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SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN
PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[X] Preliminary Proxy Statement [_] CONFIDENTIAL, FOR USE OF THE
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
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[_] No fee required
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[X] Fee paid previously with preliminary materials: $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:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
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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 have been satisfied (or waived, if waivable), the Purchase Offer will be
consummated as soon as practicable after the Settlement is approved by the Court
and all appeal periods have expired or, if the approval of the Settlement is
appealed, after the Settlement is determined finally to be approved.
Immediately following the consummation of the Purchase Offer, the Merger will be
consummated.
The Purchase Offer. Pursuant to the terms of the Settlement Agreement, the
Purchaser has agreed to offer to purchase all of the issued and outstanding
units of limited partnership interest in the Partnership (other than units owned
by the General Partner) at a price of $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").
<PAGE>
The amount a holder will receive in the Purchase Offer will be reduced by any
amount owed by such holder on the original purchase price of his or her units.
If you wish to receive the Net Settlement Amount for your units in the Purchase
Offer, you should consent to the Merger and the amendments to the partnership
agreement as described below. The approval of the Merger and the amendments to
the partnership agreement by the holders of a majority of the outstanding units
is one of the conditions to the Purchase Offer and the Merger.
The Purchaser is an indirect wholly owned subsidiary of CBM Joint Venture
LLC (the "Joint Venture"), a Delaware limited liability company that is a joint
venture between MI CBM Investor LLC ("MI Investor"), a Delaware limited
liability company and a wholly owned indirect subsidiary of Marriott
International, and Rockledge Hotel Properties, Inc., a Delaware corporation
("Rockledge") (through wholly owned subsidiaries). Rockledge currently owns a
99% non-managing interest in the General Partner. Host Marriott, L.P. ("Host
LP") which owns the 1% managing interest in the General Partner, also owns a 95%
non-voting interest in Rockledge. Host Marriott owns approximately 78% of the
equity interests in Host LP. Marriott International currently does not own an
interest in either Host Marriott, Rockledge or the General Partner, but one of
Marriott International's subsidiaries is the manager of the hotels owned by the
Partnership. In addition, two individuals who serve on the board of directors of
Host Marriott also serve on the board of directors of Marriott International.
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 holder who has elected to opt-out of the Settlement will be
converted in the Merger into the right to receive a cash amount equal to the
appraised value of such unit (or a pro rata portion thereof), as determined in
accordance with the appraisal provisions of the Merger Agreement and the
Settlement Agreement. The appraised value of units will not include any amount
representing the value of the settlement of the claims asserted in the 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 Consent. 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) amendments to the Partnership's partnership agreement as more
fully described in the Purchase Offer and Consent Solicitation.
<PAGE>
(the "Amendments"). The Amendments are intended to clarify that the terms of the
Settlement (including the Purchase Offer and the Merger) are consistent with the
provisions of the partnership agreement and to facilitate the consummation of
the Purchase Offer and the Merger. Accordingly, the General Partner is hereby
soliciting your consent to each of:
. 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 ___________, 2000 who have been admitted to the Partnership as limited
partners. The terms of the Settlement are described in detail under the heading
"The Settlement--The Settlement Agreement" in the Purchase Offer and Consent
Solicitation.
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 to consent to the Merger and
the Amendments.
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 the Purchase Offer and Consent Solicitation, for a
description of the procedures that must be followed in order to appear at the
hearing.
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 and counsel. Counsel for
the class action plaintiffs recommends that the class action plaintiffs approve
the Settlement by tendering their units and consenting to the Merger and the
Amendments. See "The Settlement."
The General Partner is not making a recommendation to you as to whether to
tender or refrain from tendering your units or whether or not to consent to the
Merger or the Amendments. You must make your own decisions as to these matters.
CBM Two LLC
General Partner
____________________________________
Secretary
Date:_____________, 2000
Bethesda, Maryland
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C>
SUMMARY TERM SHEET........................................................................................................... 1
SPECIAL CONSIDERATIONS....................................................................................................... 8
THE SETTLEMENT............................................................................................................... 12
Background of the Settlement.............................................................................................. 12
The Settlement Agreement.................................................................................................. 15
Position of the General Partner, the Purchaser, the Joint Venture, Marriott International, MI Investor and Rockledge
Regarding the Purchase Offer............................................................................................. 17
Recommendation of the Special Litigation Committee and Counsel to the Class Action Plaintiffs............................. 17
Purpose and Structure of the Purchase Offer; Merger and Amendments........................................................ 18
Conditions of the Purchase Offer and the Merger........................................................................... 19
Plans for the Partnership; Certain Effects of the Purchase Offer.......................................................... 19
Certain Information Concerning the Partnership............................................................................ 20
Certain Information Concerning the Purchaser, the Joint Venture, Marriott International, MI Investor and Rockledge........ 21
Source and Amount of Funds................................................................................................ 23
Certain Transactions with the Partnership................................................................................. 23
Security Ownership of Certain Beneficial Owners and Management............................................................ 25
Regulatory Matters........................................................................................................ 25
Final Court Hearing and Right to Appear................................................................................... 26
Procedures for Opting-Out of the Settlement............................................................................... 27
The Merger................................................................................................................ 28
The Amendments............................................................................................................ 30
Federal Income Tax Considerations......................................................................................... 35
Selected Historical Consolidated Financial Data........................................................................... 43
Description of Real Estate................................................................................................ 43
Operating Data............................................................................................................ 50
THE PURCHASE OFFER........................................................................................................... 53
Terms of the Purchase Offer............................................................................................... 53
Settlement Fund; Acceptance for Payment; Payment for Units................................................................ 54
Procedures for Accepting the Purchase Offer and Tendering Units........................................................... 55
Withdrawal Rights......................................................................................................... 57
Market for the Partnership's Limited Partnership Units and Related Security Holder Matters................................ 57
Transfer Fees and Taxes................................................................................................... 58
THE WRITTEN CONSENTS......................................................................................................... 59
Record Date and Outstanding Units......................................................................................... 59
Majority Vote Required; Voting Rights..................................................................................... 59
Solicitation Period....................................................................................................... 59
Voting and Revocation of Consents......................................................................................... 59
Effective Time of Amendments.............................................................................................. 60
Effective Time of the Merger.............................................................................................. 60
No Special Meeting........................................................................................................ 60
Rights of Appraisal....................................................................................................... 60
Interests of Certain Persons in the Matters to be Acted Upon.............................................................. 61
OTHER MATTERS................................................................................................................ 62
Fees and Expenses......................................................................................................... 62
Miscellaneous............................................................................................................. 62
</TABLE>
Schedule I - Directors and Executive Officers of Marriott International, Inc.,
MI CBM Investor LLC, Rockledge Hotel Properties, Inc., CBM Joint
Venture LLC and CBM II Holdings LLC
Schedule II - Directors 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 "The Settlement," 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 "Special
Considerations." The purchase offer and consent solicitation, together with the
proof of claim, assignment and release, are referred to herein as the "Purchase
Offer and Consent Solicitation."
The term the "general partner" as used in this purchase offer and consent
solicitation refers to CBM 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" (through wholly owned subsidiaries).
WHY ARE YOU MAKING THIS PURCHASE OFFER AND CONSENT SOLICITATION?
This purchase offer and consent solicitation is being made pursuant to the
terms of a settlement agreement relating to a class action lawsuit brought
against the general partner, Marriott International, Host Marriott, various
related entities and others. The settlement relates to litigation involving
Courtyard by Marriott 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 "The
Settlement -- Background of the Settlement," pages 12 through 15.
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 (through wholly owned
subsidiaries).
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See "The Settlement --Certain Information Concerning the Purchaser, the Joint
Venture, Marriott International, MI Investor and Rockledge," pages 21 and
22.
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 $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. 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). This amount will be reduced by any amount owed by the holder
on the original purchase price of such unit. The aggregate amount we are
offering to pay for all outstanding units (other than the 21.5 units held by the
general partner) is $214,318,612. See "The Settlement -- The Settlement
Agreement," pages 15 through 17.
WHAT WILL I RECEIVE IF I PURCHASED A UNIT FROM A CLASS MEMBER, BUT DID NOT
OBTAIN AN ASSIGNMENT OF LITIGATION CLAIMS FROM THAT CLASS MEMBER?
If you purchased a unit from a class member without obtaining an assignment
of that class member's litigation claims, the purchaser will still pay $147,959
for each unit that you tender in the purchase offer or that is converted in the
merger. However, 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. 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
counsel to the class action plaintiffs of approximately $29,000 per unit), or a
pro rata portion thereof will have to be divided between you and the class
member from whom you purchased the unit. If you are unable to agree on how the
money should be divided, the division will be made by a special master appointed
by the court. Payment for the units will be made by deposit of the purchase
price with Chase Bank of Texas, N.A., which has been retained by counsel to the
class action plaintiffs as escrow agent. The defendants in the litigation have
no responsibility for or liability whatsoever with respect to the distribution
of the settlement funds, or the determination or payment of claims.
DO YOU HAVE THE FINANCIAL RESOURCES TO MAKE PAYMENT?
We will need approximately $_____ million to purchase all of the units
pursuant to the purchase offer, to consummate the merger and to pay related fees
and expenses. We will obtain the funds indirectly from Marriott International
and Rockledge. See "The Settlement -- Source and Amount of Funds," page
23.
IS YOUR FINANCIAL CONDITION RELEVANT TO MY DECISION TO TENDER IN THE OFFER?
Because the form of payment consists solely of cash and the purchase offer
is not conditioned on our ability to obtain financing, we do not think our
financial condition is relevant to your decision as to
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<PAGE>
whether to tender in the purchase offer or consent to the merger. Our
obligations in connection with the purchase offer and the merger are guaranteed
by Marriott International and Host Marriott. See "The Settlement -- Source and
Amount of Funds," page 23.
HOW LONG DO I HAVE TO DECIDE WHETHER TO TENDER IN THE PURCHASE OFFER?
You will have at least until 12:00 midnight, New York City time, on
______________, 2000 to decide whether to tender your units in the purchase
offer. See "The Purchase Offer -- Terms of the Purchase Offer," pages 53 and 54.
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 53 and 54.
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 53 and 54.
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, which has been retained by counsel to the class action plaintiffs
to serve as claims administrator, at the address set forth on the back cover of
this purchase offer and consent solicitation, or (2) if your units are
registered in the name of a broker, dealer, commercial bank, trust company or
other nominee, you must contact such nominee and instruct it to tender your
units. See "The Purchase Offer -- Procedures for Accepting the Purchase Offer
and Tendering Units," pages 66 and 67. However, tendering your units does not in
itself constitute your consent to the merger and the amendments to the
partnership agreement. You can only consent to the merger and the amendments by
completing and timely returning the enclosed 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, including:
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(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 10% of the units of limited partnership interests in
each of Courtyard by Marriott II Limited Partnership and each of the other six
limited partnerships involved in the settlement (other than units held by
persons named as insiders in the settlement agreement) shall be held by
holders who have elected to "opt-out" of the settlement, and
(3) holders of a majority of the units in each of Courtyard by Marriott II
Limited Partnership and Courtyard by Marriott Limited Partnership (other than
affiliates of these partnerships) shall have approved each partnership's
merger and amendments to each partnership's partnership agreement.
We have the right to waive condition (2) above in our sole discretion.
However, conditions (1) and (3) cannot be waived. Accordingly, if conditions (1)
and (3) were to be satisfied and we were to waive condition (2), the purchase
offer and merger would still be consummated. See "The Settlement -- Conditions
of the Purchase Offer and the Merger," page 19.
WHEN WILL I RECEIVE PAYMENT FOR MY UNITS IF I TENDER?
The court will hold a hearing for approval of the settlement once all other
conditions to consummating the purchase offer and the merger, other than
condition (1) above, have been satisfied. Within seven business days after the
judgment order approving the terms of the settlement and the dismissal of the
litigation becomes final, Chase Bank of Texas N.A., which has been retained by
counsel to the class action plaintiffs as escrow agent for the settlement funds,
will distribute to each unitholder who has submitted a valid proof of claim
prior to such date the funds to which such holder is entitled. See "The Purchase
Offer -- Settlement Fund; Acceptance for Payment; Payment for Units," pages 54
and 55.
MUST I SUBMIT A PROOF OF CLAIM TO RECEIVE FUNDS IN THE SETTLEMENT?
Yes. No unitholder will be entitled to receive any funds from the
settlement until a valid proof of claim is submitted, whether before or after
the judgment order becomes final. However, if you have not submitted a valid
proof of claim within 90 days of the date a judgment order approving the
settlement becomes final and you have not opted-out of the settlement, then the
counsel to the class action plaintiffs will execute a proof of claim on your
behalf. See "The Purchase Offer -- Procedures for Accepting the Purchase Offer
and Tendering Units," pages 55 through 57.
HOW DO I WITHDRAW PREVIOUSLY TENDERED UNITS?
You may withdraw units that you have tendered at any time prior to the
expiration date. To withdraw units, you must deliver a written notice to the
claims administrator prior to the expiration of the purchase offer at the
address set forth on the back cover of this purchase offer and consent
solicitation. For more information on your withdrawal rights, see "The Purchase
Offer--Withdrawal Rights," page 57. If the settlement agreement
terminates without the settlement becoming final, then all of your tendered
units will be returned.
WHO HAS DETERMINED THAT THE TERMS OF THE SETTLEMENT ARE FAIR?
4
<PAGE>
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. The special litigation
committee appointed for Courtyard by Marriott II Limited 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 Courtyard by Marriott II Limited Partnership in the
litigation. See "The Settlement -- Recommendation of the Special Litigation
Committee and Counsel to the Class Action Plaintiffs," pages 17 and 18.
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 "The Settlement--Procedures
for Opting-Out of the Settlement," pages 27 and 28. In addition, you should
complete, execute and include with your opt-out notice the certificate of non-
foreign status included in the proof of claim. If you do not timely and validly
submit an opt-out notice, you will be bound by all orders and judgments entered
in the litigation, whether favorable or unfavorable to you.
DO I HAVE THE RIGHT TO APPEAR AT THE FINAL COURT HEARING?
Unitholders who have not opted out of the settlement have the right to
appear at the final court hearing to be held on August 28, 2000, if they follow
the procedures described under the heading "The Settlement -- Final Court
Hearing and Right to Appear" on pages 26 and 27. The settlement will not be
consummated unless the court approves the fairness of the settlement (including
the terms and conditions of the purchase offer, the merger and the amendments)
at the final hearing.
WHY IS THE GENERAL PARTNER SOLICITING CONSENTS?
The general partner is soliciting the consents of the limited partners
pursuant to the terms of the settlement agreement. If the merger and the
amendments to the partnership agreement are not approved by limited partners
holding a majority of the outstanding units (excluding units held by the general
partner and its affiliates), the settlement agreement will not be consummated
and the purchaser will not be obligated to purchase the units. See "The
Settlement -- Conditions of the Purchase Offer and the Merger," page 19.
5
<PAGE>
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 holder in the merger will be reduced by
any amount owed by the holder on the original purchase price of his or her
units. See "The Settlement -- The Merger," pages 28 through 30.
WHAT ARE THE PROPOSED AMENDMENTS TO THE PARTNERSHIP AGREEMENT?
The proposed amendments to the partnership agreement are intended to
clarify that the terms of the settlement agreement: (including the purchase
offer and the merger) are consistent with the provisions
6
<PAGE>
of the partnership agreement and to facilitate the consummation of the purchase
offer and the merger.
The amendments to the partnership agreement will not be implemented if,
for any reason, the purchase offer is not consummated, even if the amendments
receive the requisite approval. The proposed amendments are described in detail
under the heading "The Settlement -- The Amendments," pages 30 through 35.
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 __________, 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 59.
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 40 and 41.
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 59 and 60.
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 _______________, 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 59.
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?
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Whether or not you tender your units in the purchase offer or vote against the
merger and the amendments, if the merger and amendments receive the approval of
unitholders holding a majority of the outstanding units, and the other
conditions to the purchase offer and the merger are satisfied (or waived, if
waivable), the purchase offer and merger will be consummated. If you did not
consent to the merger and the amendments, and you did not tender your units in
the purchase offer, you will be cashed out in the merger at the purchase offer
price less attorneys' fees and expenses, unless you have opted-out of the
settlement by following the procedures described under "The Settlement--
Procedures for Opting-Out of the Settlement" on pages 27 and 28, 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?
Participating Unitholders. If you tender your units and submit the required
proof of claim to the claims administrator under the terms of the purchase offer
or if you do not tender your units but do not affirmatively "opt-out" of the
settlement (in either case, you will be a participating unitholder"), you very
likely will be deemed to have received, solely for federal income tax purposes,
either in the purchase offer or pursuant to the merger, two separate amounts on
a per unit basis: (1) an amount in exchange for your units, and (2) an amount in
settlement of the claims asserted in the litigation. None of the defendants in
the litigation, the bidders, nor any of their affiliates are taking any
position, for federal income tax purposes, regarding the allocation by the
participating unitholders of the cash payment between the amount received in
consideration for the units and the amount received in settlement of the claims.
If the sum of the portion of the cash payment from the purchaser that is
properly allocable to the purchase of your units (which amount 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 exceeds your
adjusted tax basis in your units, you will recognize gain, all of which (subject
to a possible exception described below under "Federal Income Tax Considerations
-- Federal Income Tax Rates Applicable to Gain from Disposition of Units by
Participating and Nonparticipating Unitholders") will be treated as capital gain
taxable at applicable capital gain rates (including the 25% rate applicable to
your share of the "unrecaptured Section 1250 gain of the partnership).
It is not clear how the portion of the cash payment that is properly
allocable to the settlement of the claims in the litigation, will be
characterized.
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and whether that payment will cause you to recognize capital gain or ordinary
income. You might be required to include in income your share of the legal fees
and expenses paid to counsel for the class action plaintiffs in the litigation.
You might be able to deduct all or a portion of such deemed payment of legal
fees and expenses (subject to various limitations) or otherwise reduce a portion
of the gain that you would have recognized upon receiving the offer
consideration from the purchaser.
Nonparticipating Unitholders. If you affirmatively "opt-out" of the
settlement (so that we refer to you as a "nonparticipating unitholder"), you
will be treated as having made a taxable disposition of your units pursuant to
the merger, which disposition would be deemed to occur on the effective date of
the merger. If the sum of the cash payment received in respect of your units
(which amount 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 exceeds your adjusted tax basis in your units, you will
recognize gain, all of which (subject to a possible exception described below
under "Federal Income Tax Considerations -- Federal Income Tax Rates Applicable
to Gain from Disposition of Units by Participating and Nonparticipating
Unitholders") will be treated as capital gain taxable at applicable capital gain
rates (including the 25% rate applicable to your share of the "unrecaptured
Section 1250 gain" of the partnership).
Federal Tax Withholding Applicable to Participating and Nonparticipating
Unitholders. Even if you choose not to return the rest of the proof of claim,
you should return the Certificate of Non-Foreign Status to prevent federal
income tax withholding on the amounts payable to you pursuant to the settlement.
See "The Settlement -- Federal Income Tax Considerations," pages 35 through 42.
See "Federal Income Tax Considerations," on page 35, 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?
The joint venture, through its subsidiaries, and, therefore, its equity
owners would own 100% of the equity interests in Courtyard by Marriott II
Limited Partnership and would solely have the benefit or detriment of any change
in the partnership's value and would receive all distributions, if any, with
respect to the partnership's operations. Although Courtyard by Marriott II
Limited Partnership would become privately held and would no longer be subject
to the reporting requirements of the Securities Exchange Act of 1934, it will be
required to continue filing periodic reports with the SEC under the terms of its
senior notes. See "The Settlement -- Plans for the Partnership; Certain Effects
of the Purchase Offer," pages 19 and 20.
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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 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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SPECIAL CONSIDERATIONS
Before deciding whether or not to tender any of your Units in the Purchase
Offer or whether to consent to the Merger or the Amendments, you should
carefully consider the following factors.
. 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 "The Settlement -- Background of the
Settlement." The Partnership did not request or obtain an opinion from a third
party regarding the fairness of the purchase offer price from a financial point
of view and the General Partner, as a result of a conflict of interest, makes no
recommendation to Unitholders as to whether to tender their Units or consent to
the Merger and the Amendments. However, the Special Litigation Committee has
determined that the terms of the Settlement (1) are fair and reasonable to the
Partnership (which the Special Litigation Committee considers, as a practical
matter, to have an identity of interest with the limited partners with respect
to the derivative claims in the 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 of consummation of the Purchase Offer
and the Merger that the Court approve the fairness of the settlement for class
members.
. Lack of Trading Market; The Purchase Offer Price may differ from the Market
Value of the Units
There is currently no established public trading market for the Units, nor
is there another reliable standard for determining the fair market value of the
Units. The Purchase Offer and the Merger afford Unitholders an opportunity to
dispose of their Units for cash, which alternative otherwise might not be
available to them currently or in the foreseeable future. However, the purchase
offer price may be higher or lower than the price that could be obtained in the
open market. Although the purchase offer price includes an amount representing
the value of the settlement of the claims asserted in the 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.
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. 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.
. Purchase Offer Price May Not Represent Liquidation Value of the Units.
Accordingly, Opting-Out of the Settlement Class and not consenting to
Merger and Amendments May Result in Greater Future Value
The purchase offer price may be more or less than the net proceeds that
would be realized if the Partnership were liquidated. 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
spread between the purchase offer price for the tendered Units that are acquired
in the Purchase Offer and the Merger and the amount the Purchaser and General
Partner would receive in such liquidation. Accordingly, Unitholders may
ultimately receive a greater return on their investment if the Settlement
(including the Purchase Offer and the Merger) is not consummated and Unitholders
will continue holding their Units. If less than a majority of the outstanding
Units consent to the Merger and the Amendments, the Settlement will not be
consummated.
. Conflicts of Interest with Respect to the Purchase Offer; No General
Partner Recommendation
The General Partner is a defendant in the Milkes Litigation and, therefore,
has a conflict of interest with respect to the Purchase Offer, the Merger and
the Amendments. The General Partner makes no recommendation to any Unitholder
as to whether to tender or refrain from tendering Units or as to whether to vote
for or against the Merger or the Amendments. You must make your own decision
whether or not to opt-out of the Settlement, based upon a number of factors,
including several factors that may be personal to you, such as your financial
position, your need or desire for liquidity, your preferences regarding the
timing of when you might wish to sell your Units, other financial opportunities
available to you, and your tax position and the tax consequences to you of
selling your Units.
. 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
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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 Litigation, all or
a portion of which may be taxed at the ordinary income tax rate applicable to
you. The remaining portion of your taxable gain will be taxed at applicable
capital gain tax rates (including the 25% rate applicable to your share of the
"unrecaptured Section 1250 gain" of the Partnership).
. Loss of Future Distributions from the Partnership
After consummation of the Purchase Offer and the Merger (assuming all
conditions to the Purchase Offer and the Merger are satisfied or waived, if
waivable), the Joint Venture will hold all right, title and interest in and to
all of the limited partnership interests in the Partnership, as well as the
right to receive any cash dividends, distributions, rights, and other securities
issued or issuable in respect thereof. You will not receive any future
distributions from operating cash flow of the Partnership or upon a sale or
refinancing of properties owned by the Partnership for any Units that the
Purchaser acquires from you in the Purchase Offer or the Merger. We cannot
predict what the future performance of the Partnership will be. Therefore,
retaining the ownership of your Units may be more beneficial to you.
. Proxies become Irrevocable after Expiration Date; Potential Delay in
Payment
Units tendered pursuant to the Purchase Offer may be withdrawn at any time
on or prior to the Expiration Date and, unless accepted for payment by the
Purchaser pursuant to the Purchaser Offer, may also be withdrawn at any time
after _______, 2000. The Purchaser reserves the right to extend the period of
time during which the Purchase Offer is open and thereby delay acceptance for
payment of any tendered Units. Units will be returned promptly at such time as
it is finally determined that the conditions for consummation of the Purchase
Offer and the Merger will not be satisfied (or waived, if waivable). Written
Consent Forms submitted to the Claims Administrator prior to the Expiration Date
may be revoked until the Expiration Date. However, properly executed and timely
received Consent Forms that were not properly withdrawn will become binding and
irrevocable after the Expiration Date and will not expire until the conditions
for consummation of the Purchase Offer and the Merger are satisfied (or waived,
if waivable) or until such time as it is finally determined that such conditions
will not be satisfied or waived. However, until the Court order approving the
Settlement has become final, the Purchase Offer and the Merger will not be
consummated. If there is an appeal of the Court's order approving the
Settlement, there may be a lengthy delay before you receive any payment for your
Units but your consent to the Merger and the Amendments will remain valid.
. Alternatives to Tendering Units
If you wish to retain your Units because you believe that the Settlement is
not in your best interests, you should not consent to the Merger and the
Amendments. If the conditions to the Purchase Offer and the Merger are not
satisfied (or waived, if waivable), you will retain your Units and may seek a
private sale of your Units now or later.
However, even if you do not consent to the Merger and the Amendments, the
Purchase Offer and the Merger will be consummated if they receive the approval
of a majority of the outstanding Units and the other conditions to the Purchase
Offer and the Merger are satisfied (or waived, if waivable). In that case, you
will receive the purchase offer price less attorneys' fees and expenses for your
Units in the Merger, unless you have
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opted-out of the Settlement, in which case you will receive the appraised value
of your Units. See "The Settlement--The Merger."
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EACH UNITHOLDER MUST MAKE HIS OR HER OWN DECISION REGARDING THE OFFER, THE
MERGER AND THE AMENDMENTS BASED ON HIS OR HER PARTICULAR CIRCUMSTANCES.
UNITHOLDERS SHOULD CONSULT WITH THEIR RESPECTIVE ADVISORS ABOUT THE FINANCIAL,
TAX, LEGAL AND OTHER IMPLICATIONS TO THEM OF ACCEPTING THE OFFER AND CONSENTING
TO THE MERGER AND THE AMENDMENTS.
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THE SETTLEMENT
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 Marriott, L.P. ("Host
LP"), which holds the sole managing interest, and Rockledge, which holds a
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. Therefore, 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").
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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.
The Unsuccessful Sales Effort. In mid-1998, the Partnership and five 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 owned by the Partnership, many
prospective purchasers did not have the ability to consummate a transaction of
this size. The Partnership had preliminary discussions with one bidder, the
party that made the most attractive proposal, but the Partnership and this
bidder did not pursue a definitive agreement because of uncertainties regarding
the future operating results of the Partnership's Hotels.
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 class of limited partners under Texas
law in the Milkes Litigation. 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.
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.
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
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numerous preliminary settlement strategies during the course of the Litigation.
In March 1999, the parties proposed to retain a mediator, and in April 1999, Mr.
Finis Cowan, a former federal district judge, was retained to mediate the
dispute. During the summer of 1999, several mediation sessions were held, both
in Houston, Texas and Washington, D.C., at which representatives of all the
parties to the Litigation and their respective counsel were present. These
sessions focused primarily on various proposed partnership restructurings and
cash payments. During these negotiations, the parties strongly disagreed on the
asserted value of the claims. As no settlement appeared imminent, the parties
continued to prepare diligently for the trial, which was scheduled for February
2000.
On August 27, 1999, the General Partner, in accordance with Section 17-
403(c) of the Partnership Act, appointed an independent Special Litigation
Committee consisting of The Honorable William H. Webster and The Honorable
Charles B. Renfrew, to investigate, review, and analyze, on behalf of the
Partnership, the facts and circumstances surrounding the derivative claims
asserted in the Milkes Litigation and decide what action the Partnership should
take with respect to such claims. William H. Webster, a partner at the law firm
of Milbank, Tweed, Hadley & McCloy LLP in its Washington, D.C. office, served as
a Judge of the United States District Court for the Eastern District of Missouri
from 1970 until 1973, when he was elevated to the United States Court of Appeals
for the Eighth Circuit. From 1978 until 1987, Mr. Webster served as Director of
the Federal Bureau of Investigation. From 1987 until 1991, he served as Director
of Central Intelligence, where he headed all the foreign intelligence agencies
of the United States and the Central Intelligence Agency. Charles B. Renfrew,
who operates law offices under his own name and practiced at two major U.S. law
firms prior to that, served as a Judge of the United States District Court for
the Northern District of California from 1972-80 and as Deputy Attorney General
of the United States from 1980-81. The Special Litigation Committee retained, as
its counsel, Richard C. Tufaro and the law firm of Milbank, Tweed, Hadley &
McCloy, LLP to assist in its investigation and review.
In January 2000, counsel for the Special Litigation Committee met in
Houston, Texas with Class Counsel in an effort to advance settlement
negotiations between the parties. The Special Litigation Committee believed that
it controlled the determination of the derivative claims and formed its own
views on the value of those claims and an appropriate settlement on behalf of
the Partnership and Courtyard by Marriott Limited Partnership (collectively, the
"Partnerships"). After telephonic conversations between the Special Litigation
Committee's counsel and the Defendants and their counsel, on February 4, 2000,
the parties to the litigation and their respective counsel met in Washington,
D.C. with the Special Litigation Committee. The negotiations lasted all day at
the office of the Special Litigation Committee's counsel. It was at this
settlement meeting that a settlement strategy involving a proposed sale of the
units of limited partnership interest in the Partnerships to the Defendants was
raised. Class Counsel, after consultation with its representative clients,
viewed the proposal favorably because it provided an exit strategy and
liquidity--two significant factors desired by the class plaintiffs.
During 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 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
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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 detailed information regarding the attempted sale of
the Partnerships by Merrill Lynch; (3) interviewed and deposed a representative
of Merrill Lynch; (4) reviewed the terms of the secondary market purchases of
units of limited partnership interest in the Partnerships; and (5) performed
such other reviews and analysis as they deemed appropriate.
Further settlement negotiations followed, resulting in the execution of the
Settlement Agreement by the Defendants, counsel for the plaintiffs, the
Intervenors and the Special Litigation Committee on March 9, 2000.
Fees. In connection with the consummation of the Purchase Offer and the
Merger, the Joint Venture will pay Merrill Lynch a fee in accordance with the
terms of its engagement letter entered into in mid-1998 in connection with its
sales efforts.
The Settlement Agreement
Insofar as it relates to the limited partners in the Partnership, the
Settlement Agreement provides for a two-step process to effectuate the
Settlement, consisting of the Purchase Offer and the Merger on the terms and
conditions set forth elsewhere in this Purchase Offer and Consent
Solicitation.
The Settlement Agreement provides that the Joint Venture, Host Marriott,
Rockledge, and Marriott International, or their designees, will deposit the
settlement funds with respect to the 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 any Units) in escrow with Chase Bank of Texas, N.A.,
which has been retained by Class Counsel to act as escrow agent for the
settlement funds (the "Escrow Agent") within three business days after the Court
enters a judgment order approving the Settlement Agreement. If the judgment
order becomes final without an appeal (other than an appeal that relates solely
to counsel fees and expenses), then the Escrow Agent will be authorized to make
distributions within seven business days after the date on which the judgment
order becomes final (such date, the "Effective Date") of an amount equal to
$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 holder will be reduced by any amount owed by the holder on the
original purchase price of such Unit. The Escrow Agent will be authorized to
make distributions of the Net Settlement Amount to limited partners who submit
valid Proofs of Claim after the Effective Date within seven days after receipt
of their Proofs of Claim. If a class action plaintiff has not submitted a valid
Proof of Claim to the Claims Administrator within 90 days following the
Effective Date and such plaintiff has not opted out of the Settlement, Class
Counsel will execute a Proof of Claim on behalf of that limited partner. The
execution of the Proof of Claim by Class Counsel on behalf of a limited partner
will entitle the limited partner to receive the Net Settlement Amount for each
Unit held by such limited partner and release, on behalf of such limited
partner, all claims that are released, settled and discharged as part of the
Settlement as provided in the Proof of Claim.
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Upon the terms and subject to the conditions of the Purchase Offer, payment
for the Units (other than Units held by holders who have opted-out of the
Settlement) will be made by deposit of the consideration therefor with the
Escrow Agent. Upon deposit of the settlement funds with respect to the Milkes
Litigation with the Escrow Agent for the purpose of making payment to validly
tendering Unitholders, the Purchaser's obligation to make such payment shall be
satisfied and such tendering Unitholders must thereafter look solely to Class
Counsel and the Escrow Agent for payment of the amounts owed to them by reason
of acceptance for payment of Units pursuant to the Purchase Offer or the Merger.
The Defendants in the Litigation have no responsibility for or liability
whatsoever with respect to the investment or distribution of the settlement
funds, the determination, administration, calculation or payment of claims, or
any losses incurred in connection therewith, or with the formulation or
implementation of the plan of allocation of the settlement funds, or the giving
of any notice with respect to same.
By execution and delivery of a Proof of Claim, you will be granting a
release of any and all claims, whether known or unknown, relating to the
purchase and sale of Units, the operation of the Partnership or management of
the Hotels, and other related matters, as set forth in greater detail in the
Proof of Claim. If you do not opt-out of the settlement class, you will also be
deemed to have granted such a release by virtue of the judgment order, even if
you fail to execute and deliver a valid Proof of Claim. Pursuant to a Proof of
Claim delivered prior to the Effective Date, you will also transfer your Units
to the Purchaser, free and clear of any liens or encumbrances.
The Courtyard II Defendants have agreed with two groups of limited partners
in the Partnership that elected to opt-out of the Milkes Litigation and then
intervened and were represented by separate counsel -- Palm Investors, LLC and
several Equity Resource Funds (collectively, the "Intervenors") -- to pay
$147,959 per Unit in the Purchase Offer pursuant to the same Settlement
Agreement entered into with Class Counsel. Those investors 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 agreed to
exercise their best efforts to accomplish the terms and conditions of the
Settlement Agreement and accordingly are expected to tender their Units in the
Purchase Offer and to vote in favor of the Merger and the Amendments. Insiders
who own Units 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
plaintiff class in the Milkes Litigation do not tender their Units prior to the
Expiration Date, their Units will be converted in the Merger in the same manner
as Units held by other participating Unitholders in the Merger.
If you or any other plaintiffs file an appeal of the judgment order (other
than an appeal that relates solely to counsel fees and expenses), the Escrow
Agent will return the settlement fund, with interest, to the Joint Venture, Host
Marriott, Rockledge, and Marriott International, or their designees, within two
days after receiving documentation of the event. If an order of an appellate
court affirming the judgment order subsequently becomes final, then the Joint
Venture, Host Marriott, Rockledge, and Marriott International, or their
designees, will return the settlement fund to the Escrow Agent within three
business days thereafter, without interest.
The Settlement Agreement provides that the limited partners in the
Partnership will continue to own their respective Units until the judgment order
becomes final. The General Partner will cause the Partnership to make
distributions of Cash Available for Distribution (as defined in the Partnership
Agreement) for the period until the judgment order is entered. Following entry
of the judgment order, and until the judgment order becomes final, assuming
there is no appeal, no additional distribution of Cash Available for
Distribution will be made, but the limited partners will be entitled to receive
interest accumulated on the settlement fund, less administrative expenses. If an
appeal is filed, the General Partner will cause the Partnership to make
distributions of Cash Available for Distribution for the period until the
judgment order becomes final.
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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 the General Partner, the Purchaser, the Joint Venture, Marriott
International, MI Investor and Rockledge Regarding the Purchase Offer
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 the plaintiffs, the Defendants, and their
counsel. None of the Joint Venture, the Purchaser, Marriott International, MI
Investor, Rockledge or the General Partner makes any recommendation with respect
to the Purchase Offer, the Merger, the Amendments, or the other terms of the
Settlement Agreement.
The General Partner is a Defendant and therefore has a conflict of
interest. Accordingly, the General Partner makes no recommendation to any
Unitholder whether to tender or to refrain from tendering his or her Units. YOU
MUST EACH MAKE YOUR OWN DECISION WHETHER OR NOT TO TENDER YOUR UNITS AND WHETHER
OR NOT TO CONSENT TO THE MERGER AND THE AMENDMENTS.
Recommendation of the Special Litigation Committee and Counsel to the Class
Action Plaintiffs
The Special Litigation Committee engaged the law firm of Milbank, Tweed,
Hadley & McCloy LLP to act as counsel and assist in the investigation. The
Special Litigation Committee also retained the law firm of Bouchard Margules
Friedlander & Maloney Huss to advise on matters of Delaware law and Jackson &
Walker LLP to advise on matters of Texas law. In addition to these three law
firms, the Special Litigation Committee retained experts, Cushman Realty
Corporation and Maurice Robinson & Associates, LLC to assist in analyzing the
claims.
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 their Units appraised and
pursue their individual claims separately;
(4) the fairness of the Settlement is subject to Court approval;
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(5) the Settlement requires the approval of a majority of the limited
partners in the form of a consent to the Merger;
(6) limited partners who do not opt-out of the class may appear at the
hearing to determine the fairness of the Settlement and oppose the
Settlement;
(7) the lack of an existing active trading market for the Units;
(8) the terms of the Settlement were the result of extensive arms' length
negotiations between Class Counsel and the Defendants; and
(9) the advice of independent financial experts, Cushman Realty
Corporation and Maurice Robinson & Associates, LLC, retained by the
Special Litigation Committee in connection with the
investigation.
In addition, Class Counsel has recommended to its clients that they approve
the Settlement by tendering their Units in the Purchase Offer and consenting to
the Merger and the Amendments. Class Counsel has determined that the Settlement
represents a fair, reasonable and attractive settlement. Class Counsel came to
this conclusion after engaging in extensive investigation and discovery on the
claims asserted in the 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
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Unitholders that participate in the Settlement and Unitholders that elect to
opt-out of the Settlement, and to provide for a majority vote on the Merger and
Amendments.
The Settlement Agreement and the Merger Agreement provide that, if the
judgment order approving the Settlement becomes final, Unitholders who fail to
tender their Units, other than Unitholders who opt-out of the Settlement, will
receive the same consideration in the Merger as Unitholders whose Units are
purchased in the Purchase Offer. If the judgment order approving the Settlement
becomes final, each holder of Units who has opted out of the Settlement will be
entitled to receive a cash amount per Unit determined through an appraisal
process set forth in the Settlement Agreement and the Merger Agreement, but such
appraisal amount will not include any amount representing the value of the
settlement of the claims that were asserted in the Milkes Litigation.
Conditions of the Purchase Offer and the Merger
Notwithstanding any other provisions of the Purchase Offer and Consent
Solicitation, the Purchaser is not obligated to accept for payment, purchase or
pay for, subject to Rule 14e-1(c) under the Securities Exchange Act of 1934, any
Units tendered, or to consummate the Merger, unless the following conditions are
satisfied:
(1) the order of the Court approving the terms of the Settlement and the
dismissal of the Litigation shall have become final (other than by
reason of an appeal relating solely to counsel fees and
expenses),
(2) not more than ten percent of the units of limited partnership
interests in each of the Partnership and each of the other six
Marriott Partnerships (other than units held by Insiders) shall be
held by holders who have elected to opt-out of the Settlement,
(3) holders of a majority of the outstanding units of limited partnership
interests in each of the Partnership and Courtyard by Marriott Limited
Partnership (other than the general partners of these partnerships and
their affiliates) shall have submitted valid written consents to its
merger and the proposed amendments to its partnership agreement.
The condition set forth in (2) above is for the sole benefit of the
Purchaser and may be asserted by the Purchaser regardless of the circumstances
giving rise to this condition and may be waived by the Purchaser in writing, in
whole or in part, at any time and from time to time, in its sole discretion. The
failure by the Purchaser at any time to exercise this right will not be deemed a
waiver of such right and this right will be deemed an ongoing right which may be
asserted at any time and from time to time until the Expiration Date. However,
conditions (1) and (3) may not be waived by the Purchaser. Accordingly, in the
event that holders of a majority of the outstanding Units fail to consent to the
Merger and the Amendments, the Purchase Offer and the other transactions
contemplated by the Settlement will not be consummated.
Plans for the Partnership; Certain Effects of the Purchase Offer
The Purchaser, the Joint Venture, Marriott International, MI Investor and
Rockledge currently intend that, upon consummation of the Purchase Offer and the
Merger, the Partnership will continue its business and operations, substantially
as, and in such places as, they are currently being conducted.
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Except as set forth in this Purchase Offer and Consent Solicitation, the
Purchaser has no present plans or proposals regardless of the outcome of the
Purchase Offer that would result in an extraordinary transaction, such as a
merger, reorganization, liquidation, or sale or transfer of a material amount of
assets, involving the Partnership or its subsidiaries, or any material changes
in the Partnership's capitalization, distribution policy, structure or business.
Immediately prior to the consummation of the Purchase Offer, Rockledge will
contribute its 99% non-managing interest in the General Partner to the Joint
Venture as a capital contribution and Host LP will contribute its 1% managing
interest to the Joint Venture as a capital contribution. As a result, following
the consummation of the Purchase Offer and the Merger, the Partnership will be
100% owned indirectly by the Joint Venture (through the General Partner and the
Purchaser) and, therefore, by the Joint Venture's equity owners, MI Investor,
Rockledge (through wholly owned subsidiaries) and Host LP. In addition, subject
to contractual obligations to third parties, Rockledge (through wholly owned
subsidiaries) and MI Investor intend to make certain changes to the arrangements
under which the Manager provides management services to the subsidiaries of the
Partnership that own the Hotels to make such arrangements more consistent with
arrangements that the Manager and its affiliates currently have with other
properties in which Rockledge and Host Marriott have an interest. See "--Certain
Transactions with the Partnership." In addition, following consummation of the
Purchaser Offer and the Merger, the Partnership will be required, under the
terms of its senior notes, to make an offer to purchase all outstanding senior
notes as a result of a change of control of the Partnership.
The Units currently are registered under the Exchange Act, and the
Partnership currently is subject to the periodic reporting requirements of that
Act. Following the consummation of the Purchase Offer and the Merger, the
Partnership will become privately held directly and indirectly by Marriott
International and Rockledge through the Joint Venture and its subsidiaries.
Under the terms of its senior notes, the Partnership will be required to
continue filing periodic reports with the SEC, although it will not be required
to do so under the Exchange Act.
Following consummation of the Purchase Offer and the Merger, you will have
no further opportunity to participate in the benefit of increases, if any, in
the value of the Partnership's business and properties or to receive future
distributions, if any, in respect of the Partnership's operations.
Certain Information Concerning the Partnership
Business Description. The Partnership is a Delaware limited partnership
with its principal offices located at 10400 Fernwood Road, Bethesda, Maryland
20817. The Partnership was formed on 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
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Offer and Consent Solicitation, neither the Partnership nor any of its
affiliates nor, to the best of the Partnership's knowledge, any of the persons
or entities referred to above, nor any director, executive officer or subsidiary
of the Partnership, has effected any transaction in such Units during the past
60 days.
Except as described in this Purchase Offer and Consent Solicitation,
neither the Partnership nor any of its affiliates nor, to the best of the
Partnership's knowledge, any of the persons listed on Schedule II hereto, has
any contract, arrangement, understanding or relationship with another person
with respect to any securities of the Partnership, including, but not limited
to, any contract, arrangement, understanding or relationship concerning the
transfer or voting of such securities, joint ventures, loan or option
arrangements, puts or calls, guarantees or loans, guarantees against loss or the
giving or withholding of proxies.
The Partnership is currently subject to the information and reporting
requirements of the Exchange Act and, as a result, is required to file reports
and other information with the SEC relating to its business, financial condition
and other matters. Certain information, as of particular dates, concerning the
Partnership, the General Partner's managers and executive officers, the
principal holders of the Partnership's securities, any material interests of
these persons in transactions with the Partnership and other matters is required
to be disclosed in reports filed with the SEC. Such reports and other
information can be inspected and copied 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. The Partnership'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 at prescribed
rates.
Certain Information Concerning the Purchaser, the Joint Venture, Marriott
International, MI Investor and Rockledge
The Purchaser. The Purchaser, a Delaware limited liability company and a
wholly owned subsidiary of the Joint Venture, was formed on April 19, 2000, for
the purpose of acquiring the Units pursuant to the Purchase Offer, and has
engaged in no activities to date, other than those incidental to its organizing
as an entity and making the Purchase Offer. Because the Purchaser is newly
formed and has minimal assets and capitalization, no meaningful financial
information with respect to the Purchaser is available. Similarly, because the
Purchaser has yet to establish an office, it should be contacted through either
MI Investor or Rockledge at the address and telephone numbers shown below.
The Joint Venture. The Joint Venture, a Delaware limited liability
company, is owned 50% by Marriott International, through MI Investor, and 50% by
Rockledge (through wholly owned subsidiaries). The Joint Venture was formed by
MI Investor and Rockledge (through wholly owned subsidiaries) on April 19, 2000
in order to effectuate the terms of the Settlement Agreement and has engaged in
no activities to date, other than those incidental to its organization and
satisfying the terms of the Settlement Agreement. Because the Joint Venture has
yet to establish an office, it should be contacted through either MI Investor or
Rockledge at the address and telephone numbers shown below.
MI Investor. MI Investor, a Delaware limited liability company, is a
wholly owned indirect subsidiary of Marriott International. MI Investor was
formed on April 13, 2000, for the purpose of investing in the Joint Venture, and
has engaged in no activities to date, other than those incidental to its
organization and the formation of the Joint Venture. The principal office of MI
Investor is located at 10400 Fernwood Road, Bethesda, Maryland 20817 and its
telephone number is (301) 380-3000.
Marriott International. Marriott International, a Delaware corporation,
was incorporated on September 19, 1997 and became a public company when it was
spun off as a separate entity by the company formerly named "Marriott
International, Inc." (now known as Sodexho Marriott Services, Inc.)
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on March 27, 1998. Marriott International is a worldwide operator and franchisor
of hotels and related lodging facilities, an operator of senior living
communities, and a provider of distribution services. Its operations are grouped
in three business segments, lodging, senior living services and distribution
services, which represented 81, six, and 13 percent, respectively, of total
sales in the fiscal year ended December 31, 1999. The principal office of
Marriott International is located at 10400 Fernwood Road, Bethesda, Maryland
20817 and its telephone number is (301) 380-3000.
Marriott International is subject to the information and reporting
requirements of the Exchange Act and, in accordance therewith, files reports and
other information with the SEC relating to its business, financial condition and
other matters. Certain information, as of particular dates, concerning Marriott
International's directors and officers, the principal holders of Marriott
International's securities, any material interests of these persons in
transactions with Marriott International and other matters is required to be
disclosed in proxy statements distributed to Marriott International's
stockholders and filed with the SEC. Such reports, proxy statements, and other
information can be inspected at the public reference facilities maintained by
the SEC in Washington, D.C., New York, New York and Chicago, Illinois.
Information regarding the public reference facilities may be obtained from the
SEC by telephoning 1-800-SEC-0330. Marriott International's filings are also
available to the public on the SEC's Internet site (http://www.sec.gov). Copies
of such materials may also be obtained by mail from the Public Reference Section
of the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549. Such reports,
proxy statements and other information can be inspected and copied at prescribed
rates. Such information should also be available for inspection at the New York
Stock Exchange at 20 Broad Street, New York, NY 10005.
Rockledge. Rockledge, a Delaware corporation, was formed in connection
with Host Marriott's efforts to reorganize its business operations to qualify as
a "real estate investment trust," or REIT, for federal income tax purposes.
Rockledge was formed to own various assets through a contribution of
approximately $264 million from Host Marriott to its operating partnership, the
direct ownership of which by Host Marriott or its operating partnership could
jeopardize Host Marriott's status as a REIT. These assets primarily consist of
partnership or other interests in hotels which are not leased and certain
furniture, fixtures and equipment used in the hotels. In exchange for the
contribution of these assets, the operating partnership received only non-voting
common stock, representing 95% of the total economic interests therein. The Host
Marriott Statutory Employee/Charitable Trust, the beneficiaries of which are
certain employees of Host LP, concurrently acquired all of the voting common
stock representing the remaining 5% of the total economic interest. The
principal office of Rockledge is 10400 Fernwood Road, Bethesda, Maryland 20817
and its telephone number is (301) 380-9000.
The name, business address, present principal occupation, five-year
employment history and citizenship of each of the directors and executive
officers of the Purchaser, the Joint Venture, Marriott International, MI
Investor and Rockledge are set forth in Schedule I hereto.
Except as set forth in this Purchase Offer and Consent Solicitation and in
Schedule I, neither the Joint Venture, the Purchaser, Marriott International, MI
Investor or Rockledge, nor any person controlling the Joint Venture, the
Purchaser, Marriott International, MI Investor or Rockledge, nor, to the best
knowledge of the Joint Venture, the Purchaser, Marriott International, MI
Investor or Rockledge, any of the persons listed in Schedule I or any associate
or majority-owned subsidiary of any of the foregoing, beneficially owns or has a
right to acquire any Units or has effected any transactions in the Units during
the past 60 days. Except as described in this Purchase Offer and Consent
Solicitation, neither the Joint Venture, the Purchaser, Marriott International,
MI Investor or Rockledge, nor any of their affiliates nor, to the knowledge of
the Joint Venture, the Purchaser, Marriott International, MI Investor or
Rockledge, any of the persons listed on Schedule I hereto, has any contract,
arrangement, understanding or relationship with another person with respect to
any securities of the Partnership, including, but not limited to, any contract,
arrangement, understanding or relationship concerning the transfer or voting of
such securities, joint ventures, loan or option arrangements, puts or calls,
guarantees or loans, guarantees against loss or the giving or withholding of
proxies, consents, or
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authorizations. Except as described in this Purchase Offer and Consent
Solicitation, neither the Joint Venture, the Purchaser, Marriott International,
MI Investor or Rockledge, nor any of their affiliates nor, to the knowledge of
the Joint Venture, the Purchaser, Marriott International, MI Investor or
Rockledge, any of the persons listed on Schedule I hereto, has since January 1,
1998 engaged in any business relationship or transaction with the Partnership or
any of its affiliates that would require disclosure herein under the rules and
regulations of the SEC applicable to the Purchase Offer. Except as described in
this Purchase Offer and Consent Solicitation, there have been no contacts,
negotiations or transactions since January 1, 1998 between the Purchaser, the
Joint Venture, Marriott International, MI Investor or Rockledge, and their
respective affiliates or any of the persons listed on Schedule I hereto, on the
one hand, and the Partnership or its affiliates on the other hand, concerning a
merger, consolidation, acquisition, tender offer or other acquisition of
securities, election of directors or sale or other transfer of a material amount
of assets of the Partnership.
Source and Amount of Funds
The total amount of funds required to purchase the Units in the Purchase
Offer and to consummate the Merger will be up to approximately $214.3 million,
depending upon the number of Units held by limited partners who elect to opt-out
of the class and the appraised value determined for those Units under the Merger
Agreement. The Purchaser will obtain the necessary funds, indirectly, from
Marriott International, and from Rockledge, which will obtain funds from the
operating partnership of Host Marriott through a loan or capital contribution.
MI Investor and Rockledge will provide a portion of the funds for the Purchase
Offer and the Merger by equity contributions to the Joint Venture, and a
subsidiary of Marriott International will provide a portion of the funds through
a loan. There is no financing contingency to consummation of the Purchase Offer
and the Merger. Host Marriott and Marriott International have guaranteed the
obligations of the Courtyard II Defendants and Rockledge to provide the funds
necessary to fund payments under the Settlement Agreement, if the judgment order
becomes final.
The Joint Venture, Marriott International, Host Marriott, and Rockledge
will be responsible for payment of expenses of the Purchase Offer and the
Merger. See "Other Matters - Fees and Expenses."
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.
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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, directly and
indirectly, by Marriott International, Rockledge and Host Marriott. See "The
Settlement -- Plans for the Partnership; Certain Effects of the Purchase Offer."
Subject to contractual obligations to third parties, Rockledge and MI Investor
intend to make certain changes to the arrangements under which the Manager
provides management services to the subsidiaries of the Partnership that own the
Hotels to make such arrangements more consistent with arrangements that the
Manager and its affiliates currently have with other properties in which
Rockledge and Host Marriott have an interest. These changes include eliminating
the ability of the Management Agreement to be terminated with respect to a Hotel
upon the sale of such Hotel by payment of a termination fee, decreasing the
amount to which the incentive fee would increase under certain circumstances and
increasing annual contributions to the repairs and equipment reserve.
The following table sets forth the Partnership's reported breakdown of
amounts paid to Marriott International and affiliates under the Management
Agreement for the years ended December 31, 1999 and 1998:
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<PAGE>
<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>
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.
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<PAGE>
<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.
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 limited
partnership Units. The General Partner owns a total of 21.5 Units representing a
1.39% limited partnership interest in the Partnership.
Neither the Purchaser, Rockledge, Marriott International, the Joint Venture
nor MI Investor own any Units. The executive officers and managers of the
General Partner, Rockledge, Marriott International, 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 and Rockledge believe that the
acquisition of Units pursuant to the Purchase Offer or the Merger would not
violate the antitrust laws. The Purchaser, the Joint Venture, Marriott
International, MI Investor and Rockledge believe that retention of all of the
operations of the Partnership should be permitted under the antitrust laws.
Nevertheless, no one can assure you that a challenge to the Purchase Offer on
antitrust grounds will not be made or, if such challenge is made, what the
result will be.
Except as set forth in this section entitled "Regulatory Matters," the
Purchaser is not aware of any filings, approvals or other action by any federal
or state governmental administrative or regulatory authority that would be
required for the acquisition of Units by the Purchaser as contemplated herein or
the Merger. Should any such other approval or action be required, it is
currently contemplated that such approval or other action would be sought. We
cannot assure you that any such additional approval or other action, if needed,
would be obtained without substantial conditions or that adverse consequences
might not result to the Partnership's business in the event that such other
approvals were not obtained or such other actions were not taken.
30
<PAGE>
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.
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 August 28, 2000
at 9 a.m. in the courtroom of the Honorable Michael Peden, 285th District Court,
Bexar County Courthouse, 100 Dolorosa, San Antonio, Texas. The final approval
hearing may be continued or adjourned from time to time by the Court without
further notice to you.
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 funds or to Class Counsel's application for an
award of attorney's fees and expenses.
Unitholders will only be heard at the final approval hearing if they, on or
prior to August 18, 2000, submit written notice of their intention to appear at
the hearing to:
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:
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<PAGE>
Stephen M. Hackerman
Hackerman Peterson Frankel & Manela
1122 Bissonnet Street
Houston, Texas 77005
and upon counsel for Defendants:
Tom A. Cunningham, Esq.
Cunningham, Darlow, Zook & Chapoton, LLP
600 Travis, Suite 1700
Houston, Texas 77002
Attorneys for Host Marriott Corporation
Seagal 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 who the objector may call by testimony or affidavit, (6)
a list of exhibits which the objector may offer during the hearing, along with
copies of such exhibits, showing proof of service on the attorneys of record for
all parties as indicated above.
Failure to timely submit a written notice of intention to appear at the
hearing will constitute a waiver of any objections and will foreclose the
raising of objections to the Settlement, to the dismissal with prejudice of the
action, to the proposed distribution of the settlement funds, and to the fees
and expenses requested by Class Counsel.
Procedures for Opting-Out of the Settlement
Unitholders who do not wish to participate in the Settlement may exclude
themselves from the Settlement class by submitting to GEMISYS Corporation, which
has been retained by Class 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 in accordance with the procedures described
under the heading "The Settlement -- The Merger -- Rights of Unitholders Who
Have Elected to Opt-
32
<PAGE>
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 in the Merger will be reduced by any amount owed on
the original purchase price of such Units.
Unitholders who wish to opt-out of the Settlement should also complete,
execute and include with their Opt-Out Notice the Certificate of Non-Foreign
Status included in the Proof of Claim. Failure to include the Certificate of
Non-Foreign Status will result in certain amounts being withheld from the cash
payment representing the appraised value of Units to be received by Unitholders
who opt-out of the Settlement. See "Federal Income Tax Considerations--Federal
Tax Withholding Applicable to Participating and Nonparticipating Unitholders" in
the Purchase Offer and Consent Solicitation and Instruction 8 to the Proof of
Claim.
Unitholders who fail to timely and validly submit an Opt-Out Notice will be
bound by all orders and judgments entered in the Milkes Litigation, whether
favorable or unfavorable to them. See "The Settlement -- The Merger Rights of
Unitholders Who Have Elected to Opt-Out of the Settlement," pages 21 and
22.
The Merger
Pursuant to the Settlement Agreement, and in accordance with the provisions
of Section 17-211 of the Delaware Revised Uniform Limited Partnership Act (the
"Partnership Act"), the Partnership, the Joint Venture and CBM II Acquisition,
L.P., a Delaware limited partnership and a subsidiary of the Purchaser ("Merger
Sub"), have entered into the Merger Agreement. The following summary of certain
provisions of the Merger Agreement is qualified in its entirety by reference to
the complete text of the Merger Agreement. You can obtain a copy of the Merger
Agreement by following the procedures set forth under the heading "Other
Matters--Miscellaneous." The following summary may not contain all the
information that is important to you.
The Merger Agreement provides that Merger Sub will be merged with and into
the Partnership, with the holders of partnership interests in the Partnership
receiving cash in specified amounts (except that the Units held by the General
Partner and the Units held by the Purchaser will be converted into percentage
interests in the surviving entity), and the General Partner and the Purchaser
will become the only partners in the Partnership. The Partnership will be the
surviving entity in the Merger and Merger Sub will cease to exist. The
Partnership will continue its existence as a limited partnership under the laws
of the State of Delaware, and its name shall continue to be "Courtyard by
Marriott II Limited Partnership."
Effects of Merger
The Merger will have the effects set forth in the Partnership Act. The sole
General Partner of the Partnership following the Merger will continue to be CBM
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 as soon as practicable following the
Expiration Date, but in any event prior to the consummation of the Purchase
Offer to give effect to the Amendments. The Partnership Agreement will be
amended and restated as soon as practicable after the Merger to reflect the
acquisition of the Units by the Purchaser and other changes in accordance with
the terms and conditions thereof and applicable Delaware law.
Conversion of Partnership Interests in the Merger
33
<PAGE>
In connection with the Merger: (1) all partnership interests in the Merger
Sub will be cancelled: (2) each Unit held by a Unitholder (other than the
Purchaser or the General Partner) who has not delivered a Proof of Claim prior
to the Expiration Date and who has not elected to opt-out of the Settlement will
be converted into the right to receive $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 Class Counsel in the Milkes Litigation, the net amount that
such 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 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 values of the Hotels determined by two
appraisers (in the manner described in the paragraph below) plus (or minus) (ii)
the net working capital of the Partnership (to the extent not distributed to the
partners) minus (iii) the aggregate amount of indebtedness of the Partnership
and its subsidiaries minus (iv) the fair value of deferred management fees
accrued under the Management Agreement minus (v) the amount of any commitments
for owner funded capital expenditures and the estimated cost of any deferred
maintenance with respect to the Partnership's properties, and the proceeds of
such sale were then distributed among the partners of the Partnership in the
same manner as liquidation proceeds in accordance with the terms of the
Partnership Agreement. The liquidity of the Units will not be a factor in
determining the fair market value of the Units.
In order to determine the appraised value of the Hotels, two independent,
nationally recognized hotel valuation firms ____________________ and
____________________, have been selected in consultation with Class Counsel and
will be approved by the Court (or, if the Court does not approve such firms,
such substitutes as may be approved by the Court). These independent valuation
firms will appraise the market value of the Partnership's portfolio of Hotels as
of the Effective Date, which appraisals will be completed within 60 days after
the effective time of the Merger and set forth in a report certified by a MAI
appraiser as having been prepared in accordance with the requirements of the
Standards of Professional Practice of the Appraisal Institute and the Uniform
Standards of Professional Appraisal Practice of the Appraisal Foundation (which
may be based on site visits to 10 or more Hotels and a limited scope review
deemed appropriate by such appraisal firm). The
34
<PAGE>
Court will have no involvement in the appraisal process, other than approving
the independent valuation firms that will conduct the appraisals.
In the fall of 1999, in connection with Merrill Lynch's efforts to sell the
Partnership, the Partnership received a preliminary nonbinding proposal from a
third party 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. The third party's proposal was never formalized and
an agreement in principle was never reached because of uncertainties regarding
future operating results of the Partnership's Hotels.
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 limited partner will be
reduced by any amount owed on the original purchase price of his or her Units.
The Joint Venture will pay any expenses incurred in connection with the
appraisal process.
The Amendments
The proposed amendments to the Partnership Agreement are discussed below.
Capitalized terms used herein but not defined have the meanings set forth in the
Partnership Agreement. In general, the proposed amendments are intended to
clarify that the terms of the Settlement Agreement (including the Purchase Offer
and the Merger) are consistent with the provisions of the Partnership Agreement
and to facilitate the consummation of the Purchase Offer and the Merger. 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. You can obtain a copy of the Partnership Agreement by following the
procedures set forth under the heading "Other Matters--Miscellaneous."
1. Amendments to Voting Provisions. The Partnership Agreement contains
various provisions that inhibit the ability of the General Partner and its
affiliates to vote Units beneficially owned by them. In the event the Purchase
Offer is consummated and such parties become the owners of a majority of the
outstanding Units, such parties believe it would be appropriate to amend the
voting provisions of the Partnership Agreement to provide such parties with the
voting rights described below. The proposed Amendments would affect provisions
of the Partnership Agreement that (1) impose restrictions on voting, and (2)
establish certain voting standards.
Section 10.01.G of the Partnership Agreement currently provides that the
General Partner or its Affiliates are not entitled to any voting, determinative
or consensual rights with respect to any Units owned or controlled by them and
such Units held by the General Partner or its Affiliates are not taken into
account in determining the presence or absence of a quorum. Under the current
definition of "Consent" in Section 1.01 of the Partnership Agreement, if the
General Partner or any of its Affiliates purchases any Units, it shall not have
any voting rights with respect to such Units. The proposed Amendments would
delete or revise as appropriate the provisions limiting the voting of the
General
35
<PAGE>
Partner and its Affiliates to permit the General Partner and its Affiliates to
have full voting rights with respect to all Units held by the General Partner or
its Affiliates on all matters affecting the Partnership in the same manner as
other holders are entitled.
Purpose and Effect of the Amendments. This change has been proposed in
order to facilitate the consummation of the Merger. Absent the proposed
amendments, in the unlikely event that some action needs to be taken between the
time the Purchase Offer is consummated and the time the Merger is effective, the
General Partner and its Affiliates would not be permitted to vote such Units
even if they held a significant portion of the outstanding Units. The proposed
voting amendments would allow the General Partner and its Affiliates to have
full voting rights during the interim period. The General Partner will only vote
the Units acquired in the Purchase Offer if necessary or advisable to consummate
the Merger. In addition, in the absence of the proposed amendments, after the
Merger, the Purchaser, as an Affiliate of the General Partner, will not be
allowed to vote its Units on items presented to the limited partners for their
approval, including amendments to the Partnership Agreement.
Text of the Amendments. Section 10.01.G of the Partnership Agreement,
which currently reads as follows, would be deleted in its entirety.
If any Consents, determinations or votes of Limited Partners, with or
without a meeting, are to be requested, made or taken, the General Partner or
any of its Affiliates (other than officers, directors or employees of the
General Partner or any of its Affiliates) shall not be entitled to any voting,
determinative or consensual rights with respect to any Interests owned or
controlled by any of them nor shall any Interests be taken into account in
determining the presence or absence of a quorum.
Section 1.01 of the Partnership Agreement, which defines "Consent," would
be revised by the Amendments to delete the strike through language as set forth
below:
"Consent" means either (a) the approval given by vote at a
meeting called and held in accordance with the provisions of Section 10.01,
or (b) a prior written approval required or permitted to be given pursuant
to this Agreement or the act granting such approval, as the context may
require. Unless otherwise specified, Consent of the Limited Partners shall
mean Consent of a majority in interest of the Limited Partners entitled to
vote. However, if the General Partner or any Affiliate of the General
Partner (other than officers, directors or employees of the General Partner
or its Affiliates) purchases any Units, it shall have no voting rights with
respect to such Units.
2. 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.
36
<PAGE>
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.
3. Revision of Restriction on Timing of Transfers. Section 7.01.A of the
Partnership Agreement permits the assignment of Units only on the first day of
an Accounting Period. The Amendment to Section 7.01.A would eliminate this
restriction for the transfer of Units to the Purchaser pursuant to the Purchase
Offer, and would exempt the Purchaser from this restriction for any subsequent
transfer of Units to another entity.
Purpose and Effect of the Amendment. Section 7.01A of the Partnership
Agreement permits the assignment of Units only on the first day of each
Accounting Period. Without amending the Partnership Agreement to permit the
waiver of this requirement, the closing date for the Purchase Offer would have
to fall on the first day of an Accounting Period, rather than an earlier or
later date that otherwise would be chosen as the closing date. Accordingly, the
General Partner has proposed, at the request of the Joint Venture and the
Purchaser, the inclusion in Section 7.01.A of a provision that would eliminate
the Section 7.01.A transfer restrictions for Units transferred pursuant to the
Purchase Offer. This change would permit the transfer of such Units and the
closing of the Purchase Offer to occur on the earliest date practicable
following the expiration of the Purchase Offer, and in any event, on such date
as is necessary to facilitate the orderly consummation of the Purchase Offer.
The General Partner also has proposed, at the request of the Joint Venture and
the Purchaser, that Unitholders exempt the Purchaser from this restriction for
all subsequent assignments of its Units to any other entity in order to provide
the Purchaser with the flexibility to transfer its Units on such date that may
be necessary to facilitate the transfer. Because such transfers would occur in
isolated transactions, the General Partner does not believe that, as a result of
such transfers, the Partnership would be treated as an association taxable as a
corporation under Section 7704 of the Code.
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.
------------------------------------
4. 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
37
<PAGE>
distributed at least annually. Section 4.10 of the Partnership Agreement
provides that cash available for distribution with respect to Units shall be
distributed to the limited partners pro rata in accordance with the number of
Units held by each as of the end of the accounting period with regard to which
the distribution relates. The Amendments to these provisions would clarify that
Unitholders (1) would receive allocations of profit or loss on their Units up
through the Effective Date rather than through the end of the preceding
accounting period, (2) would receive a distribution from cash available for
distribution for the period ending on the day prior to the date of the entry of
the judgment order, and (3) would not receive any additional cash distributions
(including any sale or refinancing proceeds) relating to periods beginning on or
after the date of the entry of the judgment order (which cash distributions
would inure to the benefit of the Purchaser), unless an appeal is filed with
regard to the judgment order (other than an appeal that relates solely to
counsel fees and expenses), in which case the Unitholders also would receive a
distribution of cash available for distribution for the period beginning on the
date the judgment order is entered and ending on the Effective Date.
Purpose and Effect of the Amendments. The change to Section 4.07 of the
Partnership Agreement has been proposed to permit Unitholders to receive a
distribution of cash available for distribution from the Partnership for the
period ending on the day prior to the date of the entry of the judgment order,
as required by the terms of the Settlement Agreement. In the event an appeal is
timely filed with regard to the judgment order after it is entered (other than
an appeal that relates solely to counsel fees and expenses), the proposed change
to Section 4.07 also would permit the Unitholders to receive a distribution of
cash available for distribution from the Partnership for the period beginning on
the date the judgment order is entered and ending on the Effective Date. Because
the Partnership distributes cash available for distribution on an annual basis
in accordance with Section 4.07.A, Section 4.10 otherwise would cause all cash
distributions (including sale or refinancing proceeds) with respect to the Units
to be made to the Purchaser if the Unitholders disposed of their Units before
the end of the accounting period ending prior to the date of any such
distributions from the Partnership. As a result of amending Section 4.07 so as
to require the distributions described in the Settlement Agreement, the
Unitholders will receive a distribution of cash available for distribution for
the period ending on the day prior to the entry of the judgment order and, if an
appeal is filed with regard to the judgment order (other than an appeal that
relates solely to counsel fees and expenses), a distribution of cash available
for distribution for the period beginning on the date the judgment order is
filed and ending on the Effective Date but will receive no distributions for any
period after the Effective Date.
The proposed Amendment to Section 4.05 would require the Partnership to
allocate net profits, gains, net losses and losses with respect to the Units for
the fiscal year of the Partnership in which the judgment order becomes final
between the Purchaser and each Unitholder based upon the number of days that
each held such Units during such fiscal year (including any short fiscal year
for tax purposes resulting from a "technical" termination of the Partnership
pursuant to Section 708(b)(1)(B) of the Code). Because the Partnership currently
is generating net income, if the judgment order becomes final on a date other
than the first day of an Accounting Period, the Amendment would result in a
greater amount of taxable income being allocated to the Unitholders than would
be the case currently under the Partnership Agreement. However, the additional
allocation of taxable income would increase each Unitholder's adjusted tax basis
in his Units and, thus, would decrease the amount of capital gain, or increase
any capital loss, recognized by the Unitholder in the Purchase Offer or as a
result of the Merger. See "Federal Income Tax Considerations--Allocations of
Profits and Losses to Participating and Nonparticipating Unitholders."
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
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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.
-----------------
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.
----------------------------
5. Amendment to Provisions Relating to Authority of the General Partner to
Manage the Partnership.
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The Partnership Agreement contains provisions providing for appraisal
procedures in the event that the Partnership sells any Hotels to the General
Partner or an affiliate of the General Partner, and in the event of a
distribution of the Partnership's assets in connection with a liquidation.
Those appraisal procedures are intended to establish a fair purchase price for
the Hotels and the Partnership's assets in those limited circumstances. The
Partnership is not currently selling any Hotels or liquidating the Partnership.
Accordingly, the Partnership Agreement does not require the Partnership, in
connection with the Purchase Offer and the Merger, 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.
Text of the Amendment. Section 5.01.C of the Partnership Agreement, would
be amended to add the underlined language set forth below:
(vii) sell up to 20 hotels (no more than five Hotels at less than
the Partnership's purchase price);
(viii) retain such persons or entities as the General Partner, in
----------------------------------------------------------
its sole discretion, shall deem necessary or appropriate in order
-----------------------------------------------------------------
to appraise the fair market value of the Hotels and the value of
----------------------------------------------------------------
the Units in accordance with the terms of the Settlement
--------------------------------------------------------
Agreement and the Merger Agreement; and
---------------------------------------
(ix) take such actions as the General Partner determines are
advisable or necessary, and will not result in any material
adverse effect on the economic position of holders of a majority
of the Units, to preserve the tax status of the Partnership as a
partnership for Federal income tax purposes.
40
<PAGE>
Federal Income Tax Considerations
Summarized below are the material United States federal income tax
considerations of the Settlement.
General. The following discussion summarizes certain federal income tax
considerations related to the Settlement that may be relevant to (i) a
Unitholder who tenders his Units and submits the required Proof of Claim to the
Claims Administrator pursuant to the terms of the Purchase Offer and a
Unitholder who does not tender his Units and submit the Proof of Claim but who
does not affirmatively "opt-out" of the Settlement (in either case, hereinafter,
a "Participating Unitholder"), or (ii) a Unitholder who affirmatively "opts out"
of the Settlement and therefore exchanges his Units in the Merger (hereinafter,
a "Nonparticipating Unitholder").
The information in this section is based upon the Internal Revenue Code of
1986, as amended (the "Code"), Treasury Regulations thereunder, rulings, and
other pronouncements and decisions now in effect, all of which are subject to
change (perhaps with retroactive effect). The General Partner has not requested,
and does not plan to request, any rulings from the IRS concerning the tax
treatment of the Unitholders in connection with the Settlement. Thus, it is
possible that the IRS would challenge the statements in this discussion, which
do not bind the IRS or the courts, and that a court would agree with the IRS.
The discussion set forth herein is not intended to be exhaustive of all
possible tax considerations. For example, this summary does not give a detailed
discussion of any state, local, or foreign tax considerations. Nor does it
discuss all aspects of federal income taxation that may be relevant to specific
Unitholders in light of their particular circumstances. Except where
specifically indicated, the discussion below describes general federal income
tax considerations applicable to individuals who are citizens or residents of
the United States. Accordingly, the following discussion has limited
application to domestic corporations and persons subject to specialized federal
income tax treatment, such as foreign persons, tax-exempt entities, regulated
investment companies and insurance companies.
The following discussion includes an estimate by the General Partner, on a
per Unit basis, of a Unitholder's adjusted tax basis in his Units (including the
amount of syndication costs includible in his basis), the amount of the
Partnership's liabilities allocable to such Unitholder, the passive activity
loss carry forward, if any, attributable to his ownership of Units and the
amount of "unrecaptured Section 1250 gain" that such Unitholder would recognize
at the time of the disposition of his Units. These amounts are only estimates,
and there could be material differences between these estimated amounts and the
actual numbers due to a variety of factors. In addition, these estimates apply
only to a Unitholder who purchased his Units on the date of the original
offering of the Units and who has held his Units continuously since that time.
The estimated amounts could differ considerably for a Unitholder who acquired
some or all of his Units after the date of the original offering. The amount of
gain recognized by such Unitholders in connection with the disposition of their
Units pursuant to the Settlement will depend upon when they acquired their Units
and the price they paid for the Units (as adjusted for subsequent allocations of
Partnership income and loss and subsequent Partnership distributions).
UNITHOLDERS SHOULD BOTH REVIEW THE FOLLOWING DISCUSSION AND CONSULT WITH
THEIR TAX ADVISORS TO DETERMINE THE TAX CONSEQUENCES TO THEM -- INCLUDING ANY
STATE, LOCAL OR NON-U.S. TAX CONSEQUENCES -- IN LIGHT OF THEIR PARTICULAR TAX
SITUATION, OF CHOOSING TO PARTICIPATE IN THE SETTLEMENT OR OPTING OUT OF THE
SETTLEMENT.
The class of Participating Unitholders is represented by Class Counsel, who
have engaged Chamberlain, Hrdlicka, White, Williams, and Martin ("Chamberlain
Hrdlicka") as special tax counsel. Chamberlain Hrdlicka is separately providing
to the Unitholders its summary regarding the potential
41
<PAGE>
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 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
42
<PAGE>
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.
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.
43
<PAGE>
Tax Treatment of Class Counsel's Attorneys' Fees. As described above in
"The Settlement--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 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
44
<PAGE>
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
Settlement--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.
45
<PAGE>
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.
46
<PAGE>
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 should return the Certificate of Non-Foreign Status to prevent federal income
tax withholding on the amounts payable to him pursuant to the Settlement.
* * * * *
BECAUSE THE INCOME TAX CONSEQUENCES OF THE DISPOSITION OF UNITS PURSUANT TO
THE SETTLEMENT WILL NOT NECESSARILY BE THE SAME FOR ALL UNITHOLDERS, UNITHOLDERS
CONSIDERING TENDERING THEIR UNITS SHOULD CONSULT THEIR TAX ADVISORS WITH
SPECIFIC REFERENCE TO THEIR OWN TAX SITUATIONS.
47
<PAGE>
Selected Historical Consolidated Financial Data
<TABLE>
<CAPTION>
1Q 2000 1Q 1999 1999 1998 1997 1996 1995
------------------------------------------------------------------------
(in thousands, except for per unit amounts)
Income Statement Data:
<S> <C> <C> <C> <C> <C> <C> <C>
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 LP 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
Balance Sheet Data:
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 LP 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 ten years. The Hotels range in age between
10 and 14 years. The
48
<PAGE>
Hotels are geographically diversified among 29 states, and
no state has more than nine Hotels.
The following table summarizes certain attributes of each of the
Hotels.
49
<PAGE>
COURTYARD BY MARRIOTT II LIMITED PARTNERSHIP
SUMMARY OF PROPERTIES
(70 COURTYARD HOTELS)
<TABLE>
<CAPTION>
PROPERTY TITLE TO LAND # OF ROOMS OPENING DATE
======== ============= ========== ============
<S> <C> <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 South Condominium
Hoover, AL 35244 Corp.*
3 Huntsville, AL Leased from Essex House 149 08/15/87
4808 University Drive Condominium
Huntsville, AL 35816 Corp.*
4 Phoenix/Mesa, AZ Leased from Essex House 148 03/19/88
1221 S. Westward Avenue Condominium
Mesa, AZ 85210 Corp.*
5 Phoenix/Metrocenter, AZ Leased from Essex House 146 11/29/87
9631 N. Black Canyon Condominium
Phoenix, AZ 85021 Corp.*
6 Tucson Airport, AZ Leased from Essex House 149 10/01/88
2505 E. Executive Drive Condominium
Tucson, AZ 85706 Corp.*
7 Little Rock, AR Leased from Essex House 149 05/28/88
10900 Financial Centre Parkway Condominium
Little Rock, AR 72211 Corp.*
8 Bakersfield, CA Leased from Essex House 146 02/13/88
3601 Marriott Drive Condominium
Bakersfield, CA 93308 Corp.*
9 Cupertino, CA Leased from Vallco 149 05/14/88
10605 N. Wolfe Road Park, Ltd.
Cupertino, CA 95014
10 Foster City, CA Leased from Essex House 147 09/26/87
550 Shell Blvd. Condominium
Foster City, CA 94404 Corp.*
</TABLE>
50
<PAGE>
<TABLE>
PROPERTY TITLE TO LAND # OF ROOMS OPENING DATE
======== ============= ========== ============
<S> <C> <C> <C> <C>
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
Hacienda Heights, CA 91745 Corp.*
</TABLE>
* Essex House is a subsidiary of Marriott International
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
13 Marin/Larkspur Landing, CA Leased from Essex House 146 07/25/87
2500 Larkspur Landing Circle Condominium
Larkspur, CA 94939 Corp.*
14 Palm Springs, CA Leased from Essex House 149 10/08/88
300 Tahquitz Canyon Way Condominium
Palm Springs, CA 92262 Corp.*
15 Torrance, CA Leased from Essex House 149 10/15/88
2633 West Sepulveda Boulevard Condominium
Torrance, CA 90505 Corp.*
16 Boulder, CO Leased from Essex House 148 08/06/88
4710 Pearl East Circle Condominium
Boulder, CO 80301 Corp.*
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
Englewood, CO 80111 Corp.*
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
Wallingford, CT 06492 Corp.*
21 Ft. Myers, FL Leased from Essex House 149 08/27/88
4455 Metro Parkway Condominium
Ft. Myers, FL 33901 Corp.*
</TABLE>
51
<PAGE>
<TABLE>
# OF
PROPERTY TITLE TO LAND ROOMS OPENING DATE
======== ============= ===== ============
<S> <C> <C> <C> <C>
22 Ft. Lauderdale/Plantation, FL Leased from Essex House 149 09/21/88
7780 S.W. 6th Street Condominium
Plantation, FL 33324 Corp.*
23 St. Petersburg, FL Leased from Essex House 149 10/14/89
3131 Executive Drive Condominium
Clearwater, FL 34622 Corp.*
24 Tampa/Westshore, FL Leased from 145 10/27/86
3805 West Cypress Hotsinger, Inc. and Owned
Tampa, FL 33607 in fee
25 West Palm Beach, FL Leased from Essex House 149 01/14/89
600 Northpoint Parkway Condominium
West Palm Beach, FL 33407 Corp.*
</TABLE>
* Essex House is a subsidiary of Marriott International
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
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
Duluth, GA 30136 Corp.*
28 Atlanta/Perimeter Ctr., GA Leased from Essex House 145 12/12/87
6250 Peachtree-Dunwoody Road Condominium
Atlanta, GA 30328 Corp.*
29 Atlanta/Roswell, GA Leased from Roswell 154 06/11/88
1500 Market Boulevard Landing Associates
Roswell, GA 30076
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
Glenview, IL 60025 Corp.*
</TABLE>
52
<PAGE>
<TABLE>
PROPERTY TITLE TO LAND # OF OPENING
======== ============ ROOMS DATE
===== =======
<S> <C> <C> <C>
33 Chicago/Highland Park, IL Leased from Essex House 149 06/10/88
1505 Lake Cook Road Condominium
Highland Park, IL 60035 Corp.*
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
Waukegan, Il 60085 Corp.*
37 Chicago/Wood Dale, IL Leased from Essex House 149 07/02/88
900 N. Wood Dale Road Condominium
Wood Dale, IL 60191 Corp.*
38 Rockford, IL Owned in fee 147 04/12/86
7676 East State Road
Rockford, IL 61108
</TABLE>
* Essex House is a subsidiary of Marriott International
<TABLE>
<S> <C> <C> <C>
39 Indianapolis/Castleton, IN Leased from Essex House 146 06/06/87
8670 Allisonville Road Condominium
Indianapolis, IN 46250 Corp.*
40 Kansas City/Overland Park, KS Leased from Essex House 149 01/14/89
11301 Metcalf Avenue Condominium
Overland Park, KS 66212 Corp.*
41 Lexington/North, KY Leased from Essex House 146 06/04/88
775 Newtown Court Condominium
Lexington, KY 40511 Corp.*
42 Annapolis, MD Leased from Essex House 149 03/04/89
2559 Riva Road Condominium
Annapolis, MD 21401 Corp.*
43 Silver Spring, MD Leased from Essex House 146 08/06/88
12521 Prosperity Drive Condominium
Silver Spring, MD 20904 Corp.*
</TABLE>
53
<PAGE>
<TABLE>
<CAPTION>
PROPERTY TITLE TO LAND # OF ROOMS OPENING DATE
-------- ------------- ---------- ------------
<S> <C> <C> <C> <C>
44 Boston/Andover, MA Leased from Essex 146 12/03/88
10 Campanelli Drive House
Andover, MA 01810 Condominium
Corp.*
45 Detroit Airport, MI Leased from Essex 146 12/12/87
30653 Flynn Drive House
Romulus, MA 48174 Condominium
Corp.*
46 Detroit/Livonia, MI Leased from Essex 148 03/12/88
17200 N. Laurel Park Drive House
Livonia, MI 48152 Condominium
Corp.*
47 Minneapolis Airport, MN Leased from Essex 146 06/13/87
1352 Northland Drive House
Mendota Heights, MN 55120 Condominium
Corp.*
48 St. Louis/Creve Coeur, MO Leased from Essex 154 07/22/87
828 N. New Ballas Road House
Creve Coeur, MO 63146 Condominium
Corp.*
49 St. Louis/Westport, MO Leased from Essex 149 08/20/88
11888 Westline Industrial House
Drive Condominium
St. Louis, MO 63146 Corp.*
50 Lincroft/Red Bank, NJ Leased from Essex 146 05/28/88
245 Half Mile Road House
Red Bank, NJ 07701 Condominium
Corp.*
51 Poughkeepsie, NY Leased from 149 06/04/88
408 South Road Pizzgalli
Poughkeepsie, NY Investment
Company
* Essex House is a subsidiary of Marriott International
52 Rye, NY Leased from Essex 145 03/19/88
631 Midland Avenue House
Rye, NY 10580 Condominium
Corp.*
53 Charlotte/South Park, NC Leased from 149 03/25/89
6023 Park South Drive Queens Properties,
Charlotte, NC 28210 Inc.
54 Raleigh/Cary, NC Leased from Essex 149 06/25/88
102 Edinburgh Drive House
South Condominium
Cary, NC 27511 Corp.*
</TABLE>
54
<PAGE>
<TABLE>
<CAPTION>
PROPERTY TITLE TO LAND # OF OPENING
-------- ------------- ROOMS DATE
----- -------
<S> <C> <C> <C> <C>
55 Dayton Mall, OH Leased from Essex 146 09/19/87
100 Prestige Place House
Miamisburg, OH 45342 Condominium
Corp.*
56 Toledo, OH Leased from Essex 149 04/30/88
1435 East Mall Drive House
Holland, OH 43528 Condominium
Corp.*
57 Oklahoma City Airport, OK Leased from Essex 149 07/23/88
4301 Highline Boulevard House
Oklahoma City, OK 73108 Condominium
Corp.*
58 Portland-Beaverton, OR Leased from Essex 149 02/11/89
8500 S.W. Nimbus Drive House
Beaverton, OR 97005 Condominium
Corp.*
59 Philadelphia/Devon, PA Leased from Three 149 11/19/88
762 W. Lancaster Ave. Devon Square
Wayne, PA 19087 Associates
60 Columbia, SC Leased from Essex 149 01/28/89
347 Zimalcrest Drive House
Columbia, SC 29210 Condominium
Corp.*
61 Greenville, SC Leased from Essex 146 03/05/88
70 Orchard Park Drive House
Greenville, SC 29615 Condominium
Corp.*
62 Memphis Airport, TN Leased from Essex 145 07/15/87
1780 Nonconnah Boulevard House
Memphis, TN 38132 Condominium
Corp.*
63 Nashville Airport, TN Leased from Essex 145 01/23/88
2508 Elm Hill Pike House
Nashville, TN 37214 Condominium
Corp.*
64 Dallas/Northeast, TX Leased from Essex 149 01/16/88
1000 South Sherman House
Richardson, TX 75081 Condominium
Corp.*
* Essex House is a subsidiary of Marriott International
65 Dallas/Plano, TX Owned in fee 149 05/07/88
4901 W. Plano Parkway
Plano, TX 75093
</TABLE>
55
<PAGE>
<TABLE>
<CAPTION>
PROPERTY TITLE TO LAND # OF OPENING
-------- ------------- ROOMS DATE
----- -------
<S> <C> <C> <C> <C>
66 Dallas/Stemmons, TX Leased from Essex 146 09/12/87
2383 Stemmons Trail House
Dallas, TX 75220 Condominium
Corp.*
67 San Antonio/Downtown, TX Leased from Essex 149 02/03/90
600 Santa Rosa South House
San Antonio, TX 78204 Condominium
Corp.*
68 Charlottesville, VA Leased from Essex 150 01/21/89
638 Hillsdale Drive House
Charlottesville, VA 22901 Condominium
Corp.*
69 Manassas, VA Leased from Essex 149 03/04/89
10701 Battleview Parkway House
Manassas, VA 22110 Condominium
Corp.*
70 Seattle/Southcenter, WA Leased from Essex 149 03/11/89
400 Andover Park West House
Tukwila, WA 98188 Condominium
Corp.*
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
affiliates 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 "The Settlement-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. It
56
<PAGE>
is expected that Courtyard will continue outperforming both national and local
competitors. The brand is continuing to carefully monitor the introduction or
expansion of new mid-priced brands including Wingate Hotels, Hilton Garden Inns,
Four Points by Sheraton, AmeriSuites, Hampton Inn and Hampton Inn and Suites.
Property Improvement Fund. The Hotels routinely purchase furniture and
equipment. The Partnership has a repairs and equipment reserve (property
improvement fund) for the Hotels. The funding of this reserve is based on a
percentage of gross Hotel revenues. The contribution to the property improvement
fund has been established at 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").
Debt-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, who along with the Partnership is the co-issuer
of $127.4 million of senior secured notes. 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
57
<PAGE>
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 has 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.
Debt-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 662/3% 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 Certificate Pass-Through
Class 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>
<CAPTION>
<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,
58
<PAGE>
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.
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. 1999
real estate tax expense 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.
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<PAGE>
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 [weekday], _______ __, 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
"The Settlement--Conditions of the Purchase Offer and the Merger" is satisfied,
(c) waive any unsatisfied condition (if it is waivable) to its obligation to
acquire Units pursuant to the Purchase Offer, (d) extend the period of time
during which the Purchase Offer is open, or (e) otherwise amend the Purchase
Offer. Whenever the Purchaser extends the period during which the Purchase Offer
is open, makes a material change in the terms of the Purchase Offer, waives a
condition of the Purchase Offer, terminates the Purchase Offer or otherwise
amends the Purchase Offer, it will give oral or written notice of such event to
the Claims Administrator and make a public announcement thereof in the manner
provided below. The Purchaser acknowledges that (a) Rule 14e-1(c) under the
Exchange Act requires the Purchaser to pay the consideration offered or return
the Units tendered promptly after the termination or withdrawal of the Purchase
Offer (except as provided in clause (b) of the first sentence of this paragraph)
and (b) upon and after the Expiration Date, the Purchaser may not delay
acceptance for payment of, or payment for (except as provided in clause (b) of
the first sentence of this paragraph), any Units if the second or third
conditions specified under the heading "The Settlement--Conditions of the
Purchase Offer and the Merger" have been satisfied, without extending the period
of time during which the Purchase Offer is open.
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
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<PAGE>
Units), the Purchaser shall have no obligation to publish, advertise or
otherwise communicate any such public announcement other than by issuing a
release to the Dow Jones News Service or by letter sent to the Unitholders.
If the Purchaser makes a material change in the terms of the Purchase Offer
or the information concerning the Purchase Offer, or waives a material condition
of the Purchase Offer, the Purchaser will extend the Purchase Offer and
disseminate additional tender offer materials to the extent required by Rules
14d-4(d), 14d-6(c) and 14e-1 under the Exchange Act. Those rules prescribe that
the minimum period during which a tender offer must remain open following
material changes in the terms of the tender offer or information concerning the
tender offer, other than a change in price or a change in percentage of
securities sought or in any dealer's soliciting fee, will depend upon the facts
and circumstances, including the relative materiality of the terms or
information changed. The SEC has announced in a published release that in its
view a tender offer must remain open for a minimum period of time following a
material change in the terms of a tender offer or in information concerning a
tender offer. The release states that a tender offer should remain open for a
minimum of five business days from the date the material change is first
published, sent or given to security holders and that, if material changes are
made with respect to information that approaches the significance of price and
share levels, a minimum of 10 business days may be required to allow for
adequate dissemination and investor response.
If, by the Expiration Date, the second condition to the Purchase Offer set
forth under the heading "The Settlement--Conditions of the Purchase Offer and
Merger," has not been satisfied, the Purchaser may, in its sole discretion,
elect to (a) extend the Purchase Offer and, subject to applicable withdrawal
rights, retain all tendered Units until the expiration of the Purchase Offer, as
extended, subject to the terms of the Purchase Offer, (b) waive the unsatisfied
condition and not extend the Purchase Offer or (c) terminate the Purchase Offer
and 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.
Settlement Fund; Acceptance for Payment; Payment for Units
Upon the terms and subject to the conditions of this Purchase Offer and
Consent Solicitation (including, if the Purchase Offer is extended or amended,
the terms and conditions of any such extension or amendment), on or before the
third business day following the entry by the Court of an executed judgment
order approving the Settlement, the Purchaser or the Joint Venture, or one or
more of their designees, will pay or cause to be paid by wire transfer the
settlement funds to
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<PAGE>
the Escrow Agent. The Escrow Agent will deposit the settlement funds in an
interest-bearing account.
If the judgment order becomes final without an appeal (other than an appeal
that relates solely to counsel fees and expenses) and you have submitted a valid
Proof of Claim to the Claims Administrator on or before the Effective Date,
within seven business days following such date, the Escrow Agent will distribute
to you the Net Settlement Amount for each Unit held by you. If you submit a
valid Proof of Claim after the Effective Date, the Escrow Agent will distribute
to you the Net Settlement Amount for each Unit held by you within seven business
days following the receipt of the Proof of Claim by the Claims Administrator. If
a class action plaintiff has not submitted a valid Proof of Claim to the Claims
Administrator within 90 days following the Effective Date and such plaintiff has
not opted out of the Settlement, Class Counsel may execute a Proof of Claim on
behalf of that limited partner. The execution of the Proof of Claim by Class
Counsel on behalf of a limited partner will entitle the limited partner to
receive the Net Settlement Amount for each Unit held by such limited partner and
release, on behalf of such limited partner, all claims that are released,
settled and discharged as part of the Settlement as provided in the Proof of
Claim. The Escrow Agent will not distribute funds from the settlement fund to
any limited partner unless and until a valid Proof of Claim for that limited
partner is received, whether from such limited partner or from counsel to the
class action plaintiffs. The Net Settlement Amount to be received by any holder
of a Unit will be reduced by any amount owed by the holder on the original
purchase price of such Unit.
If you or any other plaintiffs file an appeal of the judgment order (other
than an appeal that relates solely to counsel fees and expenses), the Escrow
Agent will return the settlement fund, with interest, to the Purchaser or the
Joint Venture, or their designees, within two days after receiving documentation
of such event. If an order of an appellate court affirming the judgment order
subsequently becomes final, then the Purchaser or the Joint Venture, or their
designees, will return the settlement fund to the Escrow Agent within three
business days thereafter, without interest.
The Purchaser and the Escrow Agent expressly reserve the right to delay the
acceptance for payment of, or payment for, Units in order to comply in whole or
in part with any applicable law and the terms of the Settlement Agreement and
any applicable court order.
Units tendered pursuant to the Purchase Offer may be withdrawn at any time
on or prior to the Expiration Date and, unless accepted for payment by the
Purchaser pursuant to the Purchase Offer, may also be withdrawn at any time
after _____, 2000. Units will be returned promptly at such time as it is
finally determined that such conditions will not be satisfied or waived. In
addition, written consents submitted prior to the Expiration Date will remain
valid and outstanding after the Expiration Date and will not expire until the
conditions for consummation of the Purchase Offer are satisfied or waived (if
waivable) or until such time as it is finally determined that such conditions
will not be satisfied or waived.
For purposes of the Purchase Offer, the Purchaser will be deemed to have
accepted for payment (and thereby purchased) Units validly tendered and not
withdrawn as, if and when the Purchaser gives oral or written notice to the
Claims Administrator that the "Effective Date" under the Settlement Agreement
has occurred.
If, prior to the Expiration Date, the Purchaser increases the consideration
offered per Unit, the Purchaser will pay such increased consideration to all
holders of those Units purchased pursuant to the Purchase Offer, whether or not
such Units have been tendered prior to such increase in the consideration.
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<PAGE>
Procedures for Accepting the Purchase Offer and Tendering Units
In order for a Unitholder to validly tender Units pursuant to the Purchase
Offer, a properly completed and duly executed Proof of Claim (or facsimile
thereof) and any other documents required by the Proof of Claim must be received
by the Claims Administrator at its address set forth on the back cover of this
Purchase Offer and Consent Solicitation on or prior to the Expiration Date.
If the Units are registered in the name of a person other than the signer
of the Proof of Claim, or if payment is to be made to a person other than the
registered holder of the Units surrendered, then the Proof of Claim must be
accompanied by duly executed powers signed exactly as the name or names of the
registered holder or holders appear in the records of the Partnership. See
Instructions 4 and 6 of the Proof of Claim.
The method of delivery of the Proof of Claim and all other required
documents is at the option and risk of each tendering Unitholder. If delivery
is by mail, registered mail with return receipt requested, properly insured, is
recommended. In all cases, sufficient time should be allowed to ensure timely
delivery.
Notwithstanding any other provision hereof, payment for Units accepted for
payment pursuant to the Purchase Offer will in all cases be made only after
timely receipt by the Claims Administrator of a properly completed and duly
executed Proof of Claim (or facsimile thereof) and any other documents required
by the Proof of Claim.
Appointment as Proxy. By executing the Proof of Claim, a tendering
Unitholder irrevocably appoints designees of the Purchaser, and each of them, as
such Unitholder's attorneys-in-fact and proxies in the manner set forth in the
Proof of Claim, each with full power of substitution, to the full extent of such
Unitholder's rights with respect to the Units tendered by such Unitholder and
accepted for payment by the Purchaser and with respect to any and all other
Units or other securities or rights issued or issuable in respect of such Units
after the date of this Purchase Offer and Consent Solicitation. All such
proxies shall be considered coupled with an interest in the tendered Units.
This appointment will become effective when the judgment order rendered by the
Court becomes final. Upon such acceptance for payment, all prior proxies given
by such Unitholder with respect to such Units or other securities or rights
will, without further action, be revoked, and no subsequent proxies may be given
(and, if given, will not be deemed effective) by such Unitholder. The designees
of the Purchaser will, with respect to such Units and other securities or
rights, be empowered to exercise all voting and other rights of such Unitholder
as the designees, in their sole discretion, may deem proper at any annual,
special or adjourned meeting of the Unitholders, by written consent in lieu of
any such meeting or otherwise. The Purchaser reserves the right to require
that, in order for Units to be deemed validly tendered, immediately after the
judgment order rendered by the Court becomes final, the Purchaser must be able
to exercise full voting and other rights with respect to such Units and other
securities or rights including voting at any meeting of Unitholders then
scheduled or acting by written consent. In addition, by executing a Proof of
Claim, a tendering Unitholder agrees promptly to remit and transfer to the
Claims Administrator for the account of the Purchaser any and all cash
dividends, distributions, rights, other Units and other securities issued or
issuable in respect thereof on or after the date that the Court renders a
judgment order (assuming there is no appeal of the order) or, in the event of an
appeal, the date that the judgment order becomes final accompanied by
appropriate documentation of transfer. Pending such remittance or appropriate
assurance thereof, the Purchaser shall be entitled to all rights and privileges
as owner of any such other Units or other securities or property and may
withhold the entire purchase price or deduct from the purchase price the amount
or value thereof, as determined by the Purchaser in its sole discretion.
Determination of Validity. The Claims Administrator will review the
validity, form and eligibility (including the timeliness of receipt) of Units
tendered pursuant to any of the procedures described above. All issues as to
the validity, form, eligibility and acceptance for payment of any
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<PAGE>
tendered Units will be determined by the Court. No tender of Units will be
deemed to have been validly made until all defects and irregularities have been
cured or waived. None of the Purchaser, the Joint Venture, Rockledge or Marriott
International, any of their affiliates or assigns, if any, the 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 _______, 2000, but any
Consent Form properly executed and received and not withdrawn prior to the
Expiration Date will become binding and irrevocable after the Expiration Date
and will be deemed coupled with an interest. See "The Written Consents - Voting
and Revocation of Consents." Units will be returned promptly at such time as it
is finally determined that such conditions will not be satisfied or waived.
In order for a withdrawal to be effective, a written, telegraphic or
facsimile transmission notice of withdrawal must be timely received by the
Claims Administrator at one of its addresses or numbers set forth on the back
cover of this Purchase Offer and Consent Solicitation. Any such notice of
withdrawal must specify the name of the person who tendered the Units to be
withdrawn, the number of Units to be withdrawn, and the name of the registered
holder of the Units to be withdrawn, if different from that of the tendering
Unitholder.
Withdrawals of Units may not be rescinded and any Units properly withdrawn,
thereafter, will be deemed not validly tendered for purposes of the Purchase
Offer. However, withdrawn Units may be re-tendered at any time prior to the
Expiration Date by following one of the procedures described under the heading
"--Procedures for Accepting the Purchase Offer and Tendering Units."
All questions as to the form and validity (including the timeliness of
receipt) of any notice of withdrawal will be determined by the Court. Neither
the Purchaser, the Joint Venture, Marriott International, MI Investor or
Rockledge any of their affiliates or assigns, if any, the Claims Administrator
nor any other person will be under any duty to give notification of any defects
or irregularities in any notice of withdrawal or incur any liability for failing
to give any such
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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 December 31,
1999, there were 1,481 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 only, no further Cash Available for Distribution will be distributed.
If an appeal is filed, the General Partner will cause the Partnership to make
distributions of Cash Available for Distribution for the period until the
judgment order becomes final.
As of December 31, 1999, the Partnership had distributed a total of
$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 limited partner unit
from 1999 and 1998 operations, respectively) was distributed to the limited
partners and an additional $3,675,000 ($2,500 per limited partner unit) was
distributed to the limited partners in February 2000 bringing the total
distribution from 1999 operations to $10,290,000 ($7,000 per limited partner
unit). The Partnership distributed $9,555,000 to the limited partners ($6,500
per limited partner unit) from 1998 operations. The Partnership distributed
$13,230,000 to the limited partners ($9,000 per limited partner 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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<PAGE>
THE WRITTEN CONSENTS
In accordance with the terms of the Settlement Agreement, the General
Partner is soliciting the consent of the Unitholders to (1) the Merger and (2)
the Amendments to the Partnership Agreement. As discussed more fully under "The
Settlement--The Settlement Agreement," the Merger and the proposed Amendments
must receive Unitholder approval in order for Unitholders to have the
opportunity to receive the cash price per Unit offered pursuant to the Purchase
Offer. For a discussion of the interests that the Purchaser, the General Partner
and their respective affiliates have in the Amendments, the Merger and the
Purchase Offer, see "The Settlement--Certain Transactions with the Partnership."
Record Date and Outstanding Units
The General Partner has set the close of business on ________, 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 ____ 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 __________________, 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.
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The Consent Form should be properly executed and returned to the Claims
Administrator, GEMISYS, Corporation, Proxy Department, 7103 South Revere
Parkway, Englewood, Colorado 80112. Any properly executed Consent Forms received
by GEMISYS prior to the Expiration Date will be voted in accordance with the
instructions contained therein. All properly executed Consent Forms that contain
no voting instructions will be deemed to have consented to the Merger and all of
the Amendments. Consent Forms will be effective only when actually received by
the Claims Administrator prior to the Expiration Date. Consent Forms may be
withdrawn at any time prior to the Expiration Date. In addition, subsequent to
the submission of a Consent Form, but prior to the Expiration Date, Unitholders
may change their vote. For a withdrawal or change of vote to be effective,
Unitholders must execute and deliver to the Claims Administrator, prior to the
Expiration Date, a subsequently dated Consent Form or a written notice stating
that the consent is revoked. Consent Forms and notices of withdrawal or change
of vote dated after the Expiration Date will not be valid. All properly executed
Consent Forms that are received and not withdrawn prior to the Expiration Date
will become binding and irrevocable after the Expiration Date and will be deemed
coupled with an interest. Valid written consents submitted prior to the
Expiration Date will remain valid and outstanding after the Expiration Date and
will not expire until the conditions for consummation of the Purchase Offer are
satisfied or waived (if waivable) or until such time as it is finally determined
that such conditions will not be satisfied or waived. Questions concerning (1)
how to complete the Consent Form, (2) where to remit the Consent Form or (3)
obtaining additional Consent Forms should be directed to the Claims
Administrator. Substantive questions concerning the Consent Form should be
directed to David Berg or Jim Moriarty, counsel to the class action plaintiffs.
Mr. Berg's telephone number is (713) 529-5622 and Mr. Moriarty's telephone
number is (713) 528-0700.
Effective Time of Amendments
If approved by the Unitholders, the Amendments will become effective when
the General Partner executes and delivers an Amended and Restated Agreement of
Limited Partnership incorporating the Amendments in accordance with the
Partnership Agreement. Assuming the Unitholders will consent to the Merger and
the Amendments and the conditions to the Purchase Offer and the Merger will be
satisfied, it is contemplated that the General Partner will execute and deliver
the Amended and Restated Agreement of Limited Partnership as soon as practicable
following the Expiration Date, but in any event immediately prior to the
consummation of the Purchase Offer. If for any reason the Purchase Offer is not
consummated, however, the Amendments to the Partnership Agreement will not be
implemented, even if they receive Unitholder approval.
Effective Time of the Merger
As soon as practicable after all conditions of the Purchase Offer and the
Merger have been satisfied (or waived, if waivable), the General Partner will
file a certificate of merger with the Secretary of State of the State of
Delaware. The Merger shall become effective upon the filing of the certificate
of merger with the Secretary of State of the State of Delaware or such later
time as provided in the certificate of merger.
No Special Meeting
The Partnership Agreement does not require a special meeting of Unitholders
to consider the Merger or the Amendments. Accordingly, no such meeting will be
held.
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Rights of Appraisal
The Partnership was organized under the Partnership Act. Under the
Partnership Act a limited partnership agreement or a merger agreement may
contractually provide for appraisal rights with respect to limited partnership
interests. Neither the Partnership Agreement nor the Merger Agreement provides
for a judicial appraisal of Units in connection with the Merger. However, the
Settlement Agreement and the Merger Agreement provide that upon consummation of
the Merger, each Unit held by a holder who elects not to participate in the
Settlement by delivering an Opt-Out Notice to the Claims Administrator no later
than the Expiration Date will be converted into the right to receive the
appraised value of such Unit, not including any amount relating to the claims
asserted in the litigation, as determined in accordance with the provisions in
the Settlement Agreement and the Merger Agreement, and reduced by any amount
owed by the holder on the original purchase price of such Unit. Unitholders who
wish to opt-out of the Settlement must follow the procedures described under the
heading "The Settlement--Procedures for Opting-Out of the Settlement."
Interests of Certain Persons in the Matters to be Acted Upon
In considering whether to vote for or against the Merger and the
Amendments, you should be aware that the General Partner is a Courtyard II
Defendant. Accordingly, the General Partner has a conflict of interest with
respect to this consent solicitation and makes no recommendation to any
Unitholder as to whether to vote for or against the Merger and the Amendments.
Your vote in favor of the Merger and the Amendments does not require that
you tender your Units pursuant to the Purchase Offer. If you desire to receive
the Net Settlement Amount for each of your Units, you should submit the Proof of
Claim and consent to the Merger and the Amendments. If you desire to have the
value of your Units appraised pursuant to the terms of the Settlement Agreement
and the Merger Agreement, you should consent to the Merger and the Amendments,
not tender your Units and submit an Opt-Out Notice to the Claims Administrator
no later than the Expiration Date.
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<PAGE>
OTHER MATTERS
Fees and Expenses
Counsel to the class action plaintiffs has retained GEMISYS Corporation to
act as the Claims Administrator in connection with the Purchase Offer and the
Consent Solicitation. The costs of sending the Notice and the Purchase Offer and
Consent Solicitation and related materials to the Partnership's limited partners
will be paid by the Joint Venture. Other fees and expenses will be paid out of
any interest accrued on the settlement funds during the time the settlement
funds (including the settlement funds relating to the other Marriott
Partnerships) are in escrow. See "The Settlement -- 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 out of any interest
accrued during the time the settlement funds (including the settlement funds
relating to the other Marriott Partnerships) are in escrow. To the extent such
accrued interest is insufficient to cover the fees, the fees will be paid by the
Joint Venture.
Neither the Purchaser, the Joint Venture, Marriott International, MI
Investor nor Rockledge will pay any fees or commissions to any broker or dealer
or any other person for soliciting tenders of Units pursuant to this Purchase
Offer and Consent Solicitation (other than the fees to the Claims
Administrator). Brokers, dealers, commercial banks and trust companies will,
upon request, be reimbursed by the Joint Venture for customary mailing and
handling expenses incurred by them in forwarding materials to their
customers.
Miscellaneous
The Purchase Offer and Consent Solicitation is being made to all holders of
Units, other than the General Partner. The Purchaser is not aware of any state
where the making of the Purchase 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.
Pursuant to Rule 14d-3 of the General Rules and Regulations under the
Exchange Act, the Purchaser, the Joint Venture, Marriott International, MI
Investor and Rockledge have filed with the SEC a Tender Offer Statement on
Schedule TO, and pursuant to Rule 14d-9 and Rule 14a-6 of the Exchange Act, the
Partnership has filed with the SEC a Solicitation/Recommendation Statement on
Schedule 14D-9 and a Consent Solicitation Statement on Schedule 14A,
respectively, together with exhibits in each case, furnishing certain additional
information with respect to the Purchase Offer and the Consent Solicitation.
Such statements and any amendments thereto, including exhibits, may be inspected
and copies may be obtained with the SEC at the SEC's public reference
69
<PAGE>
rooms in Washington, D.C., New York, New York and Chicago, Illinois. Please call
the SEC at 1-800-SEC-0330 for further information on the public reference rooms.
These SEC filings are also available to the public from commercial document
retrieval services and at the Internet world wide web site maintained by the SEC
at www.sec.gov.
-----------
Any exhibits filed herewith may be obtained 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) 380-9000
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 ________ __, 2000. You should not assume that
the information contained in this Purchase Offer and Consent Solicitation is
accurate as of any date other than that date. The mailing of this Purchase
Offer and Consent Solicitation does not create any implication of the contrary.
No person has been authorized to give any information or make any
representation on behalf of the Partnership, the General Partner or the
Purchaser not contained herein or in the Proof of Claim and, if given or made,
such information or representation must not be relied on as having been
authorized.
CBM II HOLDINGS LLC
CBM TWO LLC
_____________ __, 2000
70
<PAGE>
SCHEDULE I
DIRECTORS AND EXECUTIVE OFFICERS OF MARRIOTT INTERNATIONAL, INC.,
MI CBM INVESTOR LLC, ROCKLEDGE HOTEL PROPERTIES, INC.,
CBM JOINT VENTURE LLC AND CBM 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., 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., 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.
<TABLE>
<CAPTION>
Present Principal Occupation or Employment and Material
Occupations, Offices or Employment Held During the Past
Name Five Years
---- ----------------------------------------------------------
<S> <C>
J.W. Marriott, Jr. J.W. Marriott, Jr. is Chairman of the Board and Chief
Chairman of the Board and Chief Executive Officer of Marriott International. He joined
Executive Officer 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 is also a director of
Host Marriott Corporation, General Motors Corporation
and the Naval Academy Endowment Trust. He serves on the
Board of Trustees of the National Geographic Society
and the J. Willard & Alice S. Marriott Foundation, and
the Board of Directors of Georgetown University, and is
a member of the Executive Committee of the World Travel &
Tourism Council and the Business Council. Mr. Marriott has
served as Chief Executive Officer of Marriott International
since its inception in 1997, and served as Chairman and Chief
Executive Officer of Old Marriott International from October
1993 to March 1998. Mr. Marriott has served as a director of
Marriott International since March 1998.
</TABLE>
71
<PAGE>
<TABLE>
<S> <C>
Todd Clist Todd Clist joined Marriott Corporation in 1968. Mr.
Vice President; Clist served as general manager of several hotels
President, North American before being named Regional Vice President, Midwest
Lodging Operations 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 Executive Vice
President and General Manager for Fairfield Inn in
1990, for both Fairfield Inn and Courtyard in 1991,
and for Fairfield Inn, Courtyard and Residence Inn in
1993. Mr. Clist was appointed to his current position
in January 1994.
Edwin D. Fuller Edwin D. Fuller joined Marriott Corporation in 1972
Vice President; President and Managing and held several sales positions before being
Director-Marriott Lodging International appointed Vice President of 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.
</TABLE>
72
<PAGE>
<TABLE>
<S> <C>
Gilbert M. Grosvenor Gilbert M. Grosvenor is Chairman of the Board of the
Director 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.
</TABLE>
73
<PAGE>
<TABLE>
<S> <C>
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 Limited and Kwoon Chung Bus Holding
Limited, all of which are publicly-held Hong Kong
companies. Dr. Cheng serves as an executive officer of
Chow Tai Fook Enterprises Limited, a privately-held
family company that controls New World Development.
Dr. Cheng served as Chairman and Director of
Renaissance Hotel Group N.V. from June 1995 until its
purchase by the Company in March 1997. He is Chairman
of the Advisory Council for The Better Hong Kong
Foundation. Dr. Cheng serves as a member of the
Services Promotion Strategy Group, a unit under the
Hong Kong Financial Secretary's Office, and as a
Committee Member of the Eighth and Ninth Chinese
People's Political Consultative Committee of the
People's Republic of China. Dr. Cheng has also served
as a member of the Election Committee of the Hong Kong
Special Administrative Region. Dr. Cheng served as a
director of Old Marriott from June 1997 to March 1998,
and has served as a director of the Company since
March 1998.
Brendan M. Keegan Brendan M. Keegan joined Marriott Corporation in 1971,
Vice President; Executive Vice in the Corporate Organization Development Department
President-Human Resources 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.
</TABLE>
74
<PAGE>
Richard E. Marriott Richard E. Marriott is Chairman of the Board of Host
Director 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 International from October 1993 to March
1998, and has served as a director of Marriott
International since March 1998.
Floretta Dukes McKenzie Floretta Dukes McKenzie is the founder, Chairwoman and
Director 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 (and prior to October 1993 of Marriott
Corporation) from 1992 to March 1998, and has served
as a director of the Company since March 1998.
75
<PAGE>
Harry J. Pearce Harry J. Pearce is Vice Chairman of the Board of
Director 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 William T. Petty joined Marriott Corporation in 1984
Vice President; as Vice President of Planning & Business. He has
Executive Vice since held a number of positions with Marriott
President, North Corporation and Marriott International, becoming Vice
American Lodging President of Market Planning in 1985; General Manager
Operations of the Atlanta Perimeter Marriott Hotel in 1989; Vice
President of Operations for Marriott's time share
division in 1990; Regional Vice President for Lodging
Operations in 1991; and Senior Vice President for the
Western Region in 1995. Mr. Petty was appointed to
his present position in December 1998.
Robert T. Pras Robert T. Pras joined Marriott Corporation in 1979
Vice President; as Executive Vice President of Fairfield Farm Kitchens,
President Marriott the predecessor of Marriott Distribution Services. In
Distribution Services 1981, Mr. Pras became Executive Vice President of
Procurement and Distribution. In May 1986, Mr. Pras
was appointed to the additional position of General
Manager of Marriott Corporation's Continuing Care
Retirement Communities. He was named Executive Vice
President and General Manager of Marriott Distribution
Services in 1990. Mr. Pras was appointed to his
current position in January 1997.
76
<PAGE>
W. Mitt Romney W. Mitt Romney was appointed President and Chief
Director 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 (and of Marriott
Corporation prior to October 1993) from 1993 to
March 1998 and has served a director of Marriott
International since March 1998.
Joseph Ryan Joseph Ryan joined Old Marriott in December 1994 as
Executive Vice President Executive Vice President and General Counsel. Prior
and General Counsel 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 Roger W. Sant is Chairman of the Board of The AES
Director 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 Horst H. Schulze has served as the President and
Vice President; Chief Operating Officer of The Ritz-Carlton since
President and Chief 1988. Mr. Schulze joined The Ritz-Carlton in 1983 as
Operating Officer, Vice President, Operations and was appointed
The Ritz-Carlton Hotel Executive Vice President in 1987. Prior to 1983,
Company, LLC he spent nine years with Hyatt Hotels Corporation
where he held several positions including Hotel
General Manager, Regional Vice President and
Corporate Vice President.
77
<PAGE>
<TABLE>
<S> <C>
William J. Shaw William J. Shaw has served as President and Chief
Director, President and Chief Operating Officer Operating Officer of Marriott International since
March 1997 (including service in the same capacity
with Old Marriott International until March 1998). Mr.
Shaw joined Marriott Corporation in 1974, was elected
Corporate Controller in 1979 and a Vice President in
1982. In 1986, Mr. Shaw was elected Senior Vice
President--Finance and Treasurer of Marriott
Corporation. He was elected Chief Financial Officer
and Executive Vice President of Marriott Corporation
in April 1988. In February 1992, he was elected
President of the Marriott Service Group. Mr. Shaw is
also Chairman of the Board of Directors of Sodexho
Marriott Services, Inc. He also serves on the Board of
Trustees of the University of Notre Dame and the
Suburban Hospital Foundation. Mr. Shaw has served as a
director of Old Marriott International (now named
Sodexho Marriott Services, Inc.) since May 1997, and
as a director of Marriott International since March
1998.
Lawrence M. Small Lawrence M. Small is the Secretary of the Smithsonian
Director 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 from 1995 to March 1998, and
he has served as a director of the Company since March
1998.
</TABLE>
78
<PAGE>
Arne M. Sorenson
Executive Vice President and
Chief Financial Officer
Arne M. Sorenson joined Old Marriott 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 Vice President -- Lodging
Development
James M. Sullivan joined Marriott Corporation in 1980, departed in 1983 to
acquire, manage, expand and subsequently sell a successful restaurant chain, and
returned to Marriott Corporation in 1986 as Vice President of Mergers and
Acquisitions. Mr. Sullivan became Senior Vice President, Finance - Lodging in
1989, Senior Vice President - Lodging Development in 1990 and was appointed to
his current position in December 1995.
William R. Tiefel
Vice Chairman; Chairman -- The Ritz-Carlton
Hotel Company, LLC
William R. Tiefel joined Marriott Corporation in 1961 and was named President 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.
79
<PAGE>
Stephen P. Weisz
Vice President; President --
Marriott Vacation Club International
Stephen P. Weisz joined Marriott Corporation in 1972 and was named Regional 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 President
Richard A. Burton joined 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 also practiced law at Sutherland, Asbill
& Brennan and served as Attorney Advisor to the United States Tax Court in
Washington, D.C.
Robert E. Parsons, Jr.
President and Director
Robert E. Parsons, Jr. joined the Corporate Financial Planning staff of Host
Marriott Corporation ("Host Marriott") in 1981, became Assistant Treasurer in
1988, Senior Vice President and Treasurer in 1993 and in 1995, he was elected
Executive Vice President and Chief Financial Officer. He also serves as a
director, manager and officer of numerous Host Marriott subsidiaries.
80
<PAGE>
Christopher G. Townsend
Vice President, Secretary and Director
Christopher G. Townsend joined Host Marriott's Law Department in 1982 as a
Senior Attorney, became Assistant Secretary in 1984, Assistant General Counsel
in 1986, Senior Vice President, Corporate Secretary and Deputy General Counsel
in 1993 and in January 1997, he was made General Counsel. He also serves as a
director, manager and officer of numerous Host Marriott subsidiaries.
W. Edward Walter
Vice President and Treasurer
W. Edward Walter joined Host Marriott in 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.
81
<PAGE>
III. MI CBM INVESTOR LLC
Name Present Principal Occupation or
---- Employment and Material Occupations,
Offices or Employment Held During
the Past Five Years
------------------------------------
Executive Officers and Managers:
-------------------------------
Kevin M. Kimball
President and Manager
Kevin M. Kimball joined Marriott 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 and Manager
Carolyn B. Handlon joined Marriott 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 April13, 2000.
Ward R. Cooper
Assistant Secretary and Manager
Ward R. Cooper joined Marriott Corporation 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.
IV. CBM JOINT VENTURE LLC
CBM Joint Venture LLC does not have any directors or executive officers. It
is managed by its members, Rockledge Hotel Properties, Inc. and MI CBM Investor
LLC. Information concerning the directors and executive officers of Rockledge
Hotel Properties, Inc. and MI CBM Investor LLC is set forth elsewhere on this
Schedule I.
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<PAGE>
V. 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.
83
<PAGE>
SCHEDULE II
DIRECTORS 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, Washington, D.C. 20058. 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. Robert E. Parsons, Jr. joined the Corporate
President and Manager Financial Planning staff of Host Marriott
Corporation ("Host Marriott") in 1981, became
Assistant Treasurer in 1988, Senior Vice
President and Treasurer in 1993 and in 1995,
he was elected Executive Vice President and
Chief Financial Officer. He is also an
Executive Vice President and Chief Financial
Officer of Host Marriott L.P. and serves as a
director, manager and officer of numerous
Host Marriott subsidiaries
Christopher G. Townsend Christopher G. Townsend joined Host
Executive Vice President, Marriott's Law Department in 1982 as a Senior
Secretary and Manager 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.
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<PAGE>
W. Edward Walter W. Edward Walter joined Host Marriott in 1996
Treasurer 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.
85
<PAGE>
[Back cover page]
Questions and requests for assistance concerning (1)how to complete
the Consent Form or the Proof of Claim, (2)where to remit the Consent Form or
the Proof of Claim or (3)obtaining additional copies of this Purchase Offer and
Consent Solicitation, the Proof of Claim and the Consent Form and other Purchase
Offer and Consent Solicitation materials should be directed to the Claims
Administrator at its address and telephone number listed below. You may also
contact your broker, dealer, commercial bank, trust company or other nominee for
assistance concerning the Purchase Offer or the Merger. Substantive questions
concerning the Consent Form and the Proof of Claim should be directed to David
Berg or Jim Moriarty, counsel to the class action plaintiffs. Mr. Berg's
telephone number is (713) 529-5622 and Mr. Moriarty's telephone number is (713)
528-0700.
Facsimile copies of the PINK Proof of Claim, properly completed and duly
executed, will be accepted. However, the YELLOW consent form, properly completed
and duly executed, should be sent to the Claims Administrator in the enclosed
envelope with pre-paid postage. 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
<TABLE>
<CAPTION>
<S> <C> <C>
By Mail: Facsimile Transmission: By Hand or Overnight Delivery:
Attention: Proxy Department 303-705-6171 Attention: Proxy Department
7103 South Revere Parkway (For Eligible Institutions Only) 7103 South Revere Parkway
Englewood, CO 80112-9523 Englewood, CO 80112-9523
Telephone:
(800) 326-8222
</TABLE>
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<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 in Courtyard by Marriott II Limited
Partnership (the "Partnership") held of record by the undersigned on
_____________, 2000, hereby sets forth his, her or its vote in connection with
the written consent solicited by the General Partner of the Partnership as
described in the Purchase Offer and Consent Solicitation accompanying this
consent form. You are encouraged to indicate your vote by marking the
appropriate box on the reverse side. Failure to check any of the boxes with
respect to the proposed authorization will, if this consent card has been signed
and dated, constitute a vote "FOR" the proposed authorization. Please sign and
date this card. A postage-paid return envelope is enclosed for your convenience
in returning this form.
IMPORTANT: PLEASE VOTE, DATE AND SIGN ON REVERSE SIDE.
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<PAGE>
Authorization of the General Partner's grant of consent on behalf of the
Partnership to:
(1) the proposed amendments to Partnership Agreement as described in the
accompanying Purchase Offer and Consent Solicitation Statement dated
____________, 2000.
FOR [_] AGAINST [_] ABSTAIN [_]
(2) the proposed Merger as described in the accompanying Purchase Offer and
Consent Solicitation Statement dated ____________, 2000.
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.)
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