their
fair market value at the time of the disposition of the Units, such as
"depreciation recapture" under Sections 1245 and 1250 of the Code.
The General Partner estimates that, as of December 31, 1999, the
"unrecaptured Section 1250 gain" of the Partnership that is taxable to non-
corporate Unitholders at the 25% capital gain rate was approximately $59,000
per Unit with regard to a Unitholder who acquired his Units in the original
offering of Units by the Partnership.
The General Partner has not estimated the fair market value of the
Partnership's personal property, and thus takes no position at this time as to
whether the value is such that a Unitholder would recognize ordinary income
pursuant to Sections 751 and 1245 upon the disposition of his Units. In any
event, the ordinary income amount would be equal to the Unitholder's share of
the excess, if any, of the value of such personal property at the time of
disposition of the Units over its adjusted basis at such time. For purposes of
determining its share of the Partnership's tax basis in its personal property
after the Purchase Offer and the Merger, however, the Purchaser will take the
position that the fair market value of the Partnership's personal property is
equal to its adjusted tax basis at the time of the Purchase Offer and the
Merger. If this position is respected by the IRS, no ordinary income would be
recognized pursuant to Sections 751 and 1245; however, there can be no
assurance that the IRS will respect the Purchaser's position.
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Passive Activity Income and Loss Carryforwards of Participating and
Nonparticipating Unitholders. Any gain recognized by a Unitholder in
connection with the disposition of his Units pursuant to the Settlement will
constitute "passive activity income" for purposes of the "passive activity
loss" limitation rules. Accordingly, such income generally may be offset by
losses from all sources, including "passive activity loss" carryforwards with
respect to the Partnership and "passive" or active losses from other
activities. The General Partner estimates that, as of December 31, 1999, a
Unitholder who purchased his Units at the time of the original offering, has
held those Units continuously since that time, and whose Units have been his
only investment in a passive activity would not have any passive activity loss
carryforward with respect to his Units.
Federal Tax Withholding Applicable to Participating and Nonparticipating
Unitholders. The federal income tax laws require that taxes be withheld on
amounts payable to foreign persons by reason of a disposition of certain
United States real property interests, which includes interests in certain
partnerships that hold real property in the United States. Withholding of ten
percent (10%) of the amount realized by a Unitholder pursuant to the Purchase
Offer or the Merger may be required unless the Unitholder completes, executes
and returns the Certificate of Non-Foreign Status included in the Proof of
Claim. Because uncertainty exists as to the correct allocation of the amount
received by a Participating Unitholder in the Purchase Offer or pursuant to
the Merger between the Deemed Unit Purchase Amount and the Deemed Claim Value,
solely for purposes of determining any amounts required to be withheld, the
"amount realized" by a Participating Unitholder will be treated as the sum of
(1) the amount of $147,959 per Unit (or a pro rata portion thereof) plus (2)
the Participating Unitholder's share of the Partnership's nonrecourse
liabilities immediately prior to the disposition of his Units. The "amount
realized" by a Nonparticipating Unitholder will be treated as the sum of (a)
the cash amount received for his Units at the time of the Merger (which will
be deemed to include any amount owed by the Nonparticipating Unitholder on the
original purchase price of his Units), plus (b) the Nonparticipating
Unitholder's share of the Partnership's nonrecourse liabilities immediately
prior to the disposition of his Units. See "Important Tax Information" in the
Proof of Claim.
Even if a Unitholder chooses not to return the rest of the Proof of Claim,
he or she should return the Certificate of Non-Foreign Status to prevent
federal income tax withholding on the amounts payable to him or her pursuant
to the Settlement.
* * * * *
BECAUSE THE INCOME TAX CONSEQUENCES OF THE DISPOSITION OF UNITS PURSUANT TO
THE SETTLEMENT WILL NOT NECESSARILY BE THE SAME FOR ALL UNITHOLDERS,
UNITHOLDERS CONSIDERING TENDERING THEIR UNITS SHOULD CONSULT THEIR TAX
ADVISORS WITH SPECIFIC REFERENCE TO THEIR OWN TAX SITUATIONS.
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THE PURCHASE OFFER
Terms of the Purchase Offer
Upon the terms, and subject to the conditions of, the Purchase Offer
(including, if the Purchase Offer is extended or amended, the terms and
conditions of any such extension or amendment), the Purchaser will accept for
payment and thereby purchase all Units validly tendered on or prior to the
Expiration Date and not validly withdrawn in accordance with the procedures
described under the heading "--Withdrawal Rights" of this Purchase Offer and
Consent Solicitation. The term "Expiration Date" means 12:00 midnight, New
York City time, on , September , 2000, unless and until the
Purchaser, in its sole discretion, shall have extended the period of time
during which the Purchase Offer is open, in which event the term "Expiration
Date" shall mean the latest time and date at which the Purchase Offer, as so
extended by the Purchaser, shall expire.
The Purchaser expressly reserves the right, in its sole discretion, at any
time or from time to time, to extend the period during which the Purchase
Offer is open by giving oral or written notice of such extension to the Claims
Administrator and making a public announcement thereof. There can be no
assurance that the Purchaser will exercise its right to extend the Purchase
Offer. During any such extension, all Units previously tendered and not
withdrawn will remain subject to the Purchase Offer and subject to the right
of a tendering Unitholder to withdraw such Units. See "--Withdrawal Rights."
For purposes of this Purchase Offer, a "business day" means any day other than
a Saturday, Sunday, or federal holiday and consists of the time period from
12:01 a.m. through 12:00 midnight, New York City time.
Subject to applicable rules and regulations of the SEC and to the provisions
of the Settlement Agreement and any applicable court order, the Purchaser
reserves the right, at any time or from time to time, to (a) terminate the
Purchase Offer and not accept for payment any Units, (b) delay acceptance for
payment or, regardless of whether such Units were accepted for payment,
payment for, any Units and not pay for any Units not accepted for payment or
paid for, until such time as the first condition referred to under the heading
"Special Factors--Conditions of the Purchase Offer and the Merger" is
satisfied, (c) waive any unsatisfied condition (if it is waivable) to its
obligation to acquire Units pursuant to the Purchase Offer, (d) extend the
period of time during which the Purchase Offer is open, or (e) otherwise amend
the Purchase Offer. Whenever the Purchaser extends the period during which the
Purchase Offer is open, makes a material change in the terms of the Purchase
Offer, waives a condition of the Purchase Offer, terminates the Purchase Offer
or otherwise amends the Purchase Offer, it will give oral or written notice of
such event to the Claims Administrator and make a public announcement thereof
in the manner provided below. The Purchaser acknowledges that (a) Rule 14e-
1(c) under the Exchange Act requires the Purchaser to pay the consideration
offered or return the Units tendered promptly after the termination or
withdrawal of the Purchase Offer (except as provided in clause (b) of the
first sentence of this paragraph) and (b) upon and after the Expiration Date,
the Purchaser may not delay acceptance for payment of, or payment for (except
as provided in clause (b) of the first sentence of this paragraph), any Units
if the second, third and fourth conditions specified under the heading
"Special Factors--Conditions of the Purchase Offer and the Merger" have been
satisfied, without extending the period of time during which the Purchase
Offer is open. The Purchaser has confirmed to the Partnership that it does not
intend to terminate the Purchase Offer for any reason other than the failure
of any of the conditions specified under the heading under the heading
"Special Factors--Conditions of the Purchase Offer and the Merger" to be
satisfied.
Any extension, delay in payment, termination, waiver of conditions, or
material amendment to the terms of the Purchase Offer will be followed as
promptly as practicable by a public announcement thereof, and such
announcement in the case of an extension will be made no later than 9:00 a.m.,
New York City time, on the next business day after the previously scheduled
Expiration Date. Without limiting the manner in which the Purchaser may choose
to make any public announcement, subject to applicable law (including Rules
14d-4(c), 14d-6(d) and 14e-1 under the Exchange Act, which require that
material changes be promptly disseminated to holders of Units), the Purchaser
shall have no obligation to publish, advertise or otherwise communicate any
such public announcement other than by issuing a release to the Dow Jones News
Service or by a letter sent to the Unitholders.
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If the Purchaser makes a material change in the terms of the Purchase Offer
or the information concerning the Purchase Offer, or waives a material
condition of the Purchase Offer, the Purchaser will extend the Purchase Offer
and disseminate additional tender offer materials to the extent required by
Rules 14d-4(d), 14d-6(c) and 14e-1 under the Exchange Act. Those rules
prescribe that the minimum period during which a tender offer must remain open
following material changes in the terms of the tender offer or information
concerning the tender offer, other than a change in price or a change in
percentage of securities sought or in any dealer's soliciting fee, will depend
upon the facts and circumstances, including the relative materiality of the
terms or information changed. The SEC has announced in a published release
that in its view a tender offer must remain open for a minimum period of time
following a material change in the terms of a tender offer or in information
concerning a tender offer. The release states that a tender offer should
remain open for a minimum of five business days from the date the material
change is first published, sent or given to security holders and that, if
material changes are made with respect to information that approaches the
significance of price and share levels, a minimum of 10 business days may be
required to allow for adequate dissemination and investor response.
If, by the Expiration Date, the second, third and fourth conditions to the
Purchase Offer set forth under the heading "Special Factors--Conditions of the
Purchase Offer and the Merger," have not been satisfied, the Purchaser may, in
its sole discretion, elect to (a) extend the Purchase Offer and, subject to
applicable withdrawal rights, retain all tendered Units until the expiration
of the Purchase Offer, as extended, subject to the terms of the Purchase
Offer, (b) in the case of the second condition, waive the unsatisfied
condition and not extend the Purchase Offer or (c) terminate the Purchase
Offer and return all tendered Units to tendering Unitholders and be relieved
from any obligations under the Settlement Agreement.
If an order of an appropriate court denying approval of the Settlement
becomes final after all applicable appeals have been exhausted or if the
parties to the Settlement Agreement decide to terminate the Settlement as to
the Partnership, the Purchase Offer will terminate and all tendered Units will
be returned to the tendering Unitholders as soon as practicable.
The Partnership has provided the Purchaser and the Claims Administrator with
a list of Unitholders and security position listings for the purpose of
disseminating the Purchase Offer and Consent Solicitation to Unitholders. This
Purchase Offer and Consent Solicitation and the related documents and, if
required, other relevant materials will be mailed to record holders of Units
and will be furnished for subsequent transmittal to beneficial owners of Units
to brokers, dealers, commercial banks, trust companies and similar persons
whose names, or the names of whose nominees, appear on the Unitholder list or,
if applicable, who are listed as participants in a clearing agency's security
position listing for subsequent transmittal to beneficial owners of Units.
The Purchaser does not currently intend to make available a "subsequent
offering period" as provided for in Rule 14d-11 of the Exchange Act.
Rights of Class Members Who Sold Their Units But Did Not Assign Their
Litigation Claims
If a Unitholder purchased a Unit from a class member without obtaining an
assignment of that class member's litigation claims, the Purchaser will still
pay $147,959 for each Unit that such Unitholder tenders in the Purchase Offer
or that is converted in the Merger. However, this amount represents not only
the value of such Unitholder's Units, but also the value of the settlement of
the claims asserted in the Milkes Litigation. Accordingly, the $147,959 per
Unit (or a net amount per unit of approximately $119,000 after payment of
court awarded legal fees and expenses to Class Counsel of approximately
$29,000 per Unit), or a pro rata portion thereof will have to be divided
between such Unitholder and the class member from whom such Unitholder
purchased the Units. If such Unitholder and the former class member are unable
to agree on how the money should be divided, the division will be made by a
special master appointed by the Court.
Payment for the Units will be made by deposit of the purchase offer price
therefor with the Escrow Agent. Upon deposit of the Settlement Fund with the
Escrow Agent for the purpose of making payment to validly tendering
Unitholders, the Purchaser's obligation to make such payment shall be
satisfied and such tendering
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Unitholders must thereafter look solely to Class Counsel and the Escrow Agent
for payment of the amounts owed to them by reason of acceptance for payment of
Units pursuant to the Purchase Offer or the Merger. None of the Purchaser, the
Joint Venture, Rockledge, MI Investor, Marriott International, Host Marriott,
Host LP or any of the Defendants in the Litigation shall have any
responsibility for or liability whatsoever with respect to the investment or
distribution of the Settlement Fund, the determination, administration,
calculation or payment of claims, or any losses incurred in connection
therewith, or with the formulation or implementation of the plan of allocation
of the Settlement Fund, or the giving of any notice with respect to same.
Provisions for Unaffiliated Unitholders.
Neither the Purchaser, the Joint Venture, Marriott International, MI
Investor, Rockledge, Host Marriott nor Host LP will grant Unitholders that are
unaffiliated with such entities access to the corporate files of such
entities. Nor will such entities provide unaffiliated Unitholders with counsel
or appraisal services at the expense of such entities.
Settlement Fund; Acceptance for Payment; Payment for Units
Upon the terms and subject to the conditions of this Purchase Offer and
Consent Solicitation (including, if the Purchase Offer is extended or amended,
the terms and conditions of any such extension or amendment), on or before the
third business day following the entry by the Court of an executed judgment
order approving the Settlement, the Purchaser or the Joint Venture, or one or
more of their designees, will pay or cause to be paid by wire transfer the
Settlement Fund to the Escrow Agent. The Escrow Agent will deposit the
Settlement Fund in an interest-bearing account.
If the judgment order becomes final without an appeal (other than an appeal
that relates solely to counsel fees and expenses) and you have submitted a
valid Proof of Claim to the Claims Administrator on or before the Effective
Date, within seven business days following such date, the Escrow Agent will
distribute to you the Net Settlement Amount for each Unit held by you. If you
submit a valid Proof of Claim after the Effective Date, the Escrow Agent will
distribute to you the Net Settlement Amount for each Unit held by you within
seven business days following the receipt of the Proof of Claim by the Claims
Administrator. If you have not submitted a valid Proof of Claim to the Claims
Administrator within 90 days following the Effective Date and you have not
opted out of the Settlement, Class Counsel will execute a Proof of Claim on
your behalf. The execution of a Proof of Claim by Class Counsel on behalf of a
limited partner will entitle such limited partner to receive the Net
Settlement Amount for each Unit held by him or her and release, on behalf of
such limited partner, all claims that are released, settled and discharged as
part of the Settlement as provided in the Proof of Claim. The Escrow Agent
will not distribute funds from the Settlement Fund to any limited partner
unless and until a valid Proof of Claim for that limited partner is received,
whether from such limited partner or from Class Counsel. The Net Settlement
Amount to be received by any Unitholder will be reduced by any amount owed by
the holder on the original purchase price of his or her Units.
If you or any other plaintiff files an appeal of the judgment order (other
than an appeal that relates solely to counsel fees and expenses), the Escrow
Agent will return the Settlement Fund, with interest, to the Purchaser or the
Joint Venture, or their designees, within two days after receiving
documentation of such event. If an order of an appellate court affirming the
judgment order subsequently becomes final, then the Purchaser or the Joint
Venture, or their designees, will return the Settlement Fund to the Escrow
Agent within three business days thereafter, with interest thereon under
certain circumstances. See "Special Factors--The Settlement Agreement."
The Purchaser and the Escrow Agent expressly reserve the right to delay the
acceptance for payment of, or payment for, Units in order to comply in whole
or in part with any applicable law and the terms of the Settlement Agreement
and any applicable court order.
Units tendered pursuant to the Purchase Offer may be withdrawn at any time
on or prior to the Expiration Date and, unless accepted for payment by the
Purchaser pursuant to the Purchase Offer, may also be withdrawn at any time
after September , 2000. Units will be returned promptly at such time as it is
finally determined that such conditions will not be satisfied (or waived). In
addition, written consents submitted prior to the Expiration Date will remain
valid and outstanding after the Expiration Date and will not expire until the
conditions for consummation of the Purchase Offer are satisfied (or waived, if
waivable) or until such time as it is finally determined that such conditions
will not be satisfied or waived.
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For purposes of the Purchase Offer, the Purchaser will be deemed to have
accepted for payment (and thereby purchased) Units validly tendered and not
withdrawn as, if and when the Purchaser gives oral or written notice to the
Claims Administrator that the "Effective Date" under the Settlement Agreement
has occurred.
If, prior to the Expiration Date, the Purchaser increases the consideration
offered per Unit, the Purchaser will pay such increased consideration to all
holders of Units purchased pursuant to the Purchase Offer, whether or not such
Units have been tendered prior to such increase in the consideration.
Procedures for Accepting the Purchase Offer and Tendering Units
In order for a Unitholder to validly tender Units pursuant to the Purchase
Offer, a properly completed and duly executed Proof of Claim (or facsimile
thereof) and any other documents required by the Proof of Claim must be
received by the Claims Administrator at its address set forth on the back
cover of this Purchase Offer and Consent Solicitation on or prior to the
Expiration Date.
If the Units are registered in the name of a person other than the signer of
the Proof of Claim, or if payment is to be made to a person other than the
registered holder of the Units surrendered, then the Proof of Claim must be
accompanied by duly executed powers signed exactly as the name or names of the
registered holder or holders appear in the records of the Partnership. See
Instruction 4 of the Proof of Claim.
The method of delivery of the Proof of Claim and all other required
documents is at the option and risk of each tendering Unitholder. If delivery
is by mail, registered mail with return receipt requested, properly insured,
is recommended. In all cases, sufficient time should be allowed to ensure
timely delivery.
Notwithstanding any other provision hereof, payment for Units accepted for
payment pursuant to the Purchase Offer will in all cases be made only after
receipt by the Claims Administrator of a properly completed and duly executed
Proof of Claim (or facsimile thereof) and any other documents required by the
Proof of Claim.
Appointment as Proxy. By executing the Proof of Claim, a tendering
Unitholder irrevocably appoints designees of the Purchaser, jointly and
separately, as such Unitholder's attorneys-in-fact and proxies in the manner
set forth in the Proof of Claim, each with full power of substitution, to the
full extent of such Unitholder's rights with respect to the Units tendered by
such Unitholder and accepted for payment by the Purchaser and with respect to
any and all other Units or other securities or rights issued or issuable in
respect of such Units after the date of this Purchase Offer and Consent
Solicitation. All such proxies shall be considered coupled with an interest in
the tendered Units. This appointment will become effective when the judgment
order rendered by the Court becomes final. Upon such acceptance for payment,
all prior proxies given by such Unitholder with respect to such Units or other
securities or rights will, without further action, be revoked, and no
subsequent proxies may be given (and, if given, will not be deemed effective)
by such Unitholder. The designees of the Purchaser will, with respect to such
Units and other securities or rights, be empowered to exercise all voting and
other rights of such Unitholder as the designees, in their sole discretion,
may deem proper at any annual, special or adjourned meeting of the
Unitholders, by written consent in lieu of any such meeting or otherwise. The
Purchaser reserves the right to require that, in order for Units to be deemed
validly tendered, immediately after the judgment order rendered by the Court
becomes final, the Purchaser must be able to exercise full voting and other
rights with respect to such Units and other securities or rights including
voting at any meeting of Unitholders then scheduled or acting by written
consent. In addition, by executing a Proof of Claim, a tendering Unitholder
agrees promptly to remit and transfer to the Claims Administrator for the
account of the Purchaser any and all cash dividends, distributions, rights,
other Units and other securities issued or issuable in respect thereof on or
after the date that the Court renders a judgment order (assuming there is no
appeal of the order) or, in the event of an appeal, the date that the judgment
order becomes final. Pending such remittance or appropriate assurance thereof,
the Purchaser shall be entitled to all rights and privileges as owner of any
such other Units or other securities or property and may withhold the entire
purchase price or deduct from the purchase price the amount or value of any
such dividends, distributions, rights, other Units and other securities, as
determined by the Purchaser in its sole discretion.
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Determination of Validity. The Claims Administrator will review the
validity, form and eligibility (including the timeliness of receipt) of Units
tendered pursuant to any of the procedures described above. All issues as to
the validity, form, eligibility and acceptance for payment of any tendered
Units will be determined by the Court. No tender of Units will be deemed to
have been validly made until all defects and irregularities have been cured or
waived. None of the Purchaser, the Joint Venture, Rockledge, Host Marriott,
Host LP or Marriott International, any of their affiliates or assigns, if any,
the Claims Administrator, or any other person will be under any duty to give
notification of any defects or irregularities in tenders or incur any
liability for failure to give any such notification.
It is a violation of Section 14(e) of the Exchange Act and Rule 14e-4
promulgated thereunder for a person to tender Units for his or her account
unless the person so tendering (1) owns such Units or (2) owns other
securities convertible into or exchangeable for such Units or owns an option,
warrant or right to purchase such Units and intends to acquire such Units for
tender by conversion, exchange or exercise of such option, warrant or right.
Rule 14e-4 provides a similar restriction applicable to the tender or
guarantee of a tender on behalf of another person.
A tender of Units made pursuant to any one of the procedures set forth above
will constitute the tendering Unitholder's acceptance of the terms and
conditions of the Purchase Offer, including the tendering Unitholder's
representation that (1) such Unitholder owns the Units being tendered within
the meaning of Rule 14e-4 and (2) the tender of such Units complies with Rule
14e-4.
Please note, however, that tendering your Units in the Purchase Offer does
not in itself constitute your consent to the Merger and Amendments. You can
only consent to the Merger and the Amendments by executing the YELLOW Consent
Form and returning it to the Claims Administrator prior to the Expiration Date
in the manner described under the heading "The Written Consents--Voting and
Revocation of Consents."
Withdrawal Rights
Except as otherwise provided in this Section, tenders of Units made pursuant
to the Purchase Offer are irrevocable. Units tendered pursuant to the Purchase
Offer may be withdrawn at any time on or prior to the Expiration Date and,
unless theretofore accepted for payment by the Purchaser pursuant to the
Purchaser Offer, may also be withdrawn at any time after September , 2000,
but any Consent Form properly executed and received and not withdrawn prior to
the Expiration Date will become binding and irrevocable after the Expiration
Date and will be deemed coupled with an interest. See "The Written Consents--
Voting and Revocation of Consents." Units will be returned promptly at such
time as it is finally determined that such conditions will not be satisfied or
waived.
In order for a withdrawal to be effective, a written, telegraphic or
facsimile transmission notice of withdrawal must be timely received by the
Claims Administrator at its address or number set forth on the back cover of
this Purchase Offer and Consent Solicitation. Any such notice of withdrawal
must specify the name of the person who tendered the Units to be withdrawn,
the number of Units to be withdrawn, and the name of the registered holder of
the Units to be withdrawn, if different from that of the tendering Unitholder.
Withdrawals of Units may not be rescinded and any Units properly withdrawn,
thereafter, will be deemed not validly tendered for purposes of the Purchase
Offer. However, withdrawn Units may be re-tendered at any time prior to the
Expiration Date by following one of the procedures described under the heading
"--Procedures for Accepting the Purchase Offer and Tendering Units."
All questions as to the form and validity (including the timeliness of
receipt) of any notice of withdrawal will be determined by the Court. Neither
the Purchaser, the Joint Venture, Marriott International, MI Investor,
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Rockledge, Host Marriott or Host LP, nor any of their affiliates or assigns,
if any, the Claims Administrator nor any other person will be under any duty
to give notification of any defects or irregularities in any notice of
withdrawal or incur any liability for failing to give any such notification.
Market for the Partnership's Limited Partnership Units and Related Security
Holder Matters
There is currently no established public trading market for the Units, and
it is not anticipated that a public market for the Units will develop.
Transfers of Units are limited to the first date of each Accounting Period (as
defined in the Partnership Agreement) and may be made only to accredited
investors. All transfers are subject to approval by the General Partner. As of
July 10, 2000, there were 1,480 holders (including holders of half-units) of
record of the 1,470 Units.
During 1999, 12 Units were sold by Unitholders at prices ranging from
$67,975 to $81,700 per Unit. Since January 1, 2000, 1.5 Units have been sold
by Unitholders at a price of $80,000 per Unit. However, these transfers have
not been approved by the General Partner and purchasers of these 1.5 Units
have not been admitted as limited partners to the Partnership. The Partnership
does not have any information regarding the circumstances surrounding any of
the above sales and believes that these sales prices are not necessarily
indicative of the market value of the Units.
The Settlement Agreement provides that, until the judgment order approving
the Settlement becomes final, the limited partners in the Partnership will
continue to own their respective Units. The General Partner will cause the
Partnership to make distributions of Cash Available for Distribution (as
defined in the Partnership Agreement) for the period until the judgment order
is entered. Following entry of the judgment order, and until the order becomes
final, assuming there is no appeal other than an appeal as to counsel fees and
expenses, no further Cash Available for Distribution will be distributed. If
an appeal is filed, the General Partner will cause the Partnership to make
distributions of Cash Available for Distribution for the period until the
judgment order becomes final.
As of December 31, 1999, the Partnership had distributed a total of
$100,467,000 to the limited partners ($68,345 per limited partner unit) since
inception. During 1999, $8,820,000 ($4,500 and $1,500 per Unit from 1999 and
1998 operations, respectively) was distributed to the limited partners and an
additional $3,675,000 ($2,500 per Unit) was distributed to the limited
partners in February 2000 bringing the total distribution from 1999 operations
to $10,290,000 ($7,000 per Unit). The Partnership distributed $9,555,000 to
the limited partners ($6,500 per Unit) from 1998 operations. The Partnership
distributed $13,230,000 to the limited partners ($9,000 per Unit) from 1997
operations. No distributions of capital receipts have been made since
inception.
Transfer Fees and Taxes
Except as set forth in this paragraph, the Purchaser will pay or cause to be
paid any transfer taxes and fees with respect to the transfer and sale of
purchased Units to it or its order, pursuant to the Purchase Offer. If,
however, payment of the purchase price for the Units is to be made to, or if
tendered Units are registered in the name of, any person other than the
person(s) signing the Proof of Claim, the amount of any transfer taxes
(whether imposed on the registered holder(s) or such person) payable on
account of the transfer to such person will be deducted from the purchase
price for the Units unless satisfactory evidence of the payment of such taxes
or exemption therefrom is submitted. See also Instruction 5 to the Proof of
Claim. The Purchaser will not subtract any transfer fees from the Net
Settlement Amount per Unit, other than as described in this paragraph.
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THE WRITTEN CONSENTS
In accordance with the terms of the Settlement Agreement, the General
Partner is soliciting the consent of the Unitholders to (1) the Merger and (2)
all four of the Amendments to the Partnership Agreement. As discussed in more
detail under "Special Factors--The Settlement Agreement," the Merger and the
proposed Amendments must receive Unitholder approval in order for Unitholders
to have the opportunity to receive the cash price per Unit offered pursuant to
the Purchase Offer. For a discussion of the conflicts of interest of the
Purchaser, the General Partner and their respective affiliates with respect to
the Amendments, the Merger and the Purchase Offer, see "Special Factors--
Certain Transactions with the Partnership."
Record Date and Outstanding Units
The General Partner has set the close of business on July 10, 2000 as the
record date for the determination of Unitholders entitled to consent to the
Merger and the Amendments. The only Unitholders who will be entitled to
consent to the Merger and the Amendments will be Unitholders of record as of
the record date who have been admitted to the Partnership as limited partners
and who are not in default with respect to the original purchase price of
their Units. On the record date, there were 1,470 Units issued and
outstanding, held of record by 1,480 Unitholders. The Partnership has no other
class of securities.
Majority Vote Required; Voting Rights
Under the Partnership Agreement, approval of the Merger and the Amendments
require the affirmative consent of Unitholders (excluding the General Partner
and its affiliates) holding a majority of the issued and outstanding Units. An
abstention or failure to timely return the enclosed Consent Form will have the
same effect as not consenting to the Merger and the Amendments. With the
exception of the General Partner, the Purchaser, and their respective
affiliates, each Unitholder who has been admitted to the Partnership as a
limited partner is entitled to cast one vote for each Unit held of record on
the Merger and the Amendments, other than Unitholders who are in default with
respect to the original purchase price of their Units who shall not be
entitled to cast a vote with respect to such Units. Holders of half-Units are
entitled to cast half a vote for each half-Unit held of record. Units held by
the General Partner, the Purchaser, and their affiliates cannot be voted on
the Merger and the Amendments. The Claims Administrator, an independent
intermediary, has been retained by Class Counsel to tabulate and validate the
written consents. The Claims Administrator also currently serves as the
Partnership's transfer agent. All issues regarding the validity of any written
consents will be determined by the Court.
Solicitation Period
The solicitation period is the time during which Unitholders may vote for or
against the Merger and the Amendments. The solicitation period will commence
upon delivery of this Purchase Offer and Consent Solicitation and will
continue until 12:00 midnight, New York City time, on September , 2000
unless the Purchase Offer is extended by the Purchaser, in which case the
solicitation period will be extended to such later date that coincides with
the expiration date of the Purchase Offer, and as to which notice is given to
Unitholders.
Voting and Revocation of Consents
A YELLOW Consent Form is included with this Purchase Offer and Consent
Solicitation. The Consent Form should be properly executed and returned to the
Claims Administrator, GEMISYS Corporation, Proxy Department, 7103 South Revere
Parkway, Englewood, Colorado 80112. In addition, properly completed and
executed Consent Forms may be returned to the Claims Administrator via
facsimile: (303) 705-6171. In order for the Consent Forms transmitted via
facsimile to be valid, the entire Consent Form (front and back) must be
received by GEMISYS. Such notices and Consent Forms transmitted via facsimile
will be deemed to have been received and dated on the date they are actually
received by GEMISYS.
Any properly executed Consent Forms received by GEMISYS prior to the
Expiration Date will be voted in accordance with the instructions contained
therein. All properly executed Consent Forms that contain no
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voting instructions will be deemed to have consented to the Merger and all
four of the Amendments. Consent Forms will be effective only when actually
received by the Claims Administrator prior to the Expiration Date. Consent
Forms may be withdrawn at any time prior to the Expiration Date. In addition,
subsequent to the submission of a Consent Form, but prior to the Expiration
Date, Unitholders may change their vote. For a withdrawal or change of vote to
be effective, Unitholders must execute and deliver to the Claims
Administrator, prior to the Expiration Date, a subsequently dated Consent Form
or a written notice stating that the consent is revoked. Unitholders may
submit such subsequently dated Consent Form or written notice via regular mail
or facsimile, provided that it is received by the Claims Administrator on or
prior to the Expiration Date. In order for subsequently dated Consent Forms
transmitted via facsimile to be valid, the entire subsequently dated Consent
Form (front and back) must be received by GEMISYS on or prior to the
Expiration Date. Any subsequently dated Consent Form or written revocation
notices transmitted via facsimile will be deemed to have been received and
dated on the date they are actually received by GEMISYS. Consent Forms and
notices of withdrawal or change of vote dated after the Expiration Date will
not be valid. All properly executed Consent Forms that are received and not
withdrawn prior to the Expiration Date will become binding and irrevocable
after the Expiration Date and will be deemed coupled with an interest. Valid
written consents submitted prior to the Expiration Date will remain valid and
outstanding after the Expiration Date and will not expire until the conditions
for consummation of the Purchase Offer are satisfied (or waived, if waivable)
or until such time as it is finally determined that such conditions will not
be satisfied or waived. Questions concerning (1) how to complete the Consent
Form, (2) where to remit the Consent Form or (3) obtaining additional Consent
Forms should be directed to the Claims Administrator. Substantive questions
concerning the Consent Form should be directed to David Berg or Jim Moriarty,
counsel to the class action plaintiffs. Mr. Berg's telephone number is (713)
529-5622 and Mr. Moriarty's telephone number is (713) 528-0700.
Effective Time of Amendments
If approved by the Unitholders, the Amendments will become effective when
the General Partner executes and delivers an Amended and Restated Agreement of
Limited Partnership incorporating the Amendments in accordance with the
Partnership Agreement. Assuming the Unitholders will consent to the Merger and
the Amendments and the other conditions to the Purchase Offer and the Merger
will be satisfied (or waived, if waivable), it is contemplated that the
General Partner will execute and deliver the Amended and Restated Agreement of
Limited Partnership immediately prior to the consummation of the Purchase
Offer. If for any reason the Purchase Offer is not consummated, however, the
Amendments to the Partnership Agreement will not be implemented, even if they
receive Unitholder approval.
Effective Time of the Merger
As soon as practicable after all conditions of the Purchase Offer and the
Merger have been satisfied (or waived, if waivable), the General Partner will
file a certificate of merger with the Secretary of State of the State of
Delaware. The Merger shall become effective upon the filing of the certificate
of merger with the Secretary of State of the State of Delaware or upon such
later time as is provided in the certificate of merger.
No Special Meeting
The Partnership Agreement does not require a special meeting of Unitholders
to consider the Merger or the Amendments. Accordingly, no such meeting will be
held.
Rights of Appraisal
The Partnership was organized under the Partnership Act. Under the
Partnership Act a limited partnership agreement or a merger agreement may
contractually provide for appraisal rights with respect to limited partnership
interests. Neither the Partnership Agreement nor the Merger Agreement provides
for a judicial appraisal of Units in connection with the Merger. However, the
Settlement Agreement and the Merger Agreement provide that upon consummation
of the Merger, each Unit held by a holder who elects not to participate in the
Settlement by delivering an Opt-Out Notice to the Claims Administrator no
later than the Expiration Date will
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be converted into the right to receive the appraised value of such Unit, not
including any amount representing the value of the settlement of the claims
asserted in the Milkes Litigation, as determined in accordance with the
provisions in the Settlement Agreement and the Merger Agreement, and reduced
by any amount owed by the Unitholder on the original purchase price of his or
her Units. Unitholders who wish to opt out of the Settlement must follow the
procedures described under the heading "Special Factors--Procedures for Opting
Out of the Settlement."
Interests of Certain Persons in the Matters to be Acted Upon
In considering whether to vote for or against the Merger and the Amendments,
you should be aware that the General Partner, Host Marriott and Marriott
International are Defendants. Accordingly, the General Partner, Host Marriott,
MI Investor, Rockledge, Marriott International and Host LP have a conflict of
interest with respect to this consent solicitation and make no recommendation
to any Unitholder as to whether to vote for or against the Merger and the
Amendments.
Your vote in favor of the Merger and the Amendments does not require that
you tender your Units pursuant to the Purchase Offer. If you desire to receive
the Net Settlement Amount for each of your Units, you should submit the Proof
of Claim and consent to the Merger and the Amendments. If you desire to have
the value of your Units appraised pursuant to the terms of the Settlement
Agreement and the Merger Agreement, you should consent to the Merger and the
Amendments, not tender your Units and submit an Opt-Out Notice to the Claims
Administrator no later than the Expiration Date. If you do not wish the
Settlement to be consummated, you should not consent to the Merger and the
Amendments.
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OTHER MATTERS
Fees and Expenses
Class Counsel has retained GEMISYS Corporation to act as the Claims
Administrator in connection with the Purchase Offer and the Consent
Solicitation. The Claims Administrator will be paid a fee of approximately
$25,000 for its services in connection with the Milkes Litigation. The Claims
Administrator will be reimbursed for certain reasonable out-of-pocket expenses
and will be indemnified against certain liabilities and expenses in connection
with the Purchase Offer and the Consent Solicitation, including certain
liabilities under federal securities law. The costs of sending the Notice and
the Purchase Offer and Consent Solicitation and related materials to the
Partnership's limited partners will be paid by the Joint Venture. Other fees
and expenses will be paid out of any interest accrued on the settlement funds
with respect to the Litigation during the time the settlement funds (including
the settlement funds relating to the other Marriott Partnerships) are in
escrow. See "Special Factors--The Settlement Agreement." To the extent such
accrued interest is insufficient to cover the Claims Administrator's fees and
expenses, the fees will be paid by the Joint Venture.
The Court has approved the retention of Chase Bank of Texas, N.A. to act as
escrow agent for the settlement funds relating to all of the Litigation
covered by the Settlement Agreement. The Escrow Agent will be paid a fee of
approximately $25,000 for its services in connection with the Milkes
Litigation. The Escrow Agent will be paid out of any interest accrued during
the time the settlement funds with respect to the Litigation (including the
settlement funds relating to the other Marriott Partnerships) are in escrow.
To the extent such accrued interest is insufficient to cover the fees, the
fees will be paid by the Joint Venture.
Neither the Purchaser, the Joint Venture, Marriott International, MI
Investor, Rockledge, Host Marriott nor Host LP will pay any fees or
commissions to any broker or dealer or any other person for soliciting tenders
of Units pursuant to this Purchase Offer and Consent Solicitation (other than
the fees to the Claims Administrator). Brokers, dealers, commercial banks and
trust companies will, upon request, be reimbursed by the Joint Venture for
customary mailing and handling expenses incurred by them in forwarding
materials to their customers.
It is estimated that the expenses incurred by the Joint Venture in
connection with the consummation of this Purchase Offer and Consent
Solicitation will be approximately as set forth below (none of which are
payable by the Partnership):
<TABLE>
<S> <C>
Accounting Fees.................................................. $ 4,100
Claims Administrator Fees and Expenses........................... $ 25,000
Fees to Merrill Lynch............................................ $3,000,000
Legal Fees....................................................... $ 950,000
Printing Costs................................................... $ 75,000
Appraisal Fees................................................... $ 250,000
Escrow Agent Fees................................................ $ 25,000
Filing Fees...................................................... $ 42,800
Interest......................................................... $
Miscellaneous.................................................... $ 128,100
----------
Total.......................................................... $4,500,000
==========
</TABLE>
Miscellaneous
The Purchase Offer and Consent Solicitation is being made to all holders of
Units. The Purchaser is not aware of any state where the making of the
Purchase Offer or the soliciting of consents is prohibited by administrative
or judicial action pursuant to any valid state statute. If the Purchaser
becomes aware of any valid state statute prohibiting the making of the
Purchase Offer or the acceptance of Units pursuant thereto, or the soliciting
of consents, the Purchaser will make a good faith effort to comply with such
state statute. If, after such good faith effort, the Purchaser cannot comply
with such state statute, the Purchase Offer and Consent Solicitation will not
be made to nor will tenders be accepted from or on behalf of the holders of
Units in such state.
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WHERE YOU CAN FIND MORE INFORMATION
Pursuant to Rule 14d-3 of the General Rules and Regulations under the
Exchange Act, the Purchaser, the Joint Venture, Marriott International, MI
Investor, Rockledge, Host Marriott and Host LP have filed with the SEC a
Tender Offer Statement on Schedule TO, and pursuant to Rule 14d-9 and Rule
14a-6 of the Exchange Act, the Partnership has filed with the SEC a
Solicitation/Recommendation Statement on Schedule 14D-9 and a Consent
Solicitation Statement on Schedule 14A, respectively, together with exhibits,
furnishing certain additional information with respect to the Purchase Offer
and the Consent Solicitation. In addition, the Partnership files annual,
quarterly and special reports and other information with the SEC. You may read
and copy any reports, statements or other information that the Partnership
files with the SEC at the SEC's public reference rooms in Washington, D.C.,
New York, New York and Chicago, Illinois. Please call the SEC at 1-800-SEC-
0330 for further information on the public reference rooms. These SEC filings
are also available to the public from commercial document retrieval services
and at the Internet world wide web site maintained by the SEC at
http://www.sec.gov. Copies of such materials may also be obtained from the
Public Reference Section of the SEC at 450 Fifth Street, N.W., Washington,
D.C. 20549 at prescribed rates.
The SEC allows the Partnership to "incorporate by reference" information
into this Purchase Offer and Consent Solicitation, which means that the
Partnership can disclose important information to you by referring you to
other documents filed separately with the SEC. The information incorporated by
reference is considered part of this Purchase Offer and Consent Solicitation,
except for any information superseded by information contained directly in
this Purchase Offer and Consent Solicitation or in later filed documents
incorporated by reference in this Purchase Offer and Consent Solicitation.
This Purchase Offer and Consent Solicitation incorporates by reference the
documents set forth below that the Partnership has previously filed with the
SEC. These documents contain important information about the Partnership and
its financial performance.
<TABLE>
<CAPTION>
SEC Filings Period
----------- ------
<S> <C>
Annual Report on Form 10-K filed March 28,
2000..................................... Fiscal year ended December 31, 1999
Quarterly Report on Form 10-Q filed May 8,
2000..................................... Quarter ended March 24, 2000
Current Report on Form 8-K................ Dated April 28, 2000
</TABLE>
The Partnership also incorporates by reference additional documents that it
may file with the SEC between the date of this Purchase Offer and Consent
Solicitation and the date that the Purchase Offer and Merger are consummated.
These include periodic reports, such as Annual Reports on Form 10-K, Quarterly
Reports on Form 10-Q and Current Reports on Form 8-K. If you are a Unitholder,
we may have sent you some of the documents incorporated by reference, but you
can obtain any of them through the SEC or the SEC's Internet web site as
described above.
Documents incorporated by reference are available from the Partnership
without charge, excluding all exhibits, except that if the Partnership has
specifically incorporated by reference an exhibit in this Purchase Offer and
Consent Solicitation, the exhibit will also be available without charge.
Unitholders may obtain documents incorporated by reference in this Purchase
Offer and Consent Solicitation and any exhibits filed herewith, including a
copy of the Merger Agreement and the Partnership Agreement, from the
Partnership, without charge, by requesting them in writing or by telephone
from the Partnership at the following address:
Courtyard by Marriott II Limited Partnership
10400 Fernwood Road
Bethesda, Maryland 20817
Telephone: (301) 380-2070
You should rely only on the information contained or incorporated by
reference in this Purchase Offer and Consent Solicitation. We have not
authorized anyone to provide you with information that is different from what
is contained in this Purchase Offer and Consent Solicitation. This Purchase
Offer and Consent Solicitation is dated August , 2000. You should not assume
that the information contained in this Purchase Offer and Consent
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Solicitation is accurate as of any date other than that date. The mailing of
this Purchase Offer and Consent Solicitation does not create any implication
of the contrary.
No person has been authorized to give any information or make any
representation on behalf of the Partnership, the General Partner, the Joint
Venture, Marriott International, MI Investor, Rockledge, the Purchaser, Host
Marriott or Host LP not contained herein or in the Proof of Claim and, if
given or made, such information or representation must not be relied on as
having been authorized.
CBM II Holdings LLC
August , 2000
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SCHEDULE I
DIRECTORS AND EXECUTIVE OFFICERS OF MARRIOTT INTERNATIONAL, INC.,
MI CBM INVESTOR LLC, ROCKLEDGE HOTEL PROPERTIES, INC., HOST MARRIOTT
CORPORATION, HOST MARRIOTT, L.P., CBM JOINT VENTURE LLC AND CBM II HOLDINGS
LLC
The following table sets forth the name, business address and principal
occupation or employment at the present time and during the last five years,
and the name, principal business and address of any corporation or other
organization in which such employment is or was conducted, of each director
and executive officer of Marriott International, Inc., MI CBM Investor LLC,
Rockledge Hotel Properties, Inc., Host Marriott Corporation, Host Marriott,
L.P., CBM Joint Venture LLC and CBM II Holdings LLC. The business address of
each such person is 10400 Fernwood Road, Bethesda, Maryland 20817. Except as
otherwise noted, each occupation set forth below a person's name refers to
employment with Marriott International, Inc., MI CBM Investor LLC, Rockledge
Hotel Properties, Inc., Host Marriott Corporation, Host Marriott, L.P., CBM
Joint Venture LLC and CBM II Holdings LLC, respectively, and each such person
has held such occupation for at least the past five years and, other than Dr.
Cheng, each such person is a citizen of the United States. Except as otherwise
noted, where an office with Marriott International, Inc. is set forth opposite
a person's name, that person has held that office since March 1998, when the
present Marriott International, Inc. was spun off from the prior corporation
of the same name ("Old Marriott International," now known as Sodexho Marriott
Services, Inc.) and prior to that spin-off held the same office with Old
Marriott International.
I. Marriott International, Inc.
Present Principal Occupation or
Employment and Material Occupations, Offices or
Name Employment Held During the Past Five Years
---- -----------------------------------------------
J.W. Marriott, Jr. is Chairman of the Board
and Chief Executive Officer of Marriott
International. He joined Marriott
Corporation (now known as Host Marriott
Corporation) in 1956, became President and
J.W. Marriott, Jr. ... Chairman a director in 1964, Chief Executive Officer
of the Board and in 1972 and Chairman of the Board in 1985.
Chief Executive Officer Mr. Marriott also is a director of Host
Marriott Corporation, General Motors
Corporation and the Naval Academy Endowment
Trust. He serves on the Board of Trustees
of the National Geographic Society and The
J. Willard & Alice S. Marriott Foundation,
and the Board of Directors of Georgetown
University, and is a member of the
Executive Committee of the World Travel &
Tourism Council and the Business Council.
Mr. Marriott has served as Chief Executive
Officer of Marriott International since its
inception in 1997, and served as Chairman
and Chief Executive Officer of Old Marriott
International from October 1993 to March
1998. Mr. Marriott has served as a director
of Marriott International since March 1998.
Todd Clist..... Vice President; Todd Clist joined Marriott Corporation in
President, North American 1968. Mr. Clist served as general manager
Lodging Operations of several hotels before being named
Regional Vice President, Midwest Region for
Marriott Hotels, Resorts and Suites in
1980. Mr. Clist became Executive Vice
President of Marketing for Marriott Hotels,
Resorts and Suites in 1985, and Senior Vice
President, Lodging Products and Markets in
1989. Mr. Clist was named
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Present Principal Occupation or
Employment and Material Occupations, Offices or
Name Employment Held During the Past Five Years
---- -----------------------------------------------
Executive Vice President and General
Manager for Fairfield Inn in 1990, for both
Fairfield Inn and Courtyard in 1991, and
for Fairfield Inn, Courtyard and Residence
Inn in 1993. Mr. Clist was appointed to his
current position in January 1994.
Jeffrey W. Ferguson ........... Jeffrey W. Ferguson joined Marriott
Executive Vice President-- International in January 2000 as Senior
Marriott Senior Living Vice President and Chief Operating Officer
Services for Marriott's Senior Living Services
division. Prior to joining Marriott Senior
Living Services, Mr. Ferguson spent 15
years with HRC-ManorCare Corporation, the
last six years as Vice President and
General Manager of the Midwest Division. He
was also on the Northwest Ohio Alzheimer's
Association Board of Trustees for six
years, serving as President in 1997-98, and
on the Health Care Association of
Michigan's Board of Directors from 1995-
1999. Mr. Ferguson was appointed Executive
Vice President of Marriott Senior Living
Services in June 2000.
Edwin D. Fuller........... Vice Edwin D. Fuller joined Marriott Corporation
President; President and in 1972 and held several sales positions
Managing Director--Marriott before being appointed Vice President of
Lodging International Marketing in 1979. He became Regional Vice
President in the Midwest Region in 1985,
Regional Vice President of the Western
Region in 1988, and in 1990 was promoted to
Senior Vice President & Managing Director
of International Lodging, with a focus on
developing the international group of
hotels. He was named Executive Vice
President and Managing Director of
International Lodging in 1994, and was
promoted to his current position of
President and Managing Director of
International Lodging in 1997.
Gilbert M. Grosvenor........... Gilbert M. Grosvenor is Chairman of the
Director Board of the National Geographic Society (a
publisher of books and magazines and
producer of television documentaries) and a
director or trustee of Chevy Chase Federal
Savings Bank, Ethyl Corporation, B.F. Saul
REIT and Saul Centers, Inc. He is on the
Board of Visitors of the Nicholas School of
the Environment of Duke University. Mr.
Grosvenor served as a member of the Board
of Directors of Old Marriott International
(and prior to October 1993 of Marriott
Corporation) from 1987 to March 1998, and
has served as a director of Marriott
International since March 1998.
Henry Cheng Kar-Shun........... Henry Cheng Kar-Shun has served as Managing
Director Director of New World Development Company
Limited ("New World Development"), a
publicly held Hong Kong real estate
development and investment company, since
1989. He is the Chairman of New World China
Land Limited, New World CyberBase Limited,
New World Infrastructure Limited and Tai
Fook Group Limited and a director of HKR
International
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Present Principal Occupation or
Employment and Material Occupations, Offices or
Name Employment Held During the Past Five Years
---- -----------------------------------------------
Limited and Kwoon Chung Bus Holding
Limited, all of which are publicly-held
Hong Kong companies. Dr. Cheng serves as an
executive officer of Chow Tai Fook
Enterprises Limited, a privately-held
family company that controls New World
Development. Dr. Cheng served as Chairman
and Director of Renaissance Hotel Group
N.V. from June 1995 until its purchase by
Old Marriott International in March 1997.
He is Chairman of the Advisory Council for
The Better Hong Kong Foundation. Dr. Cheng
serves as a member of the Services
Promotion Strategy Group, a unit under the
Hong Kong Financial Secretary's Office, and
as a Committee Member of the Eighth and
Ninth Chinese People's Political
Consultative Committee of the People's
Republic of China. Dr. Cheng has also
served as a member of the Election
Committee of the Hong Kong Special
Administrative Region. Dr. Cheng served as
a director of Old Marriott International
from June 1997 to March 1998, and has
served as a director of Marriott
International since March 1998.
Brendan M. Keegan......... Vice Brendan M. Keegan joined Marriott
President; Executive Vice Corporation in 1971, in the Corporate
President--Human Resources Organization Development Department and
subsequently held several human resources
positions, including Vice President of
Organization Development and Executive
Succession Planning. In 1986, Mr. Keegan
was named Senior Vice President, Human
Resources, Marriott Service Group. In April
1997, Mr. Keegan was appointed Senior Vice
President of Human Resources for Marriott
International's worldwide human resources
functions, including compensation,
benefits, labor and employee relations,
employment and human resources planning and
development. In February 1998, he was
appointed to his current position.
Richard E. Marriott... Director Richard E. Marriott is Chairman of the
Board of Host Marriott Corporation. He is
also Chairman of the Board of First Media
Corporation and serves as a trustee of
Gallaudet University, Polynesian Cultural
Center, Primary Children's Medical Center,
Boys and Girls Clubs of America SE Region
and The J. Willard & Alice S. Marriott
Foundation. He is President and a member of
the Board of Trustees of the Marriott
Foundation for People with Disabilities and
President and a director of the R.E.M.
Family Foundation, Inc. He also serves on
the Board of Trustees of Federal City
Council and the Advisory Committee for the
International Hotel and Restaurant
Association. Prior to 1993, Mr. Marriott
served as an Executive Vice President and
member of the Board of Directors of
Marriott Corporation. Mr. Marriott has been
a director of Marriott Corporation (now
known as Host Marriott Corporation) since
1979, served as a director of Old Marriott
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Present Principal Occupation or
Employment and Material Occupations, Offices or
Name Employment Held During the Past Five Years
---- -----------------------------------------------
International from October 1993 to March
1998, and has served as a director of
Marriott International since March 1998.
Floretta Dukes McKenzie........ Floretta Dukes McKenzie is the founder,
Director Chairwoman and Chief Executive Officer of
The McKenzie Group, Inc. (an educational
consulting firm). She is also a director or
trustee of Potomac Electric Power Company
(PEPCO), National Geographic Society,
Acacia Group, Group Hospitalization and
Medical Services, Inc. (GHMSI), Howard
University, White House Historical
Association, American Association of School
Administrators Leadership of Learning
Foundation, Lightspan Partnership, Inc.,
Impact II--The Teachers Network, National
School Board Foundation, Institute for
Educational Leadership, Inc., Forum for the
American School Superintendent, Harvard
Graduate School of Education Urban
Superintendents Program and Johns Hopkins
Leadership Development Program. From 1981
to 1988, she served as Superintendent of
the District of Columbia Public Schools and
Chief State School Officer. Dr. McKenzie
served as a director
of Old Marriott International (and prior to
October 1993 of Marriott Corporation) from
1992 to March 1998, and has served as a
director of Marriott International since
March 1998.
Harry J. Pearce....... Director Harry J. Pearce is Vice Chairman of the
Board of General Motors Corporation (an
automobile manufacturer) and a director of
General Motors Acceptance Corporation,
Hughes Electronics Corporation, Alliance of
Automobile Manufacturers, MDU Resources
Group, Inc. and the Bone Marrow Foundation
and is a member of the U.S. Air Force
Academy's Board of Visitors. He also serves
on the Board of Trustees of Howard
University and Northwestern University and
is a member of the Northwestern University
School of Law's Law Board. Mr. Pearce
served as a director of Old Marriott
International from 1995 to March 1998, and
has served as a director of Marriott
International since March 1998.
William T. Petty.......... Vice William T. Petty joined Marriott
President; Executive Vice Corporation in 1984 as Vice President of
President, North American Planning & Business. He has since held a
Lodging Operations number of positions with Marriott
Corporation and Marriott International,
becoming Vice President of Market Planning
in 1985; General Manager of the Atlanta
Perimeter Marriott Hotel in 1989; Vice
President of Operations for Marriott's time
share division in 1990; Regional Vice
President for Lodging Operations in 1991;
and Senior Vice President for the Western
Region in 1995. Mr. Petty was appointed to
his present position in December 1998.
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<PAGE>
Present Principal Occupation or
Employment and Material Occupations, Offices or
Name Employment Held During the Past Five Years
---- -----------------------------------------------
Robert T. Pras joined Marriott Corporation
in 1979 as Executive Vice President of
Fairfield Farm Kitchens, the predecessor of
Marriott Distribution Services. In 1981,
Mr. Pras became Executive Vice President of
Robert T. Pras............ Vice Procurement and Distribution. In May 1986,
President; President--Marriott Mr. Pras was appointed to the additional
Distribution Services position of General Manager of Marriott
Corporation's Continuing Care Retirement
Communities. He was named Executive Vice
President and General Manager of Marriott
Distribution Services in 1990. Mr. Pras was
appointed to his current position in
January 1997.
W. Mitt Romney........ Director
W. Mitt Romney was appointed President and
Chief Executive Officer of the Salt Lake
Olympic Committee on February 19, 1999. He
is a director, President and Chief
Executive Officer of Bain Capital, Inc. (a
private equity investment firm). He is also
a director of Staples, Inc. Mr. Romney is a
member of the Executive Board of the Boy
Scouts of America and the board of the
National Points of Light Foundation. Mr.
Romney served as a member of the Board of
Directors of Old Marriott International
(and of Marriott Corporation prior to
October 1993) from 1993 to March 1998 and
has served as a director of Marriott
International since March 1998.
Joseph Ryan..... Executive Vice
President and General Counsel Joseph Ryan joined Old Marriott
International in December 1994 as Executive
Vice President and General Counsel. Prior
to that time, he was a partner in the law
firm of O'Melveny & Myers, serving as the
Managing Partner from 1993 until his
departure. He joined O'Melveny & Myers in
1967 and was admitted as a partner in 1976.
Roger W. Sant......... Director Roger W. Sant is Chairman of the Board of
The AES Corporation (a global power
company) which he co-founded in 1981. Since
1994, Mr. Sant has chaired the Board of
World Wildlife Fund (U.S.). He also chairs
the Board of The Summit Foundation, and is
a Board member of WWF-International and The
National Symphony. Mr. Sant served as a
director of Old Marriott International from
1993 to March 1998, and has served as a
director of Marriott International since
March 1998.
Horst H. Schulze.......... Vice Horst H. Schulze has served as the
President; President and Chief President and Chief Operating Officer of
Operating Officer, The Ritz- The Ritz-Carlton since 1988. Mr. Schulze
Carlton Hotel Company, LLC joined The Ritz-Carlton in 1983 as Vice
President, Operations and was appointed
Executive Vice President in 1987. Prior to
1983, he spent nine years with Hyatt Hotels
Corporation where he held several positions
including Hotel General Manager, Regional
Vice President and Corporate Vice
President.
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Present Principal Occupation or
Employment and Material Occupations, Offices or
Name Employment Held During the Past Five Years
---- -----------------------------------------------
William J. Shaw has served as President and
Chief Operating Officer of Marriott
International since March 1997 (including
service in the same capacity with Old
Marriott International until March 1998).
William J. Shaw...... Director, Mr. Shaw joined Marriott Corporation in
President and Chief Operating 1974, was elected Corporate Controller in
Officer 1979 and a Vice President in 1982. In 1986,
Mr. Shaw was elected Senior Vice
President--Finance and Treasurer of
Marriott Corporation. He was elected Chief
Financial Officer and Executive Vice
President of Marriott Corporation in April
1988. In February 1992, he was elected
President of the Marriott Service Group.
Mr. Shaw is also Chairman of the Board of
Directors of Sodexho Marriott Services,
Inc. He also serves on the Board of
Trustees of the University of Notre Dame
and the Suburban Hospital Foundation. Mr.
Shaw has served as a director of Old
Marriott International (now named Sodexho
Marriott Services, Inc.) since May 1997,
and as a director of Marriott International
since March 1998.
Lawrence M. Small..... Director
Lawrence M. Small is the Secretary of the
Smithsonian Institution, the world's
largest combined museum and research
complex, a position to which he was elected
in September, 1999. Prior to becoming the
11th Secretary, he served as President and
Chief Operating Officer of Fannie Mae, the
nation's largest housing finance company,
since 1991. Before joining Fannie Mae, Mr.
Small had served as Vice Chairman and
Chairman of the Executive Committee of the
Board of Directors of Citicorp and
Citibank, N.A., since January 1990. He had
been associated with Citibank since 1964.
He is also a director of The Chubb
Corporation, New York City's Spanish
Repertory Theatre, the John F. Kennedy
Center for the Performing Arts, the
National Gallery, the Woodrow Wilson Center
International Center for Scholars and Mt.
Sinai-NYU Medical Center and Health System.
Mr. Small served as director of Old
Marriott International from 1995 to March
1998, and he has served as a director of
Marriott International since March 1998.
Arne M. Sorenson..... Executive
Vice President and Chief Arne M. Sorenson joined Old Marriott
Financial Officer International in 1996 as Senior Vice
President of Business Development. He was
instrumental in Marriott International's
acquisition of the Renaissance Hotel Group
in 1997. Prior to joining Marriott, he was
a partner in the law firm of Latham &
Watkins in Washington, D.C., where he
played a key role in 1992 and 1993 in the
distribution of Old Marriott International
by Marriott Corporation. Effective October
1, 1998, Mr. Sorenson was appointed
Executive Vice President and Chief
Financial Officer.
James M. Sullivan.... Executive James M. Sullivan joined Marriott
Vice President--Lodging Corporation in 1980, departed in 1983 to
Development acquire, manage, expand and subsequently
sell a successful restaurant chain, and
returned to Marriott
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Present Principal Occupation or
Employment and Material Occupations, Offices or
Name Employment Held During the Past Five Years
---- -----------------------------------------------
Corporation in 1986 as Vice President of
Mergers and Acquisitions. Mr. Sullivan
became Senior Vice President, Finance--
Lodging in 1989, Senior Vice President--
Lodging Development in 1990 and was
appointed to his current position in
December 1995.
William R. Tiefel......... Vice William R. Tiefel joined Marriott
Chairman; Chairman--The Ritz- Corporation in 1961 and was named President
Carlton Hotel Company, LLC of Marriott Hotels, Resorts and Suites in
1998. He had previously served as resident
manager and general manager at several
Marriott hotels prior to being appointed
Regional Vice President and later Executive
Vice President of Marriott Hotels, Resorts
and Suites and Marriott Ownership Resorts.
Mr. Tiefel was elected Executive Vice
President of Marriott Corporation in
November 1989. In March 1992, he was
elected President--Marriott Lodging Group
and assumed responsibility for all of
Marriott's lodging brands. In May 1998 he
was appointed to his current position.
Stephen P. Weisz.......... Vice Stephen P. Weisz joined Marriott
President; President--Marriott Corporation in 1972 and was named Regional
Vacation Club International Vice President of the Mid-Atlantic Region
in 1991. Mr. Weisz had previously served as
Senior Vice President of Rooms Operations
before being appointed as Vice President of
the Revenue Management Group. Mr. Weisz
became Senior Vice President of Sales and
Marketing for Marriott Hotels, Resorts and
Suites in August 1992 and Executive Vice
President--Lodging Brands in August 1994.
In December 1996, Mr. Weisz was appointed
President--Marriott Vacation Club
International.
II. Rockledge Hotel Properties, Inc.
Richard A. Burton......... Vice Richard A. Burton joined Host Marriott
President Corporation ("Host Marriott") in 1996 as
Senior Vice President--Taxes. Prior to
joining Host Marriott, Mr. Burton was
Senior Tax Counsel at Mobil Oil
Corporation. Prior to that, Mr. Burton
practiced law at Sutherland, Asbill &
Brennan and served as Attorney Advisor to
the United States Tax Court in Washington,
D.C.
Robert E. Parsons, Jr. ........ Robert E. Parsons, Jr. joined the Corporate
President and Director Financial Planning staff of Host Marriott
in 1981, became Assistant Treasurer in
1988, Senior Vice President and Treasurer
in 1993 and in 1995, he was elected
Executive Vice President and Chief
Financial Officer. He also serves as a
director, manager and officer of numerous
Host Marriott subsidiaries.
Christopher G. Townsend... Vice Christopher G. Townsend joined Host
President, Secretary and Marriott's Law Department in 1982 as a
Director Senior Attorney, became Assistant Secretary
in 1984, Assistant General Counsel in 1986,
Senior Vice President, Corporate Secretary
and Deputy General Counsel in 1993 and in
January 1997, he was made General Counsel.
He also serves as a director, manager and
officer of numerous Host Marriott
subsidiaries.
I-7
<PAGE>
Present Principal Occupation or
Employment and Material Occupations, Offices or
Name Employment Held During the Past Five Years
---- -----------------------------------------------
W. Edward Walter.......... Vice W. Edward Walter joined Host Marriott in
President and Treasurer 1996 as Senior Vice President--Acquisitions
and, in 1998 was made Treasurer. He also
serves as a director, manager and officer
of numerous Host Marriott subsidiaries.
Prior to joining Host Marriott, Mr. Walter
was a partner at Trammell Crow Residential
Company and President of Bailey Capital
Corporation, a real estate firm focusing on
tax-exempt real estate investments.
III. Host Marriott Corporation
R. Theodore Ammon......... R. Theodore Ammon is a private investor and
Director Chairman of Big Flower Holdings, Inc. He
was formerly a General Partner of Kohlberg
Kravis Roberts & Company (a New York and
San Francisco-based investment firm) from
1990 to 1992, and was an executive of such
firm prior to 1990. Mr. Ammon is also the
Chairman of the Board of 24/7 Media, Inc.
and a Director of CAIS Internet, Inc., and
he serves on numerous boards of privately
held companies. In addition, he is involved
in a number of not-for-profit
organizations, including as a member of the
Board of Directors of The Municipal Art
Society of New York, The New York YMCA and
Jazz @ Lincoln Center, and of the Board of
Trustees of Bucknell University.
Robert M. Baylis.......... Robert M. Baylis is a Director of The
Director International Forum, an executive education
program of the Wharton School of the
University of Pennsylvania. He was formerly
Vice Chairman of CS First Boston. Mr.
Baylis also serves as a Director of New
York Life Insurance Company, Covance, Inc.
and Gildan Activewear, Inc. In addition, he
is an overseer of the University of
Pennsylvania Museum of Archeology and
Anthropology.
Terence C. Golden......... Terence C. Golden is Chairman of Bailey
Director Realty Corporation and Bailey Capital
Corporation and various affiliated
companies. He was formerly President and
Chief Executive Officer of Host Marriott
Corporation from 1995 until his retirement
in May 2000. Mr. Golden is also a Director
of American Classic Voyages Co., Cousins
Properties, Inc., Potomac Electric Power
Company, The Morris and Gwendolyn Cafritz
Foundation and the District of Columbia
Early Childhood Collaborative. He is also a
member of the Executive Committee of the
Federal City Council.
J.W. Marriott, Jr......... J.W. Marriott, Jr. is a Director of Host
Director Marriott Corporation. He joined Marriott
Corporation (now known as Host Marriott
Corporation) in 1956, became President and
a Director in 1964, Chief Executive Officer
in 1972 and Chairman of the Board in 1985.
Mr. Marriott also is Chairman of the Board
and Chief Executive Officer of Marriott
International and a Director of General
Motors Corporation and the Naval
Academy Endowment Trust. He serves on the
Board of
I-8
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Present Principal Occupation or
Employment and Material Occupations, Offices or
Name Employment Held During the Past Five Years
---- -----------------------------------------------
Trustees of the National Geographic Society
and The J. Willard & Alice S. Marriott
Foundation, and the Board of Directors of
Georgetown University, and is a member of
the Executive Committee of the World Travel
& Tourism Council and the Business Council.
Mr. Marriott has served as Chief Executive
Officer of Marriott International since its
inception in 1997, and served as Chairman
and Chief Executive Officer of Old Marriott
International from October 1993 to March
1998. Mr. Marriott has served as a Director
of Marriott International since March 1998.
Richard E. Marriott....... Richard E. Marriott is Chairman of the
Board of Host Marriott Corporation. He
Chairman of the Board joined Host Marriott Corporation in 1965
and has served in various executive
capacities. In 1979, Mr. Marriott was
elected to the Board of Directors. In 1984,
he was elected Executive Vice President,
and in 1986, he was elected Vice Chairman
of the Board of Directors. In 1993, Mr.
Marriott was elected Chairman of the Board.
He is Chairman of the Board of First Media
Corporation and a Director of the
Polynesian Cultural Center. He is a past
President of the National Restaurant
Association. In addition, Mr. Marriott is
the President and a Trustee of the Marriott
Foundation for People with Disabilities.
Ann Dore McLaughlin....... Ann Dore McLaughlin is Chairman of the
Director Aspen Institute. She formerly served as
President of the Federal City Council from
1990 until 1995. Ms. McLaughlin has served
with distinction in several United States
Administrations in such positions as
Secretary of Labor and Under Secretary of
the Department of the Interior. She also
serves as a Director of AMR Corporation,
Fannie Mae, General Motors Corporation,
Kellogg Company, Microsoft Corporation,
Nordstrom, Inc., Donna Karan International,
Inc., Vulcan Materials Company and Harman
International Industries, Inc.
Christopher J. Nassetta... Christopher J. Nassetta is President, Chief
President, Chief Executive Executive Officer and Director of Host
Officer and Director Marriott Corporation. Mr. Nassetta joined
Host Marriott Corporation in October 1995
and was elected Chief Operating Officer in
1997. In 1999, Mr. Nassetta was elected
President and Chief Executive Officer
effective May 18, 2000. From 1991 until
1995, Mr. Nassetta was President of Bailey
Realty Corporation. He had previously
served as Chief Development Officer and in
various other positions with The Oliver
Carr Company from 1984 through 1991. Mr.
Nassetta also serves as a Director of Prime
Group Realty Trust.
Donald D. Olinger......... Donald D. Olinger joined Host Marriott
Senior Vice President and Corporation in 1993 as Director of
Corporate Controller Corporate Accounting. Later in 1993, Mr.
Olinger was promoted to Senior Director and
Assistant Controller. He was promoted to
Vice President of Corporate
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<PAGE>
Present Principal Occupation or
Employment and Material Occupations, Offices or
Name Employment Held During the Past Five Years
---- -----------------------------------------------
Accounting in 1995. In 1996, he was elected
Senior Vice President and Corporate
Controller. Prior to joining Host Marriott
Corporation Mr. Olinger was with the public
accounting firm of Deloitte & Touche.
Robert E. Parsons, Jr..... Robert E. Parsons, Jr. joined the Corporate
Executive Vice President and Financial Planning staff of Host Marriott
Chief Financial Officer Corporation in 1981 and was made Assistant
Treasurer in 1988. In 1993, Mr. Parsons was
elected Senior Vice President and
Treasurer, and in 1995, he was elected
Executive Vice President and Chief
Financial Officer.
John G. Schreiber......... John G. Schreiber is President of Centaur
Director Capital Partners, Inc. and a senior advisor
and partner of Blackstone Real Estate
Advisors L.P., an affiliate of The
Blackstone Group L.P. He serves as a
Trustee of AMLI Residential Properties
Trust and as a Director of Urban Shopping
Centers, Inc., JMB Realty Corporation, The
Brickman Group, Ltd. and a number of mutual
funds advised by T. Rowe Price Associates,
Inc. Prior to his retirement as an officer
of JMB Realty Corporation in 1990, Mr.
Schreiber was Chairman and Chief Executive
Officer of JMB/Urban Development Company
and an Executive Vice President of JMB
Realty Corporation.
Christopher G. Townsend... Christopher G. Townsend joined the Law
Senior Vice President, General Department of Host Marriott Corporation in
Counsel and Corporate 1982 as a Senior Attorney. In 1984, Mr.
Secretary Townsend was made Assistant Secretary and
in 1986, he was made Assistant General
Counsel. In 1993, Mr. Townsend was elected
Senior Vice President, Corporate Secretary
and Deputy General Counsel. In January
1997, he was elected General Counsel.
Harry L. Vincent, Jr...... Harry L. Vincent is a retired Vice Chairman
Director of Booz-Allen & Hamilton, Inc. He also
served as a Director of Signet Banking
Corporation from 1973 until 1989.
IV. Host Marriott, L.P.
Host Marriott, L.P., does not have any directors or executive officers. It
is managed by its sole general partner, Host Marriott Corporation. Information
concerning the executive officers and directors of Host Marriott Corporation
is set forth elsewhere on this Schedule I.
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<PAGE>
V. MI CBM Investor LLC
Present Principal Occupation or
Employment and Material Occupations, Offices or
Name Employment Held During the Past Five Years
---- -----------------------------------------------
Executive Officers and Managers:
Kevin M. Kimball..... President Kevin M. Kimball joined Marriott
and Manager Corporation in 1976 as an analyst in the
Treasury Department. In 1980 he was
promoted to Director, Partnerships and
Syndications, and was named Vice President
and Assistant Corporate Controller in 1986,
Vice President, Financial Planning and
Analysis in 1989, and Vice President
Finance, Residence Inn in 1990. In 1993,
Mr. Kimball was appointed Senior Vice
President and Corporate Controller of
Marriott International, Inc. In 1994 he was
named Senior Vice President and Chief
Financial Officer for Marriott Lodging, and
promoted to Executive Vice President and
Chief Financial Officer for Marriott
Lodging in 1996. Mr. Kimball was appointed
President and Manager of MI Investor on
April 13, 2000.
Carolyn B. Handlon... Treasurer Carolyn B. Handlon joined Marriott
and Manager Corporation in 1987 as Manager of Corporate
Finance. In 1992, she was promoted to Vice
President and named Assistant Treasurer of
Marriott International in October 1993, and
Senior Vice President, Finance and
Treasurer in June 1999. Ms. Handlon was
appointed Treasurer and Manager of MI
Investor on April 13, 2000.
Ward R. Cooper....... Assistant Ward R. Cooper joined Marriott Corporation
Secretary and Manager in 1988 as an Attorney. In addition to that
position he was appointed Assistant
Secretary of Marriott Corporation in 1992.
He assumed the same positions with Marriott
International in October, 1993, and was
promoted to Assistant General Counsel and
Assistant Secretary in January, 1994. Mr.
Cooper was appointed Assistant Secretary
and Manager of MI Investor on April 13,
2000.
VI. CBM Joint Venture LLC
CBM Joint Venture LLC does not have any directors or executive officers. It
is managed by its members, Rockledge Hotel Properties, Inc. and MI CBM
Investor LLC. Information concerning the directors and executive officers of
Rockledge Hotel Properties, Inc. and MI CBM Investor LLC is set forth
elsewhere on this Schedule I.
VII. CBM II Holdings LLC
CBM II Holdings LLC does not have any directors or executive officers. It is
managed by its sole member CBM Mezzanine Borrower LLC, which is managed by its
sole member CBM Joint Venture LLC. CBM Joint Venture LLC is managed by its
members, Rockledge Hotel Properties, Inc. and MI CBM Investor LLC. Information
concerning the directors and executive officers of Rockledge Hotel Properties,
Inc. and MI CBM Investor LLC is set forth elsewhere on this Schedule I.
I-11
<PAGE>
SCHEDULE II
MANAGERS AND EXECUTIVE OFFICERS OF CBM TWO LLC
The following table sets forth the name, business address and principal
occupation or employment at the present time and during the last five years,
and the name, principal business and address of any corporation or other
organization in which such employment is or was conducted, of each manager and
executive officer of CBM Two LLC. Except as otherwise noted, each such person
is a citizen of the United States and the business address of each such person
is 10400 Fernwood Road, Bethesda, Maryland 20817. Except as otherwise noted,
each occupation set forth below a person's name refers to employment with CBM
Two LLC and each such person has held such occupation for at least the past
five years.
Present Principal Occupation or
Employment and Material Occupations, Offices or
Name Employment Held During the Past Five Years
---- -----------------------------------------------
Robert E. Parsons, Jr. joined the Corporate
Financial Planning staff of Host Marriott
Corporation ("Host Marriott") in 1981,
became Assistant Treasurer in 1988, Senior
Robert E. Parsons, Jr. ........ Vice President and Treasurer in 1993 and in
President and Manager 1995, he was elected Executive Vice
President and Chief Financial Officer. He
is also an Executive Vice President and
Chief Financial Officer of Host Marriott
L.P. and serves as a director, manager and
officer of numerous Host Marriott
subsidiaries.
Christopher G. Townsend........ Christopher G. Townsend joined Host
Executive Vice President, Marriott's Law Department in 1982 as a
Secretary and Manager Senior Attorney, became Assistant Secretary
in 1984, Assistant General Counsel in 1986,
Senior Vice President, Corporate Secretary
and Deputy General Counsel in 1993 and in
January 1997, he was made General Counsel.
He is also a Senior Vice President,
Corporate Secretary and General Counsel of
Host Marriott L.P. and serves as a
director, manager and officer of numerous
Host Marriott subsidiaries.
W. Edward Walter..... Treasurer W. Edward Walter joined Host Marriott in
1996 as Senior Vice President--Acquisitions
and, in 1998 was made Treasurer. He is also
a Senior Vice President and Treasurer of
Host Marriott L.P. and serves as a
director, manager and officer of numerous
Host Marriott subsidiaries. Prior to
joining Host Marriott, Mr. Walter was a
partner at Trammell Crow Residential
Company and President of Bailey Capital
Corporation, a real estate firm focusing on
tax-exempt real estate investments.
II-1
<PAGE>
Questions and requests for assistance concerning (1) how to complete the
Consent Form or the Proof of Claim, (2) where to remit the Consent Form or the
Proof of Claim or (3) obtaining additional copies of this Purchase Offer and
Consent Solicitation, the Proof of Claim and the Consent Form and other
Purchase Offer and Consent Solicitation materials should be directed to the
Claims Administrator at its address and telephone number listed below. You may
also contact your broker, dealer, commercial bank, trust company or other
nominee for assistance concerning the Purchase Offer or the Merger.
Substantive questions concerning the Consent Form and the Proof of Claim
should be directed to David Berg or Jim Moriarty, counsel to the class action
plaintiffs. Mr. Berg's telephone number is (713) 529-5622 and Mr. Moriarty's
telephone number is (713) 528-0700.
Facsimile copies of the PINK Proof of Claim will be accepted. The YELLOW
Consent Form, properly completed and duly executed, may be returned to the
Claims Administrator in the enclosed envelope with pre-paid postage. Facsimile
copies of the YELLOW Consent Form, properly completed and duly executed, will
also be accepted. However, in order for Consent Forms transmitted via
facsimile to be valid, the entire form of Consent Form (front and back) must
be received by GEMISYS. Consent Forms transmitted via facsimile will be deemed
to have been received and dated on the date they are actually received by
GEMISYS. The Proof of Claim and the Consent Form, and any other required
documents should be sent or delivered by you or your broker, dealer,
commercial bank, trust company or other nominee to the Claims Administrator,
at one of the addresses set forth below:
The Claims Administrator for the Purchase Offer and Consent Solicitation is:
GEMISYS Corporation
By Mail, Hand or Overnight Delivery: Facsimile Transmission:
Attention: Proxy Department 303-705-6171
7103 South Revere Parkway Telephone:
Englewood, CO 80112-9523 (800) 326-8222
<PAGE>
CONSENT FORM
THIS WRITTEN CONSENT IS SOLICITED BY THE GENERAL PARTNER OF COURTYARD BY
MARRIOTT II LIMITED PARTNERSHIP FOR ACTION BY WRITTEN CONSENT OF LIMITED
PARTNERS TO BE EFFECTIVE AS SET FORTH IN THE PURCHASE OFFER AND CONSENT
SOLICITATION ACCOMPANYING THIS CONSENT FORM
The undersigned, with respect to each unit of limited partnership interest
in Courtyard by Marriott II Limited Partnership (the "Partnership") held of
record by the undersigned on July 10, 2000, hereby sets forth his, her or its
vote in connection with the written consents solicited by the General Partner
of the Partnership as described in the Purchase Offer and Consent Solicitation
accompanying this consent form. You are encouraged to indicate your vote by
marking the appropriate box on the reverse side. Failure to check any of the
boxes with respect to the proposed authorization will, if this consent card
has been signed and dated, constitute a vote "FOR" the proposed authorization.
Please sign and date this card. A postage-paid return envelope is enclosed for
your convenience in returning this form.
IMPORTANT: PLEASE VOTE, DATE AND SIGN ON REVERSE SIDE.
<PAGE>
Authorization of the General Partner's grant of consent on behalf of the
Partnership to:
(1) the proposed Merger as described in the accompanying Purchase Offer and
Consent Solicitation Statement dated August , 2000.
FOR [_] AGAINST [_] ABSTAIN [_]
(2) the following proposed amendments to Partnership Agreement as described
in the accompanying Purchase Offer and Consent Solicitation Statement
dated August , 2000:
(a) The proposed amendment to Section 7.01B of the Partnership
Agreement:
FOR [_] AGAINST [_] ABSTAIN [_]
(b) The proposed amendment to Section 7.01A of the Partnership
Agreement:
FOR [_] AGAINST [_] ABSTAIN [_]
(c) The proposed amendment to Sections 4.05 and 4.07 of the Partnership
Agreement:
FOR [_] AGAINST [_] ABSTAIN [_]
(d) The proposed amendment to Section 5.01C of the Partnership
Agreement:
FOR [_] AGAINST [_] ABSTAIN [_]
(SIGNATURE(S) OF LIMITED
PARTNERS(S))
Dated: , 2000
(NOTE: Please sign exactly as your name or names appear on the label. If more
than one name appears, all persons so designated should sign. When signing in
a representative capacity, please give your full title.)
