Securities and Exchange Commission
Washington, D.C. 20549
Form 10-Q
x Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarter ended September 12, 1997
OR
Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Commission File No. 0-16777
DESERT SPRINGS MARRIOTT LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
Delaware 52-150 8601
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
10400 Fernwood Road
Bethesda, Maryland
20817
(Address of principal executive offices)
Registrant's telephone number, including area code: (301) 380-2070
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months and (2) has been subject to such
filing requirements for the past 90 days. Yes No (Not Applicable). On
August 25, 1992, the Registrant filed an application for relief from the
reporting requirement of the Securities Exchange Act of 1934 pursuant to
Section 12(h) thereof. Because of the pendency of such application, the
Registrant was not required to, and did not, make any filings pursuant to
the Securities Exchange Act of 1934 from October 23, 1989, until the
application was voluntarily withdrawn on August 29, 1997.
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<PAGE>
DESERT SPRINGS MARRIOTT LIMITED PARTNERSHIP
===============================================================================
TABLE OF CONTENTS
PAGE NO.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Statement of Operations
Twelve and Thirty-Six Weeks Ended September 12, 1997 and September 6, 1996...1
Condensed Balance Sheet
September 12, 1997 and December 31, 1996.....................................2
Condensed Statement of Cash Flows
Thirty-Six Weeks ended September 12, 1997 and September 6, 1996..............3
Notes to Condensed Financial Statements.......................................4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations...............................6
PART II - OTHER INFORMATION
Item 1. Legal Proceedings....................................................10
Item 4. Submission of Matters to a Vote of Security Holders..................10
Item 5. Other Information....................................................10
Item 6. Exhibits and Reports on Form 8-K.....................................10
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DESERT SPRINGS MARRIOTT LIMITED PARTNERSHIP
CONDENSED STATEMENT OF OPERATIONS
(Unaudited)
(in thousands, except per Unit amounts)
<TABLE>
Twelve Weeks Ended Thirty-Six Weeks Ended
September 12, September 6, September 12, September 6,
1997 1996 1997 1996
---------------- -------------- ----------------- ---------------
<S> <C> <C> <C> <C>
INCOME
Rentals
Hotel..................................... $ 5,357 $ 4,818 $ 17,845 $ 15,608
Airline equipment......................... -- -- -- 1,248
Other .................................... 190 336 403 788
---------------- -------------- ----------------- --------------
5,547 5,154 18,248 17,644
------ --------- ---------- ---------
EXPENSES
Interest.................................... 3,357 3,636 10,127 9,718
Depreciation and amortization............... 1,785 1,683 5,353 5,051
Property taxes.............................. 490 515 1,467 1,391
Partnership administration and other........ 57 55 244 287
---------------- -------------- ----------------- --------------
5,689 5,889 17,191 16,447
------ --------- ---------- ---------
NET (LOSS) INCOME ........................... $ (142) $ (735) $ 1,057 $ 1,197
================ ============== ================= ==============
ALLOCATION OF NET (LOSS) INCOME
General Partners............................ $ (1) $ (7) $ 11 $ 12
Limited Partners............................ (141) (728) 1,046 1,185
--------------- -------------- ----------------- --------------
$ (142) $ (735) $ 1,057 $ 1,197
===== ========= ========== =========
NET (LOSS) INCOME PER LIMITED
PARTNER UNIT (900 Units).................... $ (157) $ (809) $ 1,162 $ 1,317
================ ============== ================= ==============
See Notes to Condensed Financial Statements.
</TABLE>
<PAGE>
DESERT SPRINGS MARRIOTT LIMITED PARTNERSHIP
CONDENSED BALANCE SHEET
(in thousands)
<TABLE>
September 12, December 31,
1997 1996
--------------- -------------
(Unaudited)
<S> <C> <C>
ASSETS
Property and equipment, net.......................... $ 152,142 $ 155,441
Rent receivable from hotel lessee.................... -- 8
Other assets......................................... 3,483 3,678
Restricted cash...................................... 9,428 --
Cash and cash equivalents............................ 5,888 5,755
-------------- ---------------
$ 170,941 $ 164,882
============== ===============
LIABILITIES AND PARTNERS' DEFICIT
LIABILITIES
Mortgage debt...................................... $ 160,000 $ 160,000
Additional rental paid by hotel lessee............. 27,019 25,013
Due to Marriott International, Inc. and affiliates. 3,161 1,022
Deferred hotel rental income....................... 1,007 --
Accounts payable and accrued expenses.............. 334 484
-------------- ---------------
Total Liabilities................................ 191,521 186,519
-------------- ---------------
PARTNERS' DEFICIT
General Partner.................................... (80) (91)
Limited Partners................................... (20,500) (21,546)
-------------- ---------------
Total Partners' Deficit.......................... (20,580) (21,637)
-------------- ---------------
$ 170,941 $ 164,882
============== ===============
See Notes to Condensed Financial Statements.
</TABLE>
<PAGE>
DESERT SPRINGS MARRIOTT LIMITED PARTNERSHIP
CONDENSED STATEMENT OF CASH FLOWS
(Unaudited)
(in thousands)
<TABLE>
Thirty-Six Weeks Ended
September 12, September 6,
1997 1996
---------------- ----------
<S> <C> <C>
OPERATING ACTIVITIES
Net income........................................................................... $ 1,057 $ 1,197
Noncash items........................................................................ 6,007 3,856
Changes in operating accounts........................................................ 3,904 3,418
---------------- ---------------
Cash provided by operating activities.............................................. 10,968 8,471
---------------- ---------------
INVESTING ACTIVITIES
Additions to property and equipment, net............................................. (2,054) (9,084)
Change in property improvement fund.................................................. (352) 4,037
Proceeds from the airline equipment lease............................................ -- 2,509
---------------- ---------------
Cash used in investing activities................................................. (2,406) (2,538)
---------------- ---------------
FINANCING ACTIVITIES
Change in restricted cash............................................................ (9,428) --
Additional rental paid by hotel lessee............................................... 2,006 2,986
Repayment of note payable to Marriott International, Inc............................. (900) --
Payment of refinancing costs......................................................... (107) --
Advances from Marriott International, Inc. and affiliates............................ -- 1,700
Capital distributions to partners.................................................... -- (1,547)
---------------- ---------------
Cash (used in) provided by financing activities................................... (8,429) 3,139
---------------- ---------------
INCREASE IN CASH AND CASH EQUIVALENTS................................................ 133 9,072
CASH AND CASH EQUIVALENTS at beginning of period..................................... 5,755 10,213
---------------- ---------------
CASH AND CASH EQUIVALENTS at end of period........................................... $ 5,888 $ 19,285
================ ===============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest.............................................................. $ 9,574 $ 11,444
================ ===============
See Notes to Condensed Financial Statements.
</TABLE>
<PAGE>
DESERT SPRINGS MARRIOTT LIMITED PARTNERSHIP
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1. The accompanying condensed financial statements have been prepared by
the Desert Springs Marriott Limited Partnership (the "Partnership") without
audit. Certain information and footnote disclosures normally included in
financial statements presented in accordance with generally accepted
accounting principles have been condensed or omitted from the accompanying
statements. The Partnership believes the disclosures made are adequate to
make the information presented not misleading. However, the condensed
financial statements should be read in conjunction with the Partnership's
financial statements and notes thereto included in the Partnership's Form
10-K for the fiscal year ended December 31, 1996. In the opinion of the
Partnership, the accompanying unaudited condensed financial statements
reflect all adjustments (which include only normal recurring adjustments)
necessary to present fairly the financial position of the Partnership as of
September 12, 1997, and the results of operations for the twelve and
thirty-six weeks ended September 12, 1997 and September 6, 1996. Interim
results are not necessarily indicative of fiscal year performance because
of seasonal and short-term variations.
2. For financial reporting purposes, net income (loss) of the Partnership
is allocated 99% to the Limited Partners and 1% to Marriott Desert Springs
Corporation (the "General Partner"). Significant differences exist between
the net loss for financial reporting purposes and the net loss for Federal
income tax purposes. These differences are due primarily to the use, for
income tax purposes, of accelerated depreciation methods, shorter
depreciable lives, no estimated salvage values for the assets and
differences in the timing of the recognition of rental income.
<PAGE>
3. The following is a summary of Hotel Operating Profit, as defined in the
Hotel lease agreement, for the twelve and thirty-six weeks ended (in
thousands):
<TABLE>
Twelve Weeks Ended Thirty-Six Weeks Ended
September 12, September 6, September 12, September 6,
1997 1996 1997 1996
------------- -------------- ------------- -------------
<S> <C> <C> <C> <C>
REVENUES
Rooms........................................ $ 4,747 $ 4,270 $ 27,812 $ 25,707
Food and beverage............................ 5,156 5,043 28,143 26,062
Other........................................ 3,171 2,641 16,494 15,369
-------------- -------------- -------------- --------------
13,074 11,954 72,449 67,138
-------------- -------------- -------------- --------------
DEDUCTIONS
Departmental direct costs
Rooms....................................... 1,786 1,726 6,320 5,853
Food and beverage........................... 4,594 4,459 18,960 17,795
Other operating expenses..................... 6,666 6,229 22,431 21,449
-------------- -------------- -------------- --------------
13,046 12,414 47,711 45,097
-------------- -------------- -------------- --------------
OPERATING PROFIT (LOSS)....................... $ 28 $ (460) $ 24,738 $ 22,041
============== ============== ============== ==============
</TABLE>
The profits from Marriott's Desert Springs Resort & Spa (the "Hotel") are
seasonal and first and second quarter results are generally higher than the
last two quarters of the year. The Partnership recognizes estimated annual
hotel rental income on a straight-line basis throughout the year. Lease
payments from the Hotel lessee in excess of the income recognized by the
Partnership are deferred and, to the extent not subject to possible future
repayment to the Hotel lessee, are recognized as income during the
remainder of the year.
<PAGE>
4. Pursuant to an agreement reached with Marriott International, Inc. ("MII")
for fiscal year 1997, the Owner's Priority, as defined in the Hotel Operating
Lease, has been increased to $20.5 million. As further explained in the Mortgage
Debt portion of Item 2, MII will be entitled to an incentive payment limited
only to the next $2.0 million of Operating Profit, as defined (the "Incentive
Payment"). Any Additional Operating Profit in excess of $22.5 million, will be
remitted entirely to the Partnership as Additional Rent. As of September 12,
1997, a $1.5 million liability to MII is included in Due to MII and Affiliates
in the accompanying Condensed Balance Sheet. This liability represents a
pro-rated portion of the Incentive Payment owed by the Partnership to MII as of
September 12, 1997. In connection with and concurrently with the consummation of
the long-term financing in 1997 (discussed below in Note 5), MII agreed to waive
any and all claims to Additional Rental that have accrued prior to the
consummation of such loan.
5. Subsequent to quarter end, on September 26, 1997 the General Partner
received affirmative consents from a majority of the Limited Partner
units approving a new loan structure and certain amendments to the Amended
and Restated Agreement of Limited Partnership. The new loan structure will
involve a loan from Goldman Sachs Mortgage Company ("GSMC") consisting of a
senior loan to a newly formed wholly-owned bankruptcy remote subsidiary of
the Partnership ( that will own the Hotel. The senior loan will be secured
by a first mortgage lien on the Hotel, in a principal amount up to $103
million (with the final amount to be determined based upon the net cash
flow at the Hotel and prevailing interest rates) (the "Senior Loan"). The
Senior Loan will bear interest at a fixed rate equal to the yield on
12-year U.S. Treasury Securities plus 1.9 percentage points and amortize
over a 25 year schedule. The junior portion of the refinancing will
consist of two tranches of debt. These include a subordinate tranche of
debt from GSMC to the Partnership in the principal amount of $20 million
(the "Mezzanine Loan") secured by the Partnership's direct and indirect
ownership interests in the New Sub and a subordinate junior tranche to the
Partnership in the amount of $59.7 million (the "HM Junior Loan") from DSM
Finance LLC, a single member Maryland limited liability company of which
the General Partner is the sole member. The Mezzanine Loan will bear
interest at a fixed rate equal to the yield on 12-year U.S. Treasury
securities plus 4.5 percentage points and amortize over 12.5 years. The HM
Junior Loan will bear interest at 13%, for a term of 30 years with no
amortization of principal for the first 12.5 years with a 17.5 year
amortization schedule , thereafter.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
Certain matters discussed herein are forward-looking statements within the
meaning of the Private Litigation Reform Act of 1995 and as such may involve
known and unknown risks, uncertainties, and other factors which may cause the
actual results, performance or achievements of the Partnership to be different
from any future results, performance or achievements expressed or implied by
such forward-looking statements. Although the Partnership believes that the
expectations in such forward-looking statements are based upon reasonable
assumptions, it can give no assurance that its expectations will be attained.
These risks are detailed from time to time in the Partnership's filings with the
Securities and Exchange Commission. The Partnership undertakes no obligation to
publicly release the result of any revisions to these forward-looking statements
that may be made to reflect any future events or circumstances.
CAPITAL RESOURCES AND LIQUIDITY
The Partnership's financing needs have historically been funded primarily
through loan agreements with independent financial institutions. The General
Partner believes that the Partnership will have sufficient capital resources and
liquidity to continue to conduct its business in the ordinary course.
Principal Sources and Uses of Cash
The Partnership's principal source of cash is from rent received from the Hotel
lessee. Its principal uses of cash are to fund the property improvement fund,
fund required lender debt service reserves, pay interest on mortgage debt and
cash distributions to the partners. Cash provided by operations for the
thirty-six weeks ended September 12, 1997 and September 6, 1996, was $11.0
million and $8.5 million, respectively. This increase is primarily due to
improved operations.
Cash used in investing activities for the thirty-six weeks ended September 12,
1997 and September 6, 1996, was $2.4 million and $2.5 million, respectively.
Cash used in investing activities for the thirty-six weeks ended September 12,
1997 includes capital expenditures of $2.0 million, related to various
maintenance and repair projects at the Hotel. Cash used in investing activities
for the thirty-six weeks ended September 6, 1996, included capital expenditures
of $9.1 million used primarily for the Hotel rooms refurbishment project which
was completed in September, 1996. The property improvement fund decreased $4.0
million for the same period as a result of the rooms refurbishment project.
Proceeds from the airline equipment lease was $2.5 million for the thirty-six
weeks ended September 6, 1996. On April 24, 1996, TWA exercised its early
termination option under the airline equipment lease.
Cash used in financing activities for the thirty-six weeks ended September 12,
1997 was $8.4 million which primarily related to $9.4 million which was
deposited into a debt service reserve account for future debt service, repayment
of a note payable to Marriott International, Inc. of $900,000 offset by $2.0
million of additional rental paid by the Hotel lessee. As discussed below, no
cash distributions were made in 1997 because all excess cash from Hotel
operations was required to be held in a debt service reserve with the lender.
The General Partner believes that cash from Hotel operations and the property
improvement fund will provide adequate funds in the short-term and long-term to
meet the operational and capital needs of the Partnership.
<PAGE>
Financing
Mortgage Debt
The Partnership secured interim financing for its $168 million mortgage debt on
December 23, 1996 (the "Bridge Loan"). The Partnership utilized $8.2 million of
its refinancing reserve to reduce the mortgage loan balance to $160 million. The
Bridge Loan bears interest at LIBOR plus 2.75 percentage points. The weighted
average interest rate for the twelve weeks ended September 12, 1997 was 8.4%
compared to 9.2% for the twelve weeks ended September 6, 1996 resulting in an 8%
decrease in interest expense of $279,000. The weighted average interest rate for
the thirty-six weeks ended September 12, 1997 was 8.4% compared to 8.2% for the
thirty-six weeks ended September 6, 1996 resulting in an 4% increase in interest
expense of $409,000. The interest rate at September 12, 1997 was 8.4%. There
will be no cash distributions from operations during the term of the Bridge Loan
as all excess cash from Hotel operations, if any, are held in a debt service
reserve with the lender for future debt service or to reduce the outstanding
principal balance upon maturity on October 31, 1997. The debt service reserve
balance as of September 12, 1997 is $9,428,000. For the twelve weeks ending
September 12, 1997, $1.6 million of the debt service reserve was used to pay
interest expense.
Subsequent to quarter end, on September 26, 1997 the General Partner received
affirmative consents from a majority of the limited partner units approving a
new loan structure and certain amendments to the Amended and Restated Agreement
of Limited Partnership (the "Partnership Agreement"), ("Amendments") to continue
refinancing negotiations of the Bridge Loan ("Amendments"). The required
Amendments to the Partnership Agreement are described in Item 4 (Submission of
Matters to a Vote of Security Holders).
As a result of the consent, the General Partner is proceeding with the
refinancing of the Bridge Loan. The new loan will involve a loan from Goldman
Sachs Mortgage Company ("GSMC") consisting of a senior loan to a newly formed
wholly-owned bankruptcy remote subsidiary of the Partnership ( the "New Sub")
that would own the Hotel. The senior loan would be secured by a first mortgage
lien on the Hotel, in a principal amount up to $103 million (with the final
amount to be determined based upon the net cash flow at the Hotel and prevailing
interest rates) ( the "Senior Loan"). The junior portion of the refinancing
would consist of two tranches of debt. These include a subordinate tranche of
debt from GSMC to the Partnership in the principal amount of $20 million (the
"Mezzanine Loan") secured by the Partnership's direct and indirect ownership
interests in the New Sub and a subordinate junior tranche to the Partnership in
the amount of $59.7 million (the "HM Junior Loan") from DSM Finance LLC ( the
"Junior Lender"), a single member Maryland limited liability company of which
the General Partner is the sole member.
The Senior Loan would bear interest at a fixed rate equal to the yield on
12-year U.S. Treasury securities plus 1.9 percentage points currently estimated
to be 13.2%, based on the average rate for 12-year U.S. Treasury securities
during the first six months of 1997, and would amortize over a 25-year schedule.
After 12.5 years, if the Senior Loan has not been repaid, the interest rate
would increase by 2.0 percentage points above the greater of the interest rate
at closing or the then current yield on a 12-year U.S. Treasury Securities and
all revenues in excess of the debt service payments on the Senior Loan and
payments for certain reserve accounts, capital expenditures and Partnership
administrative expenses would be applied to amortize the principal balance of
the Senior Loan.
The terms of the Senior Loan contemplate that, consistent with applicable rating
agency requirements, the Hotel will be contributed to the New Sub in exchange
for 100% of the direct and indirect interests in the New Sub. An amendment to
the Partnership Agreement, approved with the consent solicitation, now permits
such a contribution.
<PAGE>
The Mezzanine Loan of approximately $20 million of debt from GSMC to the
Partnership would bear interest at a fixed rate equal to the yield on 12-year
U.S. Treasury securities plus 4.5 percentage points currently estimated to be
11.2%, based on the average rate for 12-year U.S. Treasury securities during the
first six months of 1997, and amortizing over 12.5 years. The HM Junior Loan
would be in the principal amount of $59.7 million from the Junior Lender to the
Partnership and if consented to by the lender of the Mezzanine Loan would be
secured by a subordinate lien on the Partnership's direct and indirect ownership
interests in the New Sub, and would bear interest at a rate of 13%. The HM
Junior Loan would be for a term of 30 years with no amortization of principal
for the first 12.5 years with a 17.5 year amortization schedule, thereafter. To
the extent that the Partnership's cash flow remaining after payment of the
interest and principal payments due on the Senior Loan and the Mezzanine Loan is
insufficient to pay interest on the HM Junior Loan, interest on the HM Junior
Loan would be deferred and would accrue and compound and be payable from future
cash flow. Based on recent operating performance and cash flows of the
Partnership, the General Partner believes that it is reasonably likely that the
Partnership will generate sufficient cash flow to allow for debt service on the
HM Junior Loan.
The HM Junior Loan also entitles the Junior Lender to receive 30% of any "excess
cash flow" available annually, plus 30% of any net capital/residual proceeds
after full repayment of the Senior Loan, the Mezzanine Loan and the HM Junior
Loan. This 30% participation will reduce the amount of "excess cash flow"
available to the Partnership for distribution or other uses (such as capital
expenditures or a reserve for future refinancing costs) in accordance with the
Partnership Agreement.
The approved Amendments also allow the Partnership to reorganize the ownership
structure of the Hotel to provide additional tiers of structured financing. GSMC
has indicated that it would prefer a structured financing whereby (i) the New
Sub would own the Hotel and would be the Debtor on the Senior Loan, (ii) a new
bankruptcy remote subsidiary of the Partnership (the "Tier 2 Sub") would be
formed to own the New Sub and be the debtor on the Mezzanine Loan, and (iii) the
Partnership would own the Tier 2 Sub (and indirectly own the New Sub and the
Hotel) and would be the debtor on the HM Junior Loan. As of the date of this
filing, no determination has been made as to whether a tiered subsidiary
structure would be utilized. However, under the proposed terms of the Mezzanine
Loan, the interest rate would be increased by one percentage point if a tiered
subsidiary structure has not been implemented on or before March 31, 1998. The
effect to the Limited Partners would be the same under either structure. As a
result of these Amendments, the General Partner will be able to create a new
wholly owned subsidiary such as the Tier 2 Sub to provide for the current or
future restructuring of the Partnership's mortgage debt.
<PAGE>
In connection with the refinancing, the General Partner also has negotiated with
Marriott Hotel Services, Inc., which is the operating tenant of the Hotel (the
"Operating Tenant"), to amend the operating lease for the Hotel (the "Operating
Lease") in certain respects for the Partnership's fiscal year 1997 and to
convert the Operating Lease thereafter to a management agreement (the
"Management Agreement") on substantially the same economic terms as the
Operating Lease, with certain exceptions noted below. Upon such conversion, the
Operating Tenant would become the manager of the Hotel (the "Manager"). The
Management Agreement would become effective only in the event the Bridge Loan is
refinanced. Under the terms of the original Operating Lease, the first $20
million of operating profit, as defined, was payable to the Partnership as the
owner's priority, the next $5 million of operating profit was payable to the
Operating Tenant. The Operating Lease has been amended for 1997 to provide that
the first $20.5 million of operating profit is payable to the Partnership as
owner's priority, the next $2.0 million of operating profit is payable to the
Operating Tenant, and any operating profit in excess of $22.5 million is payable
100% to the Partnership. For years after 1997, the Management Agreement would
provide that the first $21.5 million of the operating profit would be retained
by the Partnership as an owner's priority, the next $1.8 million of operating
profit would be paid to the Manager, and any operating profit in excess of $23.3
million would be divided 75% to the Partnership and 25% to the Manager. Other
changes to the Management Agreement may be required in connection with
refinancing the Bridge Loan. In connection with the conversion of the Operating
Lease to the Management Agreement, the Operating Tenant has agreed to waive its
right to the deferred fees owed pursuant to the Operating Lease, approximately
$27 million as of September 12, 1997. The Operating Tenant is a subsidiary of
MII.
Due to Marriott International, Inc.
The Hotel's $9.1 million rooms refurbishment project was completed in September,
1996. The refurbishment was financed by the Hotel's property improvement fund
and a $1.7 million short-term loan from MII. The loan was fully repaid from the
property improvement fund in the first quarter of 1997.
<PAGE>
RESULTS OF OPERATIONS
The operating results of Marriott's Desert Springs Resort and Spa are seasonal
and the first and second quarter results are generally higher than the third and
fourth quarter results. For quarterly reporting purposes, the Partnership
recognizes estimated annual Hotel rental income on a straight-line basis
throughout the year. Each quarter, the estimated annual Hotel rental income is
revised to more accurately forecast full year results. Based on current
forecasts, 1997 full-year Hotel operations are expected to improve over 1996 due
to a continued strong transient leisure market which allows greater rate
flexibility. As a result, Hotel rental income for 1997 third quarter improved
11% over prior year's results from $4,818,000 to $5,357,000.
For the third quarter, Hotel operating results (hotel revenue net of hotel
operating expenses) increased by approximately $488,000 when compared to the
same period in 1996 due to increased rooms, spa, and golf sales. REVPAR, or
revenue per available room, represents the combination of the average daily room
rate charged and the average daily occupancy achieved and is a commonly used
indicator of hotel performance (although it is not a GAAP measure of revenue).
REVPAR does not include food and beverage or other ancillary revenues generated
by the Hotel. For the third quarter, REVPAR increased 12% over the same period
in 1996 to $64 due to a 9% increase in the average room rate to approximately
$105 and a 1.7 percentage point increase in average occupancy to approximately
61%. Room sales increased 11% from $4,270,000 to $4,747,000 in the third quarter
as a result of an increase in demand in the transient leisure market. Transient
room sales increased 24% from $2,130,000 to $2,640,000 in the third quarter. Spa
and golf sales increased 20% from $1,480,000 to $1,783,000 during third quarter
as a result of the Hotel's implementation of a successful spa and golf package
marketing campaign.
On a year-to-date basis, operating results increased 12% over the same period of
the prior year due primarily to revenue increases in rooms, food and beverage,
and golf. For the year, REVPAR increased 8% over the same period of the prior
year to $125 due primarily to a 6% increase in the average room rate to
approximately $172 and a 1.6 percentage point increase in average occupancy to
approximately 73%. Room sales and profit increased 8% due to strong demand in
the leisure transient segment. Transient business increased by 5,042 roomnights
from 53,000 to 58,000 or 9% over last year. Food and beverage sales increased 8%
from $26,062,000 to $28,143,000 and golf sales increased 9% from $6,249,000 to
$6,805,000 over the same period in 1996.
On April 24, 1996, TWA exercised its early termination option under the airline
equipment lease and paid the rent due on that date of $847,000 along with the
termination value of $780,000 plus the $1 purchase option. $1.2 million was
generated by the equipment lease in 1996.
Other Income. For the thirty-six weeks ended September 12, 1997, other income
decreased 49% or $385,000 from $788,000 to $403,000. Interest income on the
Partnership's operating cash account and debt service reserve account decreased
$243,000 from $602,000 to $359,000 or 40% from last year primarily due to the
decrease in the Partnership's operating cash balance resulting from the $8.2
million paydown of the mortgage loan. Interest income on the Partnership's
property improvement fund decreased $143,000 from $186,000 to $44,000 or 77%
below last year due primarily to the Hotel's utilizing funds for the $9.1
million rooms refurbishment project which was completed in September, 1996. For
the third quarter, other income decreased 43% from $336,000 to $190,000.
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Partnership and the Partnership Hotel are involved in routine litigation and
administrative proceedings arising in the ordinary course of business, some of
which are expected to be covered by liability insurance and which collectively
are not expected to have a material adverse effect on the business, financial
conditions or results of operations of the Partnership.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the limited partners in 1996 or in prior
years. The Partnership initiated a Consent Solicitation Statement on August 29,
1997. Pursuant to the Consent Solicitation Statement, the General Partner asked
Limited Partners to consider and vote upon (i) incurrence of the HM Junior Loan,
(ii) an amendment to the Partnership Agreement to authorize the General Partner
to form or organize one or more subsidiaries of the Partnership, to contribute
assets of the Partnership to any such subsidiary in exchange for the equity
interests in such subsidiary, and to delegate its authority to manage any such
subsidiary to a governing entity or other body in order to effect a structured
refinancing such as the proposed refinancing structures (iii) an amendment to
the Partnership Agreement to amend the definition of "Affiliate" to make clear
that a publicly-traded entity will not be deemed an affiliate of the General
Partner or any of its Affiliates unless a person or group of persons directly or
indirectly owns twenty percent or more of the outstanding common stock of both
the General Partner and such other entity, (iv) an amendment to the Partnership
Agreement to revise the provisions relating to the authority of the General
Partner to permit the General Partner, without obtaining the consent of the
Limited Partners, to sell or otherwise transfer the Hotel to an independent
third party, (v) an amendment to the Partnership Agreeement that would allow the
General Partner to incur indebtedness in order to capitalize the Junior Lender
(which will make the HM Junior Loan to the Partnership), (vi) amendments to the
Partnership Agreement to revise the provisions limiting the voting rights of the
General Partner and its Affiliates to permit the General Partner and its
Affiliates to have full voting rights with respect to all Units acquired by the
General Partner and its Affiliates except on matters where the General Partner
and its Affiliates have an actual economic interest other than as a Unitholder
or general partner, (vii) amendments to the Partnership Agreement to amend
certain terms and sections of the Partnership Agreement in order to reflect the
fact that after the division of Marriott Corporation's operations into two
separate public companies in 1993, Host Marriott (formerly known as Marriott
Corporation) no longer owns the management business conducted by Marriott
International, Inc., delete certain obsolete references to entities and
agreements that are no longer in existence and update the Partnership Agreement
to reflect the passage of time since the formation of the Partnership, and
(viii) an amendment to the Partnership Agreement to permit the General Partner,
without the consent of the Limited Partners, to make any amendment to the
Partnership Agreement as is necessary to clarify or update the provisions
thereof so long as such amendment does not adversely affect the rights of
Unitholders under the Partnership Agreement in any material respect.
A majority of the limited partner units approved the incurrence of the HM
Junior Loan and all of the amendments to the Partnership Agreement.
<PAGE>
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit # Description
3.2 Second Amended and Restated Agreement of Limited
Partnership of Desert Springs Marriott Limited
Partnership dated as of September 26, 1997, by
and among Marriott Desert Springs Corporation, a
Delaware corporation, as General Partner, and those
Persons who have been admitted as limited partners of
the Partnership in accordance with the provisions
of the Amended and Restated Agreement of Limited
partnership of Desert Springs Marriott Limited
Partnership (the "Partnership") dated as of
April 24, 1997 (the "Original Agreement") or this
Agreement and are identified in the books and records
of the Partnership as the Limited Partners.
(b) Reports on Form 8-k
None.
(c) EXHIBITS
<PAGE>
Exhibit 3.2
SECOND AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP OF
DESERT SPRINGS MARRIOTT LIMITED PARTNERSHIP
This Second Amended and Restated Agreement of Limited Partnership,
dated as of September 26, 1997 is made and entered into by and among Marriott
Desert Springs Corporation, a Delaware corporation, as general partner (the
"General Partner"), and those Persons who have been admitted as limited partners
of the Partnership in accordance with the provisions of the Amended and Restated
Agreement of Limited Partnership of Desert Springs Marriott Limited Partnership
(the "Partnership") dated as of April 24, 1987 (the "Original Agreement") or
this Agreement and are identified in the books and records of the Partnership as
the Limited Partners.
The Partnership was formed pursuant to a Certificate of Limited
Partnership filed with the Office of the Secretary of State of the State of
Delaware on February 26, 1987. On April 27, 1987, the General Partner,
Christopher G. Townsend, as initial limited partner, and the Limited Partners
who purchased units of limited partnership interest (the "Units") in the
Partnership in the private placement effected pursuant to a Private Placement
Memorandum dated March 20, 1987 entered into the Original Agreement. The
Partners are adopting this Second Amended and Restated Agreement of Limited
Partnership in order to effect certain amendments to the Original Agreement
approved by the General Partner and the Limited Partners.
In consideration of the mutual agreements made herein, the parties
hereby agree to continue the Partnership as a limited partnership under the Act
as follows:
ARTICLE ONE
DEFINED TERMS
SECTION 1.01. The defined terms used in this Agreement shall, unless
the context otherwise requires, have the respective meanings specified in this
Section 1.01.
"Accounting Period" means the four week accounting periods having the
same beginning and ending dates as the General Partner's four week accounting
periods, except that an Accounting Period may occasionally contain up to five
weeks when necessary to conform the accounting system to the calendar year.
"Act" means the Delaware Revised Uniform Limited Partnership Act
(6 Del. c.ss. 17-101, et seq.), as amended from time to time.
"Adjustments" means the after-tax present values to the General Partner
and the Limited Partners of the Affected Items, as determined by the Expert.
"Affected Items" means those items of tax benefits that, because of the
Proposed Regulations, are lost by the Limited Partners or are received by the
General Partner.
<PAGE>
"Affected Year" means any Fiscal Year of the Partnership in which there
are Affected Items.
"Affiliate," "Affiliates" or "Affiliated Person" means, when used with
reference to a specified Person, (i) any Person that directly or indirectly
through one or more intermediaries controls or is controlled by or is under
common control with the specified Person, (ii) any Person that is an officer of,
partner in or trustee of, or serves in a similar capacity with respect to, the
specified Person or of which the specified Person is an officer, partner or
trustee, or with respect to which the specified Person serves in a similar
capacity, (iii) any Person that, directly or indirectly, is the beneficial owner
of 10% or more of any class of equity securities of the specified Person or of
which the specified Person is directly or indirectly the owner of 10% or more of
any class of equity securities, and (iv) any relative or spouse of the specified
Person who makes his or her home with that of the specified Person. Affiliate or
Affiliated Person of the Partnership or the General Partner does not include a
Person who is a partner of, or in a partnership or joint venture with, the
Partnership or any other Affiliated Person, if such Person is not otherwise an
Affiliate or Affiliated Person of the Partnership or the General Partner.
Notwithstanding the foregoing, no corporation whose common stock is listed on a
national securities exchange or authorized for inclusion on the NASDAQ National
Market, or any subsidiary thereof, shall be an "Affiliate" of the General
Partner or any Affiliate thereof unless a Person (or Persons if such Persons
would be treated as part of the same group for purposes of Section 13(d) or
13(g) of the Securities Exchange Act of 1934) directly or indirectly owns twenty
percent (20%) or more of the outstanding common stock of the General Partner and
such other corporation.
"Agreement" means this Second Amended and Restated Agreement of Limited
Partnership, as originally executed and as hereafter amended or modified from
time to time.
"Capital Account" or "Capital Accounts" means, with respect to a
Partner, the account maintained for such Partner which is determined and
maintained in a manner which the General Partner determines is in accordance
with section 1.704-1(b)(2)(iv) of the Treasury Regulations, as amended.
"Capital Contribution" or "Capital Contributions" means, with respect
to any Partner, the total amount of money (and the agreed value of any property
contributed to the Partnership by the General Partner) contributed and agreed to
be contributed to the Partnership (prior to the deduction of any selling
commissions or expenses) by such Partner; provided, however, that as and to the
extent any placement agent retained by the General Partner to assist in the
private placement of the Units foregoes any portion of its fees or selling
commission with a consequent reduction in the offering price of any Units so
placed or as and to the extent any Limited Partner receives a discount of
$12,285 per Unit as a result his making a payment of $87,715 per Unit in cash
($77,715 per Unit if purchased in cash by the General Partner, its Affiliates,
or officers, directors or employees of the General Partner or its Affiliates, or
by the Placement Agents) upon execution of the subscription documents as full
payment of his Capital Contribution, the Limited Partners purchasing any such
Units shall nevertheless be deemed to have contributed to the Partnership the
full amount of the offering price without deduction on account of such reduced
purchase price.
<PAGE>
"Capital Receipts" means Sale Proceeds and/or Refinancing Proceeds.
"Cash Available for Distribution" means, with respect to any fiscal
period, the cash revenues of the Partnership from all sources during such fiscal
period other than Capital Receipts less (i) all cash expenditures of the
Partnership during such fiscal period, including, without limitation, repayment
of all Partnership indebtedness to the extent required to be paid, but not
including expenditures of Capital Receipts plus any fees for management services
and administrative expenses and (ii) such reserves as may be determined by the
General Partner, in its sole discretion, to be necessary to provide for the
foreseeable needs of the Partnership.
"Code" means the Internal Revenue Code of 1986, as amended (or any
corresponding provision or provisions of succeeding law).
"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.
"Cumulative Capital" means, with respect to any Partner, the amount of
Capital Contributions actually contributed to the Partnership as of the date in
question (prior to the deduction of any selling commissions or expenses) by such
Partner; provided, however, that as and to the extent any placement agent
retained by the General Partner to assist in the private placement of the Units
foregoes any portion of its fees or selling commission with a consequent
reduction in the offering price of any Units so placed or as and to the extent
any Limited Partner receives a discount of $12,285 per Unit as a result of his
paying $87,715 per Unit in cash ($77,715 if purchased in cash by the General
Partner, its Affiliates, or officers, directors and employees of the General
Partner or its Affiliates, or by the Placement Agents) upon execution of the
subscription documents as full payment of the purchase price for such Unit the
Limited Partners purchasing any such Unit shall nevertheless be deemed to have
contributed to the Partnership the full amount of the offering price without
deduction on account of such reduced purchase price, provided, further that at
the time of any calculation of Cumulative Capital, there shall only be credited
to the Cumulative Capital of a Limited Partner an amount per Unit not in excess
of the amount of Capital Contribution required to be paid by Limited Partners
who pay for their Units in installments.
"Debt Service Guarantees" means the guarantees by Marriott and the
General Partner in an amount not exceeding $21,875,000 of interest and principal
payments owing by the Partnership under the Mortgage Debt.
<PAGE>
"Defaulting Limited Partner" means a Limited Partner who fails to pay
all or any portion of any installment of his Capital Contribution for a period
of 20 days after the date such installment was due.
"Defaulting Limited Partner Allocation" means allocations of Net
Losses, Net Profits, Gains, Losses, and tax credits to a Defaulting Limited
Partner.
"Default Notice" means the notice given by the General Partner to the
Partnership of its desire to purchase all or a portion of a Defaulting Limited
Partner's Interest in the Partnership.
"Designated Person" means the General Partner.
"Expert" means that independent expert retained by the General Partner
who will determine the respective after-tax present values to the General
Partner and the Limited Partners of the Affected Items.
"FF&E" means (i) furniture, fixtures and furnishings and equipment and
(ii) routine repairs and maintenance undertaken subsequent to the opening date
of the Hotel, the cost of which would not be expensed under generally accepted
accounting principles.
"Fiscal Quarter" means, for the respective fiscal periods in any year,
(i) the period beginning on January 1, and having the same ending date as the
General Partner's 12-week fiscal first quarter, (ii) the same period of time as
the General Partner's second fiscal quarter, (iii) the same period of time as
the General Partner's third fiscal quarter, and (iv) the period from the end of
the General Partner's third fiscal quarter through December 31 in such Fiscal
Year.
"Fiscal Year" means the fiscal year of the Partnership as established
in Section 9.02.
"Foreclosure Guarantee" means the guarantee of the General Partner in
an amount not exceeding $50 million of principal upon a foreclosure of the
Hotel.
"Gain" or "Gains" means the gain or gains recognized by the Partnership
for Federal income tax purposes upon the sale or disposition of Partnership
property (other than the routine sale of used FF&E being replaced at the Hotel).
"General Partner" means Marriott Desert Springs Corporation, a Delaware
corporation and wholly owned subsidiary of Host, in its capacity as general
partner of the Partnership and its permitted successors or assigns.
"Host" means Host Marriott Corporation, a Delaware corporation.
"Hotel" means Marriott's Desert Springs Resort and Spa in Palm Desert,
California and the land on which the hotel and a golf course is located.
"Hotel Operating Lease" means that certain agreement with the Operating
Tenant, executed as of the closing of the offering pursuant to the Private
Placement Memorandum, whereby the Operating Tenant leases the Hotel and
subleases a golf course from the Partnership.
<PAGE>
"Interest" means the entire interest of a Partner in the Partnership at
any particular time, including the right of such Partner to any and all benefits
to which a Partner may be entitled as provided in this Agreement, together with
the obligations of such Partner to comply with all the terms and provisions of
this Agreement.
"Interested Transaction" means any matter in which the General Partner
or its Affiliates has an actual economic interest, other than an interest solely
as a result of its or an Affiliate's ownership of Units or a general partner
interest or as a result of its or an Affiliate's (and any group of which it is a
part for purposes of Section 13(d) or 13(g) of the Securities Exchange Act of
1934) direct or indirect ownership of less than twenty percent (20%) of the
outstanding common stock of both the General Partner and a corporation whose
common stock is listed on a national securities exchange or authorized for
inclusion in the NASDAQ National Market, or any subsidiary thereof.
"Invested Capital" means the excess, if any, of Cumulative Capital of a
Partner over cumulative distributions to him of Capital Receipts.
"Investor List" means that list, required by the Tax Reform Act of
1984, as amended, identifying Persons to whom Interests in the Partnership were
sold, such Persons' addresses and taxpayer identification numbers, the dates on
which the Interests were acquired and the name and tax shelter registration
number of the Partnership.
"IRS" means the Internal Revenue Service.
"Limited Partner" means any Person admitted to the Partnership pursuant
to Section 3.03 including any Substituted Limited Partner.
"Loss" or "Losses" means the loss or losses recognized by the
Partnership for Federal income tax purposes upon the sale or disposition of
Partnership property other than the routine sale of used FF&E being replaced at
the Hotel.
"Minimum Gain" means the Gain that would be recognized by the
Partnership, if property of the Partnership which is secured by a nonrecourse
debt, were foreclosed upon and such property were transferred to the creditor in
satisfaction thereof.
"Mortgage Debt" means the loan provided to the Partnership by The First
National Bank of Chicago and any other commercial banks in the principal amount
of $175 million.
"Net Profits" or "Net Losses" means, for any period, the net profits or
net losses of the Partnership for Federal income tax purposes during such period
as determined under section 702 of the Code, including gain or loss on the
routine sale of used FF&E not in connection with the sale of a Hotel, and from
the sale or other disposition of Equipment except in connection with a sale or
other disposition of all or substantially all the assets of the Partnership, and
excluding Gains and Losses and items specially allocated under Sections 4.05,
4.11, 4.13 and 4.14.
<PAGE>
"Note" or "Notes" means the promissory note or notes given to the
Partnership by the Limited Partners pursuant to Section 3.05.
"Notification" means a written notice, containing the information
required by this Agreement to be communicated to any Person, sent by registered,
certified or regular mail to such Person; provided, however, that any
communication containing such information sent to such Person and actually
received by such Person shall constitute Notification for all purposes of this
Agreement.
"Operating Tenant" means Marriott Hotel Services, Inc., a Delaware
corporation and wholly owned subsidiary of Marriott International Inc., as
lessee and operator of the Hotel.
"Original Limited Partner" means any Limited Partner who acquired Units
in the initial offering of Units pursuant to the Private Placement Memorandum.
"Partners" means, collectively, the Limited Partners as constituted
from time to time and the General Partner.
"Partnership" means the limited partnership formed under the Act and
continued pursuant to this Agreement by the parties hereto, as said Partnership
may from time to time be constituted.
"Partnership Debt" means any indebtedness for borrowed money incurred
by the Partnership.
"Person" means any individual, partnership, limited liability company,
corporation, trust or other legal entity.
"Placement Agents" means Smith Barney, Harris Upham & Co.
Incorporated and Mutual Benefit Financial Service Company.
"Prime Rate" means the base rate of interest announced from
time-to-time by Bankers Trust Company, New York, New York.
"Private Placement Memorandum" means the Partnership's confidential
private placement memorandum dated March 20, 1987, concerning the offering of
the Units.
"Proposed Regulations" means, for purposes of computing Affected Items,
regulations proposed by the Department of the Treasury as directed by section 79
of the Tax Reform Act of 1984, as amended, or otherwise pursuant to section 704
or section 752 of the Code.
<PAGE>
"Purchase Debt" means a loan in the maximum amount of up to $56,442,000
borrowed by the Partnership from Marriott Corporation to finance, among other
things, a portion of the purchase price of the Hotel.
"Refinancing Proceeds" means the net proceeds from any refinancing or
borrowing by the Partnership, the proceeds of which are applied to the repayment
of previously incurred debt of the Partnership, or borrowed for distributions to
the Partners including the proceeds of a sale and leaseback on which no taxable
gain is recognized for Federal income tax purposes.
"Sale Proceeds" means any net proceeds received by the Partnership from
(i) the exchange, condemnation, eminent domain taking, casualty, sale or other
disposition of all or a portion of the Partnership's assets, or (ii) the
liquidation of the Partnership's property in connection with a dissolution of
the Partnership (in excess of the outstanding indebtedness and other liabilities
of the Partnership). Sale Proceeds shall not include the proceeds from the
routine sale of used FF&E not in connection with the disposition of the Hotel.
"Substituted Limited Partner" means any Person admitted to the
Partnership as a Limited Partner pursuant to the provisions of Section 7.02 and
who is listed as such in the books and records of the Partnership.
"Tax-Exempt Entity" means an entity or person defined in section
168(h)(2) of the Code.
"Tax Matters Partner" means the General Partner.
"Total Partnership Distributions" means the total amount of cash and
the fair market value of any property (net of any associated liabilities)
distributed to the Partners pursuant to Sections 4.07 through 4.10.
"Treasury Regulations" means the regulations promulgated by the
Department of the Treasury as in effect as of the date of this Agreement.
"Unit" means the Interest of a Limited Partner represented by a Capital
Contribution of $100,000.
ARTICLE TWO
FORMATION, NAME, PLACE OF BUSINESS, PURPOSE AND TERM
SECTION 2.01. Formation. The parties have formed and do hereby
continue the Partnership pursuant to the provisions of the Act.
SECTION 2.02. Names and Offices. The name of the Partnership is and
shall be Desert Springs Marriott Limited Partnership. The principal offices of
the Partnership shall be locatedat 10400 Fernwood Road, Bethesda, Maryland 20817
or at such other place or places as the General Partner may from time to time
determine. The address of the registered office of the Partnership in the State
of Delaware is at 1013 Centre Road, Wilmington, County of New Castle, Delaware
19805.
<PAGE>
SECTION 2.03. Purpose. The purpose of the Partnership is, without
limitation, to directly or indirectly, (i) acquire, own, and then lease to, or
enter into a management agreement with, an operator the Hotel and a golf course
adjacent to the Hotel, (ii) lease a second golf course and sublease the course
to an operator, (iii) sell or otherwise dispose of the Hotel, and (iv) to engage
in any other activities related or incidental thereto as more fully set forth in
Section 5.01 hereof.
SECTION 2.04. Term. The term of the Partnership shall continue in
full force and effect from the date of the filing of the original Certificate of
Limited Partnership until December 31, 2087, or until dissolution prior thereto
pursuant to the provisions of Article Eight.
SECTION 2.05. Agent for Service of Process. The name and address of
the agent for service of process on the Partnership in the State of Delaware is
The Prentice-Hall Corporation System, Inc., 1013 Centre Road, Wilmington, County
of New Castle, Delaware 19805.
ARTICLE THREE
PARTNERS AND CAPITAL
SECTION 3.01. General Partner. The General Partner of the
Partnership is and shall be Marriott Desert Springs Corporation, a Delaware
Corporation and wholly-owned subsidiary of Host, having its principal executive
offices at 10400 Fernwood Road, Bethesda, Maryland 20817.
SECTION 3.02. [Intentionally Omitted]
SECTION 3.03. Limited Partners. The names and addresses of the Limited
Partners, the amount of their agreed upon Capital Contributions and the number
of Units held by them are set forth in the books and records of the Partnership
and a Person shall be deemed to be admitted as a Limited Partner when the
General Partner has accepted such Person as a Limited Partner of the
Partnership, the books and records reflect such Person as admitted to the
Partnership as a Limited Partner and such Person has executed this Agreement.
SECTION 3.04. Capital Contribution by the General Partner. The General
Partner has made a Capital Contribution in the amount of $909,100 in cash.
SECTION 3.05. Capital Contributions by the Limited Partners
A. The number of Units subscribed for by each Limited Partner is set
forth in the subscription documents executed and delivered by such Limited
Partner. Each Original Limited Partner's contribution in respect of the Units
subscribed for was made (i) in cash and a fully recourse promissory note (the
"Note") of such Limited Partner payable as set forth in Section 3.05B or (ii) in
cash in the amount of $87,715 as full payment of the subscription price ($77,715
per Unit in cash if purchased by the General Partner, its Affiliates, or
officers, directors or employees of the General Partner or its Affiliates, or by
the Placement Agents). No Partner shall be paid interest on any Capital
Contribution.
<PAGE>
B. The Original Limited Partners made Capital Contributions totaling up
to $90 million for which each such Limited Partner subscribed in Units of
$100,000 unless the General Partner in its sole discretion accepted
subscriptions for less than a full Unit. For each Unit purchased, an Original
Limited Partner made a Capital Contribution either by paying $87,715 per Unit in
cash ($77,715 per Unit in cash if purchased by the General Partner, its
Affiliates, or officers, directors or employees of the General Partner or its
Affiliates, or the Placement Agents) on execution of the subscription documents
as full payment of the subscription price or $100,000 in the following
installments: (i) a first installment in the amount of $25,000 payable on
execution of the subscription documents; (ii) a second installment in the amount
of $30,000 payable on June 15, 1988; (iii) a third installment in the amount of
$25,000 payable on June 15, 1989; and (iv) a fourth installment in the amount of
$20,000 payable on June 15, 1990. Original Limited Partners who purchased more
or less than a full Unit were required to make proportionate installments on the
dates aforesaid. Original Limited Partners could prepay, without any reduction
in the amount thereof, the foregoing installments, in whole or in part, at any
time prior to their respective due date.
C. The obligation of each Original Limited Partner to pay the
installments required by Section 3.05B, other than the first installment, was
evidenced by the delivery to the Partnership concurrently with payment of the
first installment of the Note in the form of Exhibit A attached hereto payable
to the Partnership in the amount of $75,000 for each Unit purchased (adjusted if
less than a full Unit is purchased) representing the amount of the remaining
unpaid Capital Contribution of such Original Limited Partner. Such Original
Limited Partners could prepay in whole, or in part, all of the installments. If
an Original Limited Partner paid $87,715 in cash per Unit at the time he
delivered an executed subscription agreement, then there was no obligation to
deliver a Note to the Partnership. That portion of such $87,715 payment in
excess of the amount that would have been paid upon subscription had the
Original Limited Partner selected the installment method of paying the
subscription price was used by the Partnership to reduce the Purchase Debt.
D. Each Original Limited Partner paying in installments pledged to the
Partnership his Interest as security for payment of the installments payable
under such Original Limited Partner's Note. The Partnership, acting through the
General Partner, shall have all rights and remedies granted to a secured party
under the Uniform Commercial Code as adopted in Delaware, including, but not
limited to, the right to sell such Interest, and such Limited Partner agrees to
execute such instruments, including, without limitation, a financing statement
on Form UCC-1, as the General Partner may from time to time require to perfect
such security interest. For purposes of the said Uniform Commercial Code, this
Agreement shall also be deemed to be a security agreement.
<PAGE>
E. The following provisions applied in the event a Limited Partner
failed to make installment payments when due:
(i) A Limited Partner who failed to pay when due all or any
portion of any installment (a "Defaulting Limited Partner") for a
period of 20 days and such default continues, the Defaulting Limited
Partner shall be required to pay the Partnership a late payment charge
equal to five percent (5%) of such unpaid installment or portion
thereof. At any time prior to any sale of all or any portion of the
Defaulting Limited Partner's Interest as provided in this subsection E,
the General Partner may but shall not be obligated to accept full
payment from the Defaulting Limited Partner of any unpaid installment
then overdue. The acceptance of such payment by the General Partner
shall extinguish the further right (as hereafter defined) of the
General Partner to purchase the Defaulting Limited Partner's Interest.
If a default shall continue for more than 30 days after notice to the
Defaulting Limited Partner, in addition to the aforesaid late charge,
the unpaid portion of such installment or portion thereof shall bear
interest from the date due until paid in full at a rate equal to the
lesser of (a) four percentage points in excess of the Prime Rate or (b)
the maximum rate permitted by law. If the late charge is deemed to be
interest under law, it may only be imposed to the extent it does not
cause total interest to exceed the rate permitted by law. A Defaulting
Limited Partner shall have no voting rights with respect to his
Interest for so long as any unpaid installments plus any late charge or
interest attributable to such unpaid installment or portion thereof
remains unpaid. The General Partner will deduct the amount of any
delinquent installments, late penalty or interest from any cash
distributions to Limited Partners.
(ii) If a default shall continue for more than 30 days after
notice to the Defaulting Limited Partner, the General Partner shall
have the option of accelerating the payment of the entire unpaid
balance of the Notes of the Defaulting Limited Partner and the
additional option of purchasing (for the price set forth below) all or
a portion of the Defaulting Limited Partner's Interest. Such option may
be exercised by the General Partner by giving the Partner a Default
Notice. The purchase price to be paid to the Defaulting Limited Partner
shall be an amount equal to the greater of (x) 10% of the amount of
Cumulative Capital of the Defaulting Limited Partner in respect of the
Interest being purchased less the sum of (i) the total amount of cash
distributions, if any, theretofore made to the Defaulting Limited
Partner in respect of the Interest being purchased, (ii) any reasonable
expenses incurred by the Partnership and by the General Partner in
connection with such purchase, (iii) all tax credits previously
reported by the Partnership for all Fiscal Years then ended allocable
to the Interest being purchased, and (iv) 50% of the Net Losses
previously reported by the Partnership for all Fiscal Years then ended
allocable to the Interest being purchased, or (y) three percent (3%) of
the amount of the Cumulative Capital of the Defaulting Limited Partner
in respect of the Interest being purchased. Such purchase price shall
be paid in cash within 30 days after the date of the consummation of
the purchase. The General Partner shall also pay to the Partnership an
amount equal to all Capital Contribution installments in respect of the
Interest being purchased then due and not theretofore paid by the
Defaulting Limited Partner (including the unpaid installment giving
rise to the default) and shall assume all other obligations of the
Defaulting Limited Partner in respect of the Interest being purchased,
if any, to the Partnership.
<PAGE>
(iii) In the event that the General Partner does not acquire
all of the Interest of a Defaulting Limited Partner and after the
exercise of due diligence, the General Partner is unable to find a
purchaser for all or the balance of the Defaulting Limited Partner's
Interest for the price set forth in clause (ii) above, then the
Defaulting Limited Partner shall sell such Interest or the balance of
such Interest, as the case may be, on such terms and conditions as the
General Partner deems reasonable under the circumstances; provided that
any purchaser shall be required to agree to assume the obligation of
the Defaulting Limited Partner to make payment of the unpaid balance of
the installments to the extent of the Interest so acquired. At the
closing of any purchase and sale pursuant to this clause (iii), the
purchaser shall pay to the Partnership the unpaid balance of the
installments then due and owing by the Defaulting Limited Partner and
shall agree to thereafter make payment of any future installments as
and when the same shall become due and payable. The Defaulting Limited
Partner shall pay all of the Partnership's and General Partner's costs
and expenses incurred in connection with any purchase and sale of a
Defaulting Limited Partner's interest pursuant to this clause (iii).
(iv) A purchaser of all or any part of the Interest of a
Defaulting Limited Partner will receive all of the cash allocable to
such Interest from and after the date of default and not actually
distributed to the Defaulting Limited Partner prior to default. All Net
Profits and Net Losses that would otherwise be allocated in accordance
with Sections 4.01, 4.02 and 4.03 to a Defaulting Limited Partner
("Defaulting Limited Partner Allocation") shall be allocated, from and
after the date of default to, but not including, the date, if any, on
which the Interest of such Defaulting Limited Partner shall be
purchased, among the non-Defaulting Limited Partners in proportion to
the number of Units owned by each. All Defaulting Limited Partner
Allocations from and after the date of purchase of the Defaulting
Limited Partner's Interest until the expiration of the Fiscal Year in
which such purchase date falls shall be allocated to the purchaser. In
the following Fiscal Year or Fiscal Years, all Net Profits and Net
Losses of the Partnership allocable to the Limited Partners under
Article Four shall first be allocated until the purchaser's capital
account balance shall be equal in amount to the capital account balance
of a non-Defaulting Partner owning the same number of Units as the
purchaser.
(v) Notwithstanding the foregoing provisions of this Section
3.05E, the obligations of the Defaulting Limited Partner hereunder
shall not be extinguished by the existence of any option of the General
Partner to purchase the Interest of the Defaulting Limited Partner, or
by its exercise, or by any agreement by any Person to purchase such
Interest, but only to the extent of payment of the unpaid installments
together with interest thereon made in the Defaulting Limited Partner's
stead by any purchaser of such Interest.
<PAGE>
(vi) In addition to the other rights of the Partnership
against the Defaulting Limited Partner, the Partnership may avail
itself of appropriate legal remedies at law or in equity to compel
payment of any portion of the installments remaining unpaid together
with any interest thereon remaining unpaid, together with reasonable
court costs and legal fees in the event of litigation against the
Defaulting Limited Partner.
SECTION 3.06. Partnership Capital.
A. The Capital Contribution of each Limited Partner and the General
Partner shall be credited to each such Partner's Capital Account; provided,
however, that the deemed increase in the Capital Contribution of any Partner due
to (i) any relinquished selling commission or other fees with respect to such
Partner or (ii) any discount of $12,285 per Unit for any Limited Partner making
full payment of such Limited Partner's Capital Contribution ($22,285 for the
General Partner or any of its Affiliates of for officers, directors or employees
of the General Partner or any of its Affiliates, or the Placement Agents) upon
execution of the subscription agreement shall not be credited to such Partner's
Capital Account and a Limited Partner's obligation to make additional
contributions in installments shall not be credited to his Capital Account until
the installments are actually contributed. A Partner's Capital Account shall
also be credited with the amount of Net Profits or Gain allocable to the
Partner, and shall be debited with (x) such Partner's share of Total Partnership
Distributions and (y) the amount of Net Losses, Losses or deductions allocated
to such Partner.
B. For purposes of this Section 3.06, upon a distribution in kind of
Partnership property, the Capital Accounts of Partners will be debited or
credited as though the property had been sold for an amount equal to its fair
market value, and gain or loss which would have been recognized for Federal
income tax purposes had the property actually been sold will be allocated to the
Partners under Article Four.
SECTION 3.07. Liabiltiy of the Limited Partners. Except as otherwise
required by the Act, no Limited Partner shall be liable for the debts,
liabilities, contracts or any other obligations of the Partnership. Except as
otherwise required by the Act, a Limited Partner has no liability in excess of
his Capital Contribution and his share of the Partnership's assets and
undistributed profits, and shall not be required to lend any funds to the
Partnership or, after his Capital Contribution has been paid, to make any
further Capital Contributions to the Partnership or to repay to the Partnership,
any Partner or to any creditor of the Partnership any portion or all of any
negative balance of his Capital Account.
SECTION 3.08. Liability of the General Partner. Except as provided
in the Act, the General Partner has the liabilities of a partner in a
partnership without limited partners to Persons other than the Partnership and
the other Partners. Except as provided in the Act or herein, the General Partner
has the liabilities of a general partner in a partnership without limited
partners to the Partnership and to the other Partners. This Agreement shall not
be amended to limit such liability of the General Partner.
<PAGE>
ARTICLE FOUR
ALLOCATION OF PROFITS AND LOSSES; DISTRIBUTIONS OF CASH AND CERTAIN PROCEEDS
SECTION 4.01. Allocation of Net Profits. Net Profits for each Fiscal
Year shall be allocated to the Partners in the following order of priority:
(i) first, through and including the year ending on December
31, 1990, 99% to the General Partner and 1% to the Limited Partners;
(ii) next, through and including the year ending December 31,
1992, 70% to the General Partner and 30% to the Limited Partners; and
(iii) thereafter, 10% to the General Partner and 90% to the
Limited Partners.
<PAGE>
SECTION 4.02. Allocation of Net Losses and Losses. Net Losses and
Losses for each Fiscal Year shall be allocated through December 31, 1990, 100%
to the General Partner, and in Fiscal Years thereafter, 70% to the General
Partner and 30% to the Limited Partners; provided, however, that if and to the
extent the allocation of Net Losses and Losses in this manner would cause the
negative balances, if any, in the Capital Accounts of Limited Partners (deemed,
for purposes of this Section 4.02, to include the amount of any obligation to
make additional contributions to the capital of the Partnership) to exceed the
portions of the Minimum Gain which would be respectively allocated to such
Partners at the end of such Fiscal Year, then such Net Losses and Losses shall
instead be allocated to the General Partner.
SECTION 4.03.Allocation of Gain. Gain recognized by the Partnership
shall be allocated (after giving effect to the allocations referred to in
Sections 4.01 and 4.02 and all distributions other than distributions pursuant
to Section 4.08B) with respect to any Fiscal Year in the following order of
priority:
(i) first, to all Partners whose Capital Accounts have a
negative balance, in the ratio of such negative balances until such
negative balances are brought to zero; provided, however, if there is
insufficient Gain to bring such negative balances to zero, then: (a) if
the sum of such negative balances is less than or equal to the
Partnership Minimum Gain at the end of the Fiscal Year, then Gain shall
be allocated in the ratio of the negative balances; and (b) if the sum
of such negative balances exceeds the Partnership Minimum Gain at the
end of the Fiscal Year, then Gain shall be allocated in the ratio of
the deficit balance of the General Partner as reduced by such excess to
the deficit balances of the Limited Partners, until the deficit
balances of the Limited Partners are brought to zero, and then to the
General Partner until its deficit balance is brought to zero; provided
further, however, that solely for purposes of this Section 4.03(i), the
Capital Account balance of a Limited Partner shall be deemed to include
the amount of any obligation to make additional contributions to the
capital of the Partnership;
(ii) second, to all Partners up to the amount necessary to
bring their respective Capital Account balances to an amount equal to
their respective Invested Capital; provided, however, that in
calculating Invested Capital solely for purpose of this Section
4.03(ii), Cumulative Capital of a Limited Partner who paid $87,715 per
Unit in cash ($77,715 if purchased by the General Partner, its
Affiliates, or officers, directors or employees of the General Partner
or its Affiliates), upon his execution of the subscription documents as
full payment of the purchase price of his Unit shall be deemed to be
$100,000;
<PAGE>
(iii) third, in the case of Gain arising from the sale or
disposition (or from a related series of sales or dispositions) of all
or substantially all the Hotel or of all or substantially all the
assets of the Partnership: (a) to the Limited Partners in an amount
equal to the excess, if any, of (1) the sum of the product of 12% times
the weighted average of the Limited Partners' Invested Capital each
year, over (2) the sum of distributions to the Limited Partners of Cash
Available for Distribution each year, and (b) next, to the General
Partner until it has been allocated an amount equal to 10/90 times the
amount allocated to the Limited Partners under clause (a); and
(iv) thereafter, 12% to the General Partner and 88% to the
Limited Partners.
SECTION 4.04. Allocation Among Limited Partners of Net Profits, Gains,
Net Losses and Losses. Net Profits or Net Losses for any Fiscal Year allocable
to the Limited Partners shall be allocated among the Limited Partners pro rata
in accordance with the number of Units owned by each as of the end of such
Fiscal Year; provided that if any Unit is assigned during the Fiscal Year in
accordance with this Agreement, the Net Profits or Net Losses that are so
allocable to such Unit shall be allocated between the assignor and assignee of
such Unit according to the number of Accounting Periods in such Fiscal Year each
owned such Unit. Any Gains or Losses allocable to the Limited Partners shall be
allocated among the Limited Partners who held Units on the last day of the
Accounting Periods in which the sale or disposition giving rise to such Gains or
Losses occurred, pro rata in accordance with the number of Units owned by each
such Limited Partner. If any Unit is assigned by a Limited Partner other than on
the first day of an Accounting Period (in contravention of the Agreement), then
the Partnership shall recognize such assignment for the purposes of allocating
Net Profits, Gains, Net Losses or Losses if, and to the extent, it is legally
required to so do in the opinion of legal counsel.
SECTION 4.05. Allocation of Recapture Income. Notwithstanding
Sections 4.01, 4.02 and 4.03, "recapture income," if any, realized by the
Partnership pursuant to section 1245 or section 1250 of the Code shall be
allocated to the Partners to whom the prior corresponding depreciation
deductions were allocated, such allocations to be made pro rata to the Partners
in accordance with the manner in which such depreciation deductions were
allocated.
SECTION 4.06. Distribution of Cash Available for Distribution. Cash
Available for Distribution with respect to each Fiscal Year shall be distributed
at least annually as follows:
<PAGE>
(i) through and including the end of the Accounting Period
during which the General Partner and the Limited Partners shall have
received cumulative distributions of Capital Receipts equal to
$45,454,545, 1% to the General Partner and 99% to the Limited Partners;
(ii) thereafter, 10% to the General Partner and 90% to the
Limited Partners.
SECTION 4.07. Distribution of Refinancing Proceeds. Refinancing
Proceeds shall, unless the General Partner, in its sole discretion, shall
determine to retain any such amounts in the Partnership, be distributed as
follows:
(i) first, 1% to the General Partner and 99% to the Limited
Partners, until the Partners shall have received cumulative
distributions of Capital Receipts equal to $90,909,100; and
(ii) thereafter, 10% to the General Partner and 90% to the
Limited Partners.
SECTION 4.08. Distribution of Sale Proceeds
A. Sale Proceeds from the sale or other disposition of less than
substantially all of the assets of the Partnership, other than from the sale or
other disposition of all or substantially all the Hotel, shall, unless the
General Partner, in its sole discretion, shall determine to retain any such
amounts in the Partnership, be distributed:
(i) first, until the Partners shall have received cumulative
distributions of Capital Receipts equal to $90,909,100, 1% to the
General Partner and 99% to the Limited Partners; and
(ii) thereafter, 10% to the General Partner and 90% to the
Limited Partners.
B. Sale Proceeds from the sale or other disposition (or from a related
series of sales or dispositions) of all or substantially all of the assets of
the Partnership or all or substantially all the Hotel shall be distributed in
accordance with Section 8.02.
SECTION 4.09. Allocation Among Limited Partners of Cash Available for
Distribution, Refinancing Proceeds . Cash Available for Distribution
distributable with respect to any Accounting Period to the Limited Partners
pursuant to Section 4.06, shall be distributed to the Limited Partners pro rata
in accordance with the number of Units owned by each as of the end of such
Accounting Period. Proceeds distributable to the Limited Partners pursuant to
Section 4.07 or Section 4.08A shall be distributed to the Limited Partners pro
rata in accordance with the number of Units owned by each such Limited Partner
on the last day of the Accounting Period in which the transaction giving rise to
such proceeds was completed. If a Unit is assigned by a Limited Partner other
than on the first day of an Accounting Period (in contravention of this
Agreement), then the Partnership shall recognize such assignment for the purpose
of distributing amounts pursuant to Sections 4.06, 4.07 and 4.08 if, and to the
extent, it is legally required to do so in the opinion of legal counsel.
<PAGE>
SECTION 4.10. Section 754 Adjustments. For income tax purposes (but not
for purposes of adjusting the Capital Accounts of the Partnership, except as
otherwise provided in section 1.704-1(b)(2)(iv) of the Treasury Regulations),
appropriate adjustments shall be made in the allocations to Limited Partners
under this Article Four in order to reflect adjustments in the basis of
Partnership property permitted pursuant to any election under section 754 of the
Code, provided by the General Partner, in its sole discretion, makes such
election. If such an election is made, the Partnership will make the basis
adjustments and calculate depreciation deductions in accordance with such
adjustments for those transferee Limited Partners who advise the Partnership of
this obligation with sufficient information to enable the Partnership to
determine when, and at what price, such transferee Limited Partners acquired
Units. In the case of a transferee Limited Partner who does not advise the
Partnership of such information, the Partnership will attempt to supply such
Limited Partner with reasonably available information that will permit such
Limited Partner to make the required basis adjustment calculation.
SECTION 4.11. Special Allocation of Syndication Expenses. Any
"syndication expenses," as described in the regulations under section 709 of the
Code, paid or incurred by the Partnership in any Accounting Period in respect of
any Unit shall be specially allocated to and charged to the Capital Account of
the Limited Partner owning such Unit during such Accounting Period.
SECTION 4.12. Contingent Adjustments.
A. If prior to 1992, regulations shall have been proposed by the
Department of the Treasury, as directed by section 79 of the Deficit Reduction
Act of 1984 or otherwise pursuant to sections 704 or 752 of the Code (the
"Proposed Regulations"), and the General Partner (i) is of the opinion (based
upon advice of counsel) taking into account the Proposed Regulations for any
Fiscal Year of the Partnership (an "Affected Year"), that the amount of Net
Losses allocated to the General Partner should be increased, that the amount of
Net Profits allocated to the General Partner should be decreased or that the
General Partner or its Affiliates receive tax benefits (including the avoidance
or delay of the recognition of income) (the "Affected Items") and (ii) shall
have taken such steps to ameliorate the potential adverse effect of the Proposed
Regulations on the tax consequences of an investment in the Partnership by
Limited Partners that the General Partner (upon advice of counsel) shall
consider reasonable under the circumstances (taking into account economic,
financial, accounting, regulatory and any other facts or circumstances existing
at the time), then to the extent that a change in the allocations is still
required, the adjustments required by the Proposed Regulations shall be made and
the General Partner shall retain a qualified expert (the "Expert"), the fees and
expenses of which shall be paid by the Partnership, which will be requested to
determine at the beginning of each Affected Year the respective after-tax
present values to the General Partner or its Affiliates and the Limited Partners
of the Affected Items for such Affected Year (the "Adjustments").
<PAGE>
B. In determining such Adjustments the Expert shall (i) assume that the
Hotel will be sold in 2002 for an amount equal to its original cost, or
outstanding indebtedness, if greater, and that the Limited Partners and the
General Partner are subject to Federal income tax at the highest marginal tax
rates (for individual taxpayers in the case of the Limited Partners and for
corporate taxpayers in the case of the General Partner) in effect at the times
relevant to such determination and (ii) use such cash flow forecasts and other
economic data that the General Partner shall provide to assist the Expert in
making such determination. For each Affected Year, the General Partner will make
a Capital Contribution to the Partnership at the end of the Affected Year equal
to the adjustment to the General Partner or to the Limited Partners, whichever
is less. Each such Capital Contribution made by the General Partner shall be
promptly distributed to the Limited Partners in accordance with the ratios in
which Cash Available for Distribution would be distributed pursuant to Section
4.06 for such Affected Year; and provided further that, notwithstanding the
foregoing proviso, if the Proposed Regulations shall be promulgated in a form
other than the form in which they shall have been proposed, then the General
Partner shall make such reasonable adjustments to the amount of any such Capital
Contribution as it shall consider appropriate under the circumstances. Any
contribution or distribution of cash required by this Section 4.12 shall be
appropriately reflected in the Capital Accounts of the Partners but shall not
affect the amount or computation of Capital Contributions, Cumulative Capital or
Invested Capital and shall not be deemed a distribution of Capital Receipts or
Cash Available for Distribution for purposes of Article Four of this Agreement.
SECTION 4.13. Special Allocation of Interest on Purchase Debt.
Notwithstanding Sections 4.01, 4.02, and 4.04, the deduction for interest on the
Purchase Debt incurred in each Fiscal Year shall be allocated to the Limited
Partners owning the Units during each Fiscal Year with respect to which Capital
Contributions are being paid in installments pro rata in proportion to the
number of Units held by each such Partner on each day of the Fiscal Year;
provided, however, that the total allocation under this Section 4.13 with
respect to any Unit since the formation of the Partnership shall not exceed
$12,285.
SECTION 4.14. Special Allocation in Event of Advances by General
Partner. Notwithstanding any other provision of this Article, in the event of
the General Partner makes an advance which is described in Section 5.06C, then
before any Net Losses or Losses attributable to the Accounting Period in which
such an advance is made, or any subsequent Accounting Period, are allocated
pursuant to Section 4.02, there shall first be allocated to the General Partner
an amount of Net Losses or Losses equal to the amount of any advance.
<PAGE>
ARTICLE FIVE
RIGHTS, POWERS AND DUTIES OF THE GENERAL PARTNER
SECTION 5.01. Authority of the General Partner to Manage the
Partnership.
A. The General Partner shall have the exclusive right and power to
conduct the business and affairs of the Partnership and to do all things
necessary to carry on the business of the Partnership, and is hereby authorized
to take any action of any kind and to do anything and everything it deems
necessary or appropriate in accordance with the provisions of this Agreement and
applicable law. Except as expressly provided herein, the authority of the
General Partner to conduct the business of the Partnership shall be exercised
only by the General Partner.
B. No Limited Partner shall participate in or have any control
whatsoever over the Partnership's business or have any authority or right to act
for or bind the Partnership. The Limited Partners hereby unanimously Consent to
the exercise by the General Partner of the powers conferred on it by this
Agreement.
C. Except to the extent otherwise provided herein, the General Partner
is hereby authorized, without Consent of the Limited Partners, to:
(i) execute any and all agreements, contracts, documents,
certifications and instruments necessary or convenient in connection
with the development, expansion, improvement, financing, management,
maintenance, operation, re-leasing, sale or other disposition of the
Partnership's properties and assets, except as otherwise limited by
this Agreement;
(ii) borrow money from itself or others (including Affiliates
of any general partner of the Partnership) and issue evidences of
indebtedness necessary, convenient or incidental to the accomplishment
of the purposes of the Partnership and to secure the same by mortgage,
pledge or other lien on the assets of the Partnership, such borrowing
and security to be only with respect to the following: (a) the Purchase
Debt, (b) any amounts advanced by the General Partner or an Affiliate
of the General Partner (which amounts may or may not be secured) or any
other lender to enable the Partnership to satisfy its obligations
arising in the normal course of its business, to make payments of
principal, interest, premium or penalty on any debt of the Partnership
or to make capital repairs, improvements and expansions, provided any
required Consents of Partners are obtained, (c) the Mortgage Debt, (d)
amounts incurred for the purpose of a distribution to the Partners of
the Partnership, (e) any indebtedness the incurrence of which must be
specifically Consented to by the Limited Partners under Section 5.02B
and (f) any indebtedness incurred to refinance (and thereafter further
refinance as often as shall be necessary) the unamortized portion of
any of the foregoing from time to time outstanding. In connection with
the borrowing of money on a nonrecourse basis, no lender shall be
granted or acquire, at any time as a result of making such a loan, any
direct or indirect interest in the profits, capital or property of the
Partnership other than as a secured creditor;
<PAGE>
(iii) prepay in whole or in part, refinance (to the extent
permitted by clause (ii) above), fix the interest rate on, recast,
modify or extend any debt and in connection therewith execute any
extensions, consolidations, modifications or renewals of mortgages on
any assets of the Partnership;
(iv) deal with, or otherwise engage in business with, or
provide services to and receive compensation therefor from, any Person
who has provided or may in the future provide any services, lend money
or sell property to or purchase property from the General Partner or
any Affiliate of the General Partner. No such dealing, engaging in
business or providing of services may involve any direct or indirect
payment by the Partnership of any rebate or any reciprocal arrangement
for the purpose of circumventing any restriction set forth herein upon
dealings with the General Partner or any Affiliate of the General
Partner. The General Partner may on behalf of the Partnership enter
into agreements to employ agents, attorneys, accountants, engineers,
appraisers, or other consultants or contractors who may be Affiliates
of the General Partner and may enter into agreements to employ
Affiliates of the General Partner to provide further or additional
services to the Partnership; provided that any employment of such
Persons is on terms not less favorable to the Partnership than those
offered by Persons who are not Affiliates of the General Partner for
comparable services;
(v) engage in any kind of activity and perform and carry out
contracts of any kind necessary to, or in connection with, or
incidental to the accomplishment of the purposes of the Partnership, as
may be lawfully carried on or performed by a limited partnership under
the laws of the State of Delaware and State of California and in each
state where the Partnership has been qualified to do business;
(vi) sell or otherwise dispose of or consent to the sale or
disposition of any assets of the Partnership to any Person provided
that such Person is not a general partner of the Partnership or an
Affiliate of any such general partner; and
(vii) 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.
<PAGE>
D. Any Person dealing with the Partnership or the General Partner may
rely upon a certificate signed by the Secretary or Assistant Secretary,
Controller or Treasurer of the General Partner, thereunto duly authorized, as
to:
(i) the identity of the General Partner or any Limited
Partner;
(ii) the existence or non-existence of any fact or facts which
constitute a condition precedent to the acts by the General Partner or
in any other manner germane to the affairs of the Partnership;
(iii) the Persons who are authorized to execute and deliver
any instrument or document of the Partnership; and
(iv) any act or failure to act by the Partnership or as to any
other matter whatsoever involving the Partnership or any Partner.
E. Any agreements, contracts and arrangements between the Partnership
and the General Partner or any of its Affiliates, except for rendering legal,
tax, accounting, procurement and engineering services by employees of the
General Partner and Affiliates of the General Partner and which agreements will
be on commercially reasonable terms, shall be subject to the following
additional conditions:
(i) the General Partner or any such Affiliate must be actively
engaged in the business of rendering such services or selling or
leasing such goods independently of its dealings with the Partnership
and as an ordinary ongoing business or must enter into and engage in
such business with Marriott system hotels or hotel owners generally and
not exclusively with the Partnership;
(ii) such agreements, contracts or arrangements must be fair
to the Partnership and reflect commercially reasonable terms and shall
be embodied in a written contract which precisely describes the subject
matter thereof and all compensation to be paid therefor;
<PAGE>
(iii) no rebates or give-ups may be received by the General
Partner or any such Affiliate, nor may the General Partner or any such
Affiliate participate in any reciprocal business arrangements which
would have the effect of circumventing any of the provisions of this
Agreement;
(iv) no such agreement, contract or arrangement as to which
the Limited Partners had previously given approval may be amended in
such a manner as to increase the fees or other compensation payable by
the Partnership to the General Partner or any of its Affiliates or to
decrease the responsibilities or duties of the General Partner or any
such Affiliates in the absence of the Consent contemplated by Section
5.02B(iii); and
(v) any such agreement, contract or arrangement which relates
to or secures any funds advanced or loaned to the Partnership by the
General Partner or any Affiliate of the General Partner must reflect
commercially reasonable terms.
F. Notwithstanding anything to the contrary contained in this
Agreement, the General Partner shall have full power and authority, without the
Consent of the Limited Partners, (i) to form or organize one or more
Subsidiaries of the Partnership; (ii) to contribute any properties and assets or
interests therein to one or more Subsidiaries of the Partnership; (iii) to
undertake any action in connection with the Partnership's direct or indirect
investment in any such Subsidiary; (iv) to delegate authority to manage the
business and affairs of any Subsidiary of the Partnership to a governing entity
or other body (including, without limitation, a board of directors) other than
the General Partner; and (v) to exercise any of the powers of the General
Partner enumerated in this Agreement on behalf of, or in connection with, any
Subsidiary of the Partnership, or jointly with any such Subsidiary, or delegate
the exercise thereof pursuant to clause (iv) above. The term "Subsidiary" shall
mean any partnership, corporation, trust, limited liability company or other
entity that is not less than 99% owned, directly or indirectly, by the
Partnership, provided that no Subsidiary that is a corporation or otherwise is
not entitled to flow-through tax treatment under the Code can own directly the
Hotel or an interest that is greater than 1% in another Subsidiary that owns the
Hotel. A Subsidiary shall not be deemed an Affiliate of the General Partner for
the purposes of this Agreement. The term "Partnership" shall, as the context
requires, include each Subsidiary of the Partnership.
<PAGE>
SECTION 5.02. Restrictions on Authority of the General Partner.
A. Without the Consent of all the Limited Partners, the General
Partner shall not have authority on behalf of the Partnership to:
(i) do any willful act in contravention of this Agreement;
(ii)do any willful act which would make it impossible to
carry on the ordinary business of the Partnership;
(iii)confess a judgment in a material amount against the
Partnership;
(iv) convert property of the Partnership to its own use, or
assign any rights in specific property of the Partnership for other
than a purpose of the Partnership;
(v) admit a Person as a Limited Partner, except as provided
in this Agreement; or
(vi) perform any act that would subject any Limited Partner to
liability as a general partner in any jurisdiction or any other
liability except as provided for herein or under the Act.
B. Without the Consent of Limited Partners holding a majority of the
Units, the General Partner shall not have the authority on behalf of the
Partnership to:
(i) have the Partnership acquire interests in other
hotel properties in addition to the Hotel or in other entities;
(ii) sell or otherwise dispose of or consent to the sale or
disposition of the Hotel to the General Partner or an Affiliate of the
General Partner; provided, however, that if it is proposed that the
Partnership sell the Hotel to the General Partner or an Affiliate of
the General Partner, the following procedures shall also be followed:
(a) the General Partner shall first give notice of the proposed sale to
the Limited Partners who shall thereafter have 30 days within which to
elect a nationally recognized appraiser having the approval of Limited
Partners holding a majority of the Units, (b) the appraiser elected
under clause (a) above shall have 30 days from the date of election to
prepare and submit to the General Partner an appraisal of the fair
market value of the Hotel, (c) the purchaser shall submit to the
General Partner an appraisal of the fair market value of the Hotel,
such appraisal to be submitted within the time limit provided by clause
(b) above in the case of the appraisal to be submitted by the appraiser
elected by the Limited Partners, and (d) the General Partner shall
thereafter make formal request for the required Consent and in
connection therewith shall submit to the Limited Partners the two
appraisals contemplated by clauses (b) and (c) above; provided,
further, however, that if the Limited Partners do not elect an
appraiser as contemplated by clause (a) above or if such appraiser does
not supply an appraisal within the time period required by clause (b)
above, the General Partner will not request the Consent to the sale of
the Hotel to the General Partner or an Affiliate of the General Partner
unless such request is accompanied by three appraisals as to market
value of the Hotel, one such appraisal to be prepared by an appraiser
elected by the purchaser and the other two appraisals to be prepared by
appraisers elected by the first such appraiser, the cost of all such
appraisals to be borne by the purchaser;
<PAGE>
(iii) effect any amendment to any agreement, contract or
arrangement with the General Partner or any of its Affiliates which
reduces the responsibilities or duties of the General Partner as a
general partner of the Partnership or any of its Affiliates or which
increases the compensation payable to the General Partner or any of its
Affiliates, or which adversely affects the rights of the Limited
Partners;
(iv) incur debt of the Partnership in excess of the
limitations set forth in Section 5.01C(ii);
(v) agree to the addition of transient guest rooms at the
Hotel unless (a) the Hotel has had an average occupancy rate of at
least 68% for a period consisting of at least 12 consecutive months and
(b) the Partnership has obtained debt financing to finance the costs of
the addition on a nonrecourse basis as to all the Partners and the
Partnership (including the General Partner) except as provided in
Section 5.02B(ix) below;
(vi) except as otherwise provided in Section 5.02B(ix), incur
any debt of the Partnership which does not provide by its terms that it
shall be nonrecourse as to all the Partners;
(vii) make any election to continue beyond its term,
discontinue or dissolve the Partnership;
(viii) admit any other Person as a General Partner or
voluntarily withdraw as a General Partner except as necessary to
alleviate the negative effect of any Affected Items pursuant to Section
4.12; and
<PAGE>
(ix) guaranty, become personally liable or otherwise bear the
risk of loss, or permit any Affiliate to take any such action, with
respect to any portion of any Partnership debt otherwise permitted to
be incurred pursuant to the terms of this Agreement unless (a) the
General Partner, in accordance with its fiduciary duties as General
Partner and taking into consideration the tax consequences to the
Limited Partners, determines that such actions are in the best
interests of the Partnership and the Limited Partners, (b) assuming
operating results then projected through 2001 by the General Partner,
such action (1) will not cause any deficit in the Capital Account of
any Limited Partner at any time to exceed the sum of such Limited
Partner's obligation to make additional capital contributions and the
portion at such time of Minimum Gain that would be allocated to him on
sale of the Hotel and (2) in the opinion of tax counsel, will not at
any time cause the recognition or allocation of income or gain to the
Limited Partners not within the parameters of the forecast allocations
of income, gain, loss and deduction set forth in the Financial Forecast
in the Private Placement Memorandum, or (c) with respect to a guarantee
or incurrence of personal liability or a risk of loss by the General
Partner or its Affiliates aggregating $71,875,000 million or less, the
General Partner agrees to apply the procedures set forth in Section
4.12 as if any benefit to the General Partner (including the delay or
avoidance of the recognition of income) and any adverse tax
consequences to the Limited Partners resulting from such guaranty,
personal liability or bearing of risk of loss were attributable to
Proposed Regulations prior to 1992; provided, however, that the General
Partner's rights pursuant to this clause (c) are contingent on the
General Partner's ability to fully meet its obligations to make Capital
Contributions required under Section 4.12.
SECTION 5.03. Duties and Obligations of the General Partner.
A. The General Partner shall take all action which may be necessary or
appropriate for the development, maintenance, preservation and operation of the
properties and assets of the Partnership in accordance with the provisions of
this Agreement and applicable laws and regulations (it being understood and
agreed, however, that the direct performance of day-to-day management or
operational services for the Hotel and other properties of the Partnership is
not an obligation of the General Partner as general partner of the Partnership).
<PAGE>
B. The General Partner shall not (i) directly or through a subsidiary
engage in any business other than that of acting as general partner of the
Partnership, (ii) pay dividends or make other distributions or payments on its
stock or incur any obligations if, as a result, its net worth would be reduced
below the requirement of Section 5.03C, (iii) merge or consolidate with another
corporation except Host or a wholly-owned direct or indirect subsidiary of Host,
(iv) dissolve, or (v) borrow any funds or become liable for any obligations of
third parties except to the extent that any such borrowings or liabilities are
directly related to meeting the financial needs of the Partnership. The General
Partner further agrees that so long as the General Partner is the general
partner of the Partnership, its parent company, Host, will not transfer its
stock of the General Partner except to a wholly-owned, direct or indirect,
subsidiary of Host.
The General Partner shall devote to the Partnership such time as may be
necessary for the proper performance of its duties hereunder, but the officers
and directors of the General Partner shall not be required to devote their full
time to the performance of duties of the General Partner.
C. The General Partner shall use its reasonable best efforts to
maintain at all times a net worth at a level sufficient to meet all requirements
of the Code and applicable regulations, rulings and revenue procedures of the
IRS and to meet any future requirements set by Congress, the IRS, any agency of
the Federal government or any court of competent jurisdiction, to assure that
the Partnership will be classified for Federal income tax purposes as a
partnership and not as an association taxable as a corporation. These provisions
are designed to ensure that the equity capitalization of the General Partner
will be available to meet any legal obligations which the General Partner may
have in its role as the general partner of the Partnership.
D. The General Partner shall take such action as may be necessary or
appropriate in order to form or qualify the Partnership under the laws of any
jurisdiction in which the Partnership is doing business or owns property or in
which such formation or qualification is necessary in order to protect the
limited liability of the Limited Partners or in order to continue in effect such
formation or qualification. If required by law, the General Partner shall file
or cause to be filed for recordation in the office of the appropriate
authorities of the State of Delaware, and in the proper office or offices in
each other jurisdiction in which the Partnership is formed or qualified, such
certificates (including limited partnership and fictitious name certificates)
and other documents as are required by the applicable statutes, rules or
regulations of any such jurisdiction or as are necessary to reflect the identity
of the Partners and the amounts of their respective Capital Contributions.
<PAGE>
E. The General Partner shall be obligated to use its best efforts to
remove any General Partner or Affiliate guaranty, personal liability, and other
risk of loss with respect to any Partnership debt, which was permitted under
Section 5.02B(ix) hereof when such action was incurred, but which subsequently
results in adverse tax consequences to the Limited Partners and which would no
longer be permitted if first being incurred at the time of such adverse
consequences. The General Partner shall use its best efforts, in the conduct of
the Partnership's business, to put all suppliers and other Persons with whom the
Partnership does business on notice that the Limited Partners are not liable for
Partnership obligations, and all agreements to which the Partnership is a party
shall include a statement to the effect that the Partnership is a limited
partnership organized under the Act; but the General Partner shall not be liable
to any Limited Partner for any failure to give such notice to such suppliers or
other Persons or to have any such agreement fail to contain such statement.
F. The General Partner shall prepare or cause to be prepared and shall
file on or before the due date (or any extension thereof) any Federal, state or
local tax returns required to be filed by the Partnership. The General Partner
shall cause the Partnership to pay any taxes payable by the Partnership.
G. The General Partner shall be under a duty to conduct the affairs of
the Partnership in good faith and in accordance with the terms of this Agreement
and in a manner consistent with the purposes set forth in Section 2.03.
H. The General Partner shall use its best efforts to ensure that the
Partnership shall not be deemed an investment company as such term is defined in
the Investment Company Act of 1940.
SECTION 5.04. Compensation of the General Partner. The General Partner
as general partner of the Partnership shall not in such capacity receive any
salary, fees, profits or distributions except for such allocations or
distributions to which it may be entitled under Article Four, Article Five or
Article Eight. Notwithstanding the foregoing, however, the Partnership shall
reimburse the General Partner for the cost of providing any administrative or
other services required or contemplated by this Agreement.
<PAGE>
SECTION 5.05. Other Business of Partners. Any Limited Partner may
engage independently or with others in other business ventures of every nature
and description. Nothing in this Agreement shall be deemed to prohibit any
Affiliate of the General Partner from dealing, or otherwise engaging in business
with Persons transacting business with the Partnership or from providing
services relating to the purchase, sale, financing, management, development or
operation of hotels, motels, restaurants catering operations, including airline
catering operations, or other food and lodging facilities and receiving
compensation therefor. The relationship created hereby in or to such other
ventures or activities or to the income or proceeds derived therefrom, and the
pursuit of such ventures, even if competitive with the business of the
Partnership, shall not be deemed wrongful or improper. Neither the General
Partner nor any Affiliate of the General Partner shall be obligated to present
any particular opportunity to the Partnership even if such opportunity is of a
character which, if presented to the Partnership, could be taken by the
Partnership, and any Affiliate of the General Partner shall have the right to
take for its own account (individually or as a trustee, partner or fiduciary) or
to recommend to others any such particular opportunity.
SECTION 5.06. Limitation on Liability of General Partner;
Indemnification
A. Other than pursuant to Section 5.07, the General Partner shall not
be liable to the Partnership or any Limited Partner because any taxing authority
disallows or adjusts any deductions or credits in the Partnership income tax
return unless such action by the taxing authority is due to the negligence of
the General Partner. The indemnification under this subsection is not broader
than any other indemnification contained in this Section 5.06. The General
Partner shall not be liable for the return of the Capital Contributions of the
Limited Partners or for any portion thereof, it being expressly understood that
any return of capital shall be made solely from the assets of the Partnership;
nor shall the General Partner be required to pay to the Partnership or to any
Limited Partner any deficit in the Capital Account of any Partner upon
dissolution or otherwise, except as otherwise provided in Section 8.02E.
B. The General Partner shall have no liability, responsibility or
accountability in damages or otherwise to any other Partner or to the
Partnership for, and the Partnership agrees to indemnify, pay, protect and hold
harmless the General Partner (on the demand of and to the reasonable
satisfaction of the General Partner and to the extent permitted by law) from and
against any and all liabilities, losses, judgments, and expenses of any kind or
nature whatsoever (including, without limitation, all costs and expenses of
defense, appeal and settlement of any and all suits, actions or proceedings
threatened or instituted against the General Partner or the Partnership and all
costs of investigations in connection therewith) which may be imposed on,
incurred by, or assessed against the General Partner or the Partnership in any
way relating to or arising out of, or alleged to relate to or arise out of, any
action or inaction on the part of the Partnership, or on the part of the General
Partner as the General Partner of the Partnership including any action or
inaction in connection with the General Partner acting as Tax Matters Partner or
<PAGE>
Designated Person under Section 5.07; provided, that the General Partner shall
be liable, responsible and accountable, and the Partnership shall not be liable
to the General Partner for any portion of such liabilities, losses, judgments,
or expenses (including, without limitation, all costs and expenses of defense,
appeal and settlement of any and all suits, actions or proceedings threatened or
instituted against the General Partner or the Partnership and all costs of
investigations in connection therewith) which resulted from the General
Partner's own fraud, negligence, or other breach of fiduciary duty to the
Partnership or any Partner. The indemnification set forth above shall not
include advances by the Partnership to the General Partner for legal expenses
and other costs incurred by the General Partner as a result of any legal action
initiated against the General Partner by a Limited Partner. Said indemnification
shall include, however, advances by the Partnership to the General Partner for
legal fees and other costs incurred by the General Partner as a result of a
legal action initiated by a third party, who is not a Limited Partner, which
relates to the performance of the General Partner's duties or services. The
General Partner hereby agrees to repay any advances if the General Partner is
not otherwise entitled to be indemnified under this Agreement. The satisfaction
of the obligations of the Partnership under this Section 5.06 shall be from and
limited to the assets of the Partnership and no Limited Partner shall have any
personal liability on account thereof. The provisions of this indemnification
shall also extend to any person performing services on behalf of the Partnership
who is an officer, director, employee or owner of 10% or more of the voting
securities of the General Partner.
C. The General Partner shall have no liability or responsibility
hereunder to make loans, advances or additional Capital Contributions to the
Partnership except as specified in Section 3.04 and Section 4.12 and except as
may otherwise be provided as a matter of law or under the Mortgage Debt.
However, except for advances made pursuant to the Debt Service Guarantees and
Foreclosure Guarantee which will be repaid as noted below, to the extent the
General Partner advances any funds to meet any liabilities or obligations of the
Partnership, any such advances shall be deemed loans to the Partnership by the
General Partner [and shall accrue interest per annum at one percentage point in
excess of the Prime Rate payable in arrears on the first day of each Fiscal
Quarter and such amounts shall be due and payable upon that date which is the
fifth anniversary of the date on which any such advances were made]; provided,
however, that any and all such advances shall be paid prior to distributions to
Partners out of any Cash Available for Distribution to the Partners, upon the
liquidation of the Partnership, or the sale of the Hotel and the receipt by the
Partnership of the proceeds of such sale. Advances, if any, to the Partnership
by the General Partner or its Affiliates pursuant to the Debt Service Guarantees
or Foreclosure Guarantee will bear interest at one percentage point in excess of
the Prime Rate and will be paid as follows: (i) out of Partnership cash flow
after payment of Debt Service on the Mortgage Debt; (ii) out of Capital Receipts
before any distribution to the Partners; and (iii) in any event, not later than
December 31, 1997. Advances under the Debt Service Guarantees may be secured by
a mortgage on the Hotel junior to the Mortgage Debt.
<PAGE>
D. Notwithstanding the foregoing, the General Partner shall not be
indemnified by the Partnership for any losses, liabilities or expenses arising
from or out of an alleged violation of Federal and state securities laws unless
(i) there has been a successful adjudication in favor of the General Partner on
the merits of each count involving alleged securities law violations; or (ii)
such claims against the General Partner have been dismissed with prejudice on
the merits by a court of competent jurisdiction; or (iii) a settlement of the
claims is approved by a court of competent jurisdiction. Pursuant to that
certain Agency Agreement among the Partnership, the General Partner, the
Placement Agents and others, the Placement Agents are to receive certain
indemnifications. Such indemnifications, however, shall be limited to the same
extent that the General Partner's indemnifications are limited by this
subsection D. In any claim for indemnification for Federal or state securities
law violations, the party seeking indemnification shall place before the court
the position, if available, of the Securities and Exchange Commission and the
Massachusetts Securities Division with respect to the issue of indemnification
for securities law violation.
SECTION 5.07. Designation of Tax Matters Partner and Designated Person
for Purposes of Investor List
A. The General Partner shall act as the Tax Matters Partner of the
Partnership, as provided in regulations pursuant to section 6231 of the Code and
as the Designated Person for purposes of maintaining the Investor List. Each
Partner hereby approves of such designation and agrees to execute, certify,
acknowledge, deliver, swear to, file and record at the appropriate public
offices such documents as may be deemed necessary or appropriate to evidence
such approval.
B. To the extent and in the manner provided by applicable Code sections
and regulations thereunder, the Tax Matters Partner shall furnish the name,
address, profits, interest and taxpayer identification number of each Partner to
the IRS.
C. To the extent and in the manner provided by applicable Code sections
and regulations thereunder, the Tax Matters Partner shall inform each Partner of
administrative or judicial proceeding for the adjustment of Partnership items
required to be taken into account by a Partner for income tax purposes (such
administrative proceedings being referred to as a "tax audit" and such judicial
proceedings being referred to as "judicial review").
D. The Tax Matters Partner is authorized, but not required:
(a) to enter into any settlement with the IRS with
respect to any tax audit or judicial review, and in the
settlement agreement the Tax Matters Partner may expressly
state that such agreement shall bind all Partners except that
such settlement agreement shall not bind any Partner who
(within the time prescribed pursuant to the Code and
regulations thereunder) files a statement with the IRS
providing that the Tax Matters Partner shall not have the
authority to enter into a settlement agreement on behalf of
such Partner;
(b) in the event that a notice of a final
administrative adjustment at the Partnership level of any item
required to be taken into account by a Partner for tax
purposes (a "final adjustment") is mailed to the Tax Matters
Partner, to seek judicial review of such final adjustment,
including the filing of a petition for readjustment with the
Tax Court or the United States Claims Court, or the filing of
a complaint for refund with the District Court of the United
States for the district in which the Partnership's principal
place of business is located;
(c) to intervene in any action brought by any other
Partner for judicial review of a final adjustment;
<PAGE>
(d) to file a request for an administrative
adjustment with the IRS at any time and, if any part of such
request is not allowed by the IRS to file an appropriate
pleading (petition or complaint) for judicial review with
respect to such request;
(e) to enter into an agreement with the IRS to extend
the period for assessing any tax which is attributable to any
item required to be taken into account by a Partner for tax
purposes, or an item affected by such item; and
(f) to take any other action on behalf of the
Partners or the Partnership in connection with any tax audit
or judicial review proceeding to the extent permitted by
applicable law or regulations.
E. Notwithstanding any other provision of this Agreement, the
Partnership shall indemnify and reimburse, to the full extent provided by law,
the Tax Matters Partner for all expenses, including legal and accounting fees
(as such fees are incurred), claims, liabilities, losses and damages incurred in
connection with any tax audit or judicial review proceeding with respect to the
tax liability of the Partners, the payment of all such expense shall be made
before the distribution of Cash Available for Distribution to the Partners.
Neither the General Partner nor any of its Affiliates nor other person shall be
obligated to provide funds for such purpose.
The taking of any action and the incurring of any expense by the Tax
Matters Partner in connection with any such proceeding, except to the extent
required by law, is a matter in the sole discretion of the Tax Matters Partner
and the provisions on limitations of liability of the General Partner and
indemnification set forth in Section 5.06 of this Agreement shall be fully
applicable to the Tax Matters Partner in its capacity as such. The
indemnification under this subsection is no broader than any other
indemnification contained in Section 5.06.
<PAGE>
ARTICLE SIX
WITHDRAWAL AND REMOVAL OF GENERAL PARTNER
SECTION 6.01. Limitation on Voluntary Withdrawal. Except as permitted
in Section 5.02B, the General Partner shall not retire or withdraw voluntarily
from the Partnership. The General Partner shall not sell, transfer or assign its
entire general partnership Interest or any portion thereof other than as
provided below. The General Partner shall be permitted to assign its rights to
up to 80% of its interest in the Net Profits, Net Losses, Losses, Gain, Cash
Available for Distribution, Capital Receipts and other allocations and
distributions. The General Partner shall not be permitted to assign such rights
unless the General Partner receives an opinion of counsel that such assignment
shall not cause any adverse tax consequences to the Partnership or the Limited
Partners or cause a default under any Partnership debt obligation.
Notwithstanding anything to the contrary set forth in this Agreement,
notwithstanding the assignment by the General Partner of its Interest in the
Partnership, upon any such assignment (i) the General Partner shall not cease to
be a general partner of the Partnership, and shall continue to be a general
partner of the Partnership, and (ii) the General Partner shall not cease to have
any and all rights and powers of a general partner under this Agreement and the
Act and the power to exercise any and all rights and powers of a general partner
under this Agreement and the Act and shall continue to have any and all such
rights and powers and the assignee shall not acquire any such rights and powers
of a general partner.
SECTION 6.02. Bankruptcy or Dissolution of the General Partner. In the
event of the bankruptcy or dissolution of the General Partner, the General
Partner shall immediately cease to be the General Partner and its Interest shall
terminate; provided, however, that such termination shall not affect any rights
or liabilities of the General Partner which matured prior to such event, or the
value, if any, at the time of such event of the Interest of the General Partner.
SECTION 6.03. Liability of Withdrawn General Partner. If the General
Partner shall cease to be the General Partner of the Partnership, it shall be
and remain liable for all obligations and liabilities incurred by it as General
Partner prior to the time such withdrawal shall have become effective, but it
shall be free of any obligation or liability incurred on account of the
activities of the Partnership from and after the time such withdrawal shall have
become effective.
<PAGE>
SECTION 6.04. Removal of General Partner. In the event of the
removal of the General Partner pursuant to
Section 10.02B, the removed General Partner's Interest as General Partner in the
Partnership shall become a limited partnership interest but without any voting
or consensual rights which other Limited Partners may have.
SECTION 6.05. Substitute General Partner. If the General Partner shall
withdraw, be removed, dissolve or become bankrupt, it shall promptly notify the
Limited Partners and thereafter the Limited Partners may elect by written vote
of Limited Partners holding all of the Units within 90 days of such withdrawal,
removal, dissolution or bankruptcy to continue the Partnership and appoint a
substitute general partner effective as of the withdrawal, removal, dissolution
or bankruptcy of the retiring General Partner. Within 120 days following the
withdrawal, removal, dissolution or bankruptcy of the General Partner, in the
event action pursuant to this Section 6.05 is not taken, the Limited Partners,
acting by affirmative vote of a majority in interest thereof, may elect in
writing to reconstitute and continue the business of the Partnership by forming
a new partnership upon terms identical to the terms set forth in this Agreement.
Any such election must also provide for the election of a general partner to the
new partnership. If such an election is made, all of the Limited Partners of the
Partnership shall continue as Limited Partners of the new limited partnership.
ARTICLE SEVEN
ASSIGNABILITY OF UNITS
SECTION 7.01. Restrictions on Assignments
After the admission to the Partnership of the Limited Partners, no
Limited Partner shall have the right to assign any Interest except with the
Consent of the General Partner, the giving or withholding of which is
exclusively within the discretion of the General Partner, and provided further
that:
A. No assignment of any Interest may be made other than on the
first day of an Accounting Period.
B. 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.
<PAGE>
C. The General Partner may require that any assignment of an Interest
in the Partnership be made only if the assignor or assignee provides an opinion
of counsel that such assignment would not require filing of a registration
statement under the Securities Act of 1933, as amended, and would otherwise not
be in violation of any Federal or state securities or Blue Sky laws (including
any investment suitability standards) applicable to the Partnership. At any time
within one year of the closing of the sale of the Units, the General Partner
will require such an opinion of counsel for any assignment.
D. No purported assignment by the holder of any Unit after which the
assignor or the assignee would hold a fraction of a Unit (other than a one-half
Unit) will be permitted or recognized (except for assignments by gift,
inheritance or family dissolution or assignments to Affiliates of the assignor).
E. No assignment of any Interest may be made if, in the opinion of
legal counsel to the Partnership, it would result in the Partnership being
treated as an association taxable as a corporation.
F. No assignment of any Interest may be made if, in the opinion of
legal counsel to the Partnership, it would result in the Partnership not being
able to obtain or continue in effect any license permitting the service or sale
of alcoholic beverages in the Hotel.
G. No assignment of any Interest may be made to a Tax-Exempt Entity
including, without limitation, foreign persons and entities.
SECTION 7.02. Assignees and Substituted Limited Partners
A. If a Limited Partner dies, the executor, administrator or trustee,
or, if a Limited Partner is adjudicated incompetent or insane, the committee,
guardian or conservator, or, if a Limited Partner becomes bankrupt, the trustee
or receiver of the estate, shall have all the rights of a Limited Partner for
the purpose of settling or managing the estate and such power as the decedent or
incompetent possessed to assign all or any part of the Units and to join with
the assignee thereof in satisfying conditions precedent to such assignee
becoming a Substituted Limited Partner. The death, dissolution, adjudication of
incompetence or bankruptcy of a Limited Partner in and of itself shall not
dissolve the Partnership.
B. The Partnership need not recognize for any purpose any assignment of
any Interest unless there shall have been filed with the Partnership a duly
executed and acknowledged counterpart of the instrument making such assignment
signed by both the assignor and the assignee and such instrument evidences the
written acceptance by the assignee of all of the terms and provisions of this
Agreement and represents that such assignment was made in accordance with all
applicable laws and regulations (including investment suitability requirements).
<PAGE>
C. Limited Partners who shall assign all their Interests shall cease to
be Limited Partners of the Partnership except that unless and until a
Substituted Limited Partner is admitted in his stead, the assigning Limited
Partner shall not cease to be a Limited Partner of the Partnership and shall
retain the statutory rights and powers of a limited partner under the Act.
D. Any Person who is an assignee of any of the Interests of a Limited
Partner and who has satisfied the requirements of Section 7.01 and Section 7.02B
shall become a Substituted Limited Partner when the General Partner has accepted
such Person as a Limited Partner of the Partnership and the books and records of
the Partnership reflect such Person as admitted to the Partnership as a Limited
Partner and when such Person shall have satisfied the conditions of Section
11.02A and shall have paid all reasonable legal fees and filing costs in
connection with the substitution as a Limited Partner; provided, however, that
the General Partner's consent to the substitution of any assignee of an Interest
as a Substituted Limited Partner may be granted or withheld in its sole
discretion.
E. Any Person who is the assignee of an Interest of a Limited Partner,
but who does not become a Substituted Limited Partner and desires to make a
further assignment of any such Interests, shall be subject to all the provisions
of this Article Seven to the same extent and in the same manner as any Limited
Partner desiring to make an assignment of the Interests.
F. There shall be no restrictions on the assignments of Interests
except as provided in Article Six or this Article Seven.
ARTICLE EIGHT
DISSOLUTION AND LIQUIDATION OF THE PARTNERSHIP
SECTION 8.01. Events Causing Dissolution
A. The Partnership shall be dissolved on the first to occur of
the following events:
(i) the bankruptcy of the Partnership;
(ii) the withdrawal or removal of the General Partner, unless
the Partnership is continued pursuant to Section 6.05;
(iii) the dissolution or bankruptcy of the General Partner,
unless the Partnership is continued pursuant to Section 6.05;
(iv) the sale or other disposition of all of the property
of the Partnership; or
(v) the expiration of the term of the Partnership.
<PAGE>
Dissolution of the Partnership shall be effective on the day on which
the event occurs giving rise to the dissolution. The Partnership shall not
terminate until the assets of the Partnership shall have been liquidated as
provided in Section 8.02. Notwithstanding the dissolution of the Partnership,
prior to the termination of the Partnership, as aforesaid, the business of the
Partnership and the affairs of the Partners as such, shall continue to be
governed by this Agreement.
B. Except as otherwise provided in Section 8.02E, Partners shall look
solely to the assets of the Partnership for all distributions with respect to
the Partnership and their Capital Contribution thereto, and shall have no
recourse therefor (upon dissolution or otherwise) against the General Partner or
any Limited Partner.
SECTION 8.02. Liquidation
A. Upon dissolution of the Partnership, the General Partner shall
liquidate the assets of the Partnership and the proceeds of such liquidation
shall be applied and distributed in the following order of priority:
(i) to the payment of the expenses of the liquidation;
(ii) to the payments of Partnership Debt and all other
liabilities of the Partnership owing to creditors of the Partnership
other than Partners who are creditors;
(iii) to the payment of any loans or advances that may have
been made by any of the Partners to the Partnership; and
(iv) pro rata to the General Partner and to the Limited
Partners to reduce any net balances then existing in the Capital
Accounts of the Partners.
B. Notwithstanding the foregoing, in the event the General Partner
shall determine that an immediate sale of all or part of the Partnership assets
would cause undue loss to the Partners, the General Partner, in order to avoid
such loss, may, after having given notification to all the Limited Partners, to
the extent not then prohibited by the limited partnership act of any
jurisdiction in which the Partnership is then formed or qualified and applicable
in the circumstances, either defer liquidation of and withhold from distribution
for a reasonable time any assets of the Partnership except those necessary to
satisfy the Partnership's debts and obligations, or distribute the assets of the
Partnership in kind.
<PAGE>
C. If any assets of the Partnership are to be distributed in kind, such
assets shall be distributed on the basis of the fair market value thereof, and
any Partner entitled to any interest in such assets shall receive such interest
therein as a tenant-in-common with all other Partners so entitled. The fair
market value of such assets shall be determined by an independent appraiser to
be selected by the General Partner by random number from a list of three
qualified appraisers obtained by the General Partner from the American Institute
of Real Estate Appraisers.
D. The General Partner shall cause the liquidation and distribution of
all the Partnership's assets and shall cause the cancellation of the
Partnership's certificate of limited partnership upon completion of winding up
the business of the Partnership.
E. Upon a dissolution of the Partnership if, after giving effect to
Sections 8.02A through 8.02D hereof for the Fiscal Year in which such
dissolution occurs, there shall be a deficit in the Capital Account of the
General Partner, while there is a positive balance in the capital account of any
other Partner, the General Partner shall contribute to the Partnership (in cash)
the amount of such deficit, which thereupon shall be distributed by the
Partnership pro rata to any Partner possessing a positive balance in his capital
account. Such contribution by the General Partner is to be made to the
Partnership not later than the close of the taxable year in which the
dissolution occurs.
ARTICLE NINE
BOOKS AND RECORDS, ACCOUNTING, REPORTS, TAX ELECTIONS, ETC.
SECTION 9.01. Bood and Records. The books and records of the
Partnership shall be maintained by the General Partner in accordance with
applicable law at the principal office of the Partnership and shall be available
for examination at such location by any Partner or such Partner's duly
authorized representatives at any and all reasonable times for any purpose
reasonably related to the Partner's interest in the Partnership. Any Partner,
upon paying the costs of collating, duplication and mailing, shall be entitled,
upon written application to the General Partner, to a copy of the list of the
names and addresses of the Limited Partners and the number of Units owned by
each of them for any purpose reasonably related to the Partners' interests in
the Partnership.
SECTION 9.02. Accounting and Fiscal Year. The books of the Partnership
will be kept on the accrual basis. The Partnership will report its operations
for tax purposes on the accrual method. The Fiscal Year of the Partnership shall
end December 31 in each year.
SECTION 9.03. Bank Accounts and Investments. The bank accounts of the
Partnership shall be maintained in such banking institutions as the General
Partner shall determine, and withdrawals shall be made only in the regular
course of Partnership business on such signature or signatures as the General
Partner may determine. All deposits and other funds not needed in the operation
of the business or not yet invested may be invested as provided in Section 5.01C
or in U.S. government securities, securities issued or guaranteed by U.S.
government agencies, securities issued or guaranteed by states or
municipalities, certificates of deposit and time or demand deposits in
commercial banks, bankers' acceptances, savings and loan association deposits or
deposits in members of the Federal Home Loan Bank System. The funds of the
Partners shall not be commingled with the funds of any other Person.
<PAGE>
SECTION 9.04. Reports. The General Partner shall deliver to each
Partner the following:
A. As soon as practicable but in no event later than 75 days after the
end of each Fiscal Year of the Partnership, such information as shall be
necessary for the preparation by such Partner of a Federal income tax return,
and state income or other tax returns with regard to the jurisdictions in which
the Hotel is located. Such information shall include computation of the
distributions to such Partner and the allocation to such Partner of the Net
Profits or Net Losses, as the case may be, the Gain or Loss, as the case may be,
recognized by or allocated to the Partnership on the sale of the Hotel or other
Partnership properties during such Fiscal Year; and
B. Within 120 days after the end of each Fiscal Year of the
Partnership, a statement prepared by the General Partner on an accrual basis of
accounting which statement is to be audited and certified by a firm of
independent public accountants selected by the General Partner, setting forth
its opinion as to the items in clauses (i) and (ii) below, which statement shall
set forth the following:
(i) a statement of assets, liabilities and Partners' capital,
a statement of income and expenses on an accrual basis and a statement
of cash flows, and a statement of changes in Partners' capital;
(ii) the balances in the Capital Accounts of the Limited
Partners in the aggregate and of the General Partner;
(iii) a report (which need not be audited) summarizing the
fees, commissions, compensation and other remuneration and reimbursed
expenses paid by the Partnership for such Fiscal Year to the General
Partner or any Affiliate of the General Partner and the services
performed; and
(iv) a budget (which need not be audited) setting forth the
expected Net Profits and Net Losses per Unit, for the current Fiscal
Year.
C. Within 75 days after the end of each of the first three Fiscal
Quarters of each Fiscal Year of the Partnership, the General Partner shall send
to each Person who was a Limited Partner at any time during the Fiscal Quarter
then ended (i) a balance sheet (which need not be audited) and (ii) a profit and
loss statement (which need not be audited) and any other pertinent information
regarding the Partnership and its activities during the period covered by the
report.
D. Concurrent with the report sent pursuant to Section 9.04C for the
third Fiscal Quarter of each Fiscal Year, the Partner will be furnished an
estimate of Net Profits or Net Losses per Unit for such Fiscal Year.
E. The General Partner may prepare and deliver to the Limited Partners
from time to time in its sole discretion during each Fiscal Year, in connection
with cash distributions, unaudited statements showing the results of operations
of the Partnership to the date of such statement.
F. The General Partner shall prepare and file such registration
statements, annual reports, quarterly reports, current reports, proxy statements
and other documents, if any, as may be required under the Securities Exchange
Act of 1934 and the rules and regulations of the Securities and Exchange
Commission thereunder.
<PAGE>
SECTION 9.05. Tax Depreciation and Elections
A. With respect to all depreciable assets of the Partnership, the
General Partner may, in its sole discretion, elect to use such depreciation
method for Federal tax purposes as it deems appropriate and in the best interest
of the Partners generally.
B. The General Partner shall be permitted in any Fiscal Year to make an
election under section 754 of the Code and such other tax elections as it may
from time to time deem necessary or appropriate.
SECTION 9.06. Interim Closing of the Books. There shall be an interim
closing of the books of account of the Partnership (i) at the date of the
admission to the Partnership of the Original Limited Partners, (ii) at any time
a taxable year of the Partnership ends pursuant to the Code and (iii) at such
other times as the General Partner shall determine are required by good
accounting practice or may be appropriate under the circumstances.
ARTICLE TEN
MEETINGS AND VOTING RIGHTS OF LIMITED PARTNERS
SECTION 10.01. Meetings
A. Meetings of the Limited Partners for any purpose may be called by
the General Partner and shall be called by the General Partner upon receipt of a
request in writing signed by Limited Partners holding 10% or more of the Units.
Notification of any such meeting shall be sent to the Limited Partners within 10
business days after receipt of such a request. Such request or any notification
from the General Partner shall state the purpose of the proposed meeting and the
matters proposed to be acted upon thereat. Such meeting may be held at the
principal office of the Partnership or at such other location within the United
States as the General Partner may deem appropriate or desirable. In addition,
the General Partner may, and upon receipt of a request in writing signed by
Limited Partners holding 25% or more of the Units, the General Partner shall
submit any matter (upon which the Limited Partners are entitled to act) to the
Limited Partners for a vote by written Consent without a meeting.
B. Notification of any such meeting shall be given not less than 10
days nor more than 60 days before the date of the meeting, to the Limited
Partners at their record addresses, or at such other address which they may have
furnished in writing to the General Partner. Such Notification shall be in
writing, and shall state the place, date, hour and purpose of the meeting, and
shall indicate that it is being issued at or by the direction of the Partner or
Partners calling the meeting. If a meeting is adjourned to another time or
place, and if any announcement of the adjournment of time or place is made at
the meeting, it shall not be necessary to give Notification of the adjourned
meeting. The presence in person or by proxy of Limited Partners holding a
majority of the Units (which, in the case of an Interested Transaction, must
<PAGE>
include a majority of the Units held by Limited Partners other than the General
Partner and its Affiliates) shall constitute a quorum at all meetings of the
Limited Partners; provided, however, that if there be no such quorum, Limited
Partners holding a majority of the Units so present or so represented may
adjourn the meeting from time to time without further notice, until a quorum
shall have been obtained. No Notification of the time, place or purpose of any
meeting of Limited Partners need be given to any Limited Partner who attends in
person or is represented by proxy (except when a Limited Partner attends a
meeting for the express purpose of objecting at the beginning of the meeting to
the transaction of any business on the ground that the meeting is not lawfully
called or convened), or to any Limited Partner entitled to such notice who, in a
writing executed and filed with the records of the meeting, either before or
after the time thereof, waives such Notification.
C. For the purpose of determining the Limited Partners entitled to vote
at any meeting of the Partnership or any adjournment thereof, or entitled to
Consent to any matter upon which the Limited Partners are entitled to act by
written Consent without a meeting, the General Partner or the Limited Partners
requesting such meeting may fix, in advance, a date as the record date for any
such determination of Limited Partners. Such date shall be not more than 60 days
nor less than 10 days before any such meeting.
D. The Limited Partners may authorize any Person to act for them by
proxy in all matters in which a Limited Partner is entitled to participate,
whether by waiving notice of any meeting, or voting or participating at a
meeting. Every proxy must be signed by the Limited Partner or the Partner's
attorney-in-fact. No proxy shall be valid beyond the period permitted by law.
Every proxy shall be revocable at the pleasure of the Limited Partner executing
it.
E. At each meeting of Limited Partners, the General Partner shall
appoint such officers and adopt such rules for the conduct of such meeting as
the General Partner shall deem appropriate.
F. As and to the extent that the Securities Exchange Act of 1934 is
applicable to the procedural rules governing any meeting of Limited Partners
(including any proxies or proxy statement related thereto), the provisions of
such Act shall take precedence over any provision of this Section 10.01 which
may be inconsistent therewith.
<PAGE>
G. If any Consents, determinations or votes of Limited Partners, with
or without a meeting, are to be requested, made or taken with respect to an
Interested Transaction, Units held by, the General Partner or any of its
Affiliates (other than officers, directors or employees of the General Partner
or any of its Affiliates) shall be voted in the same manner as the vote of
Limited Partners holding, in their capacity as Limited Partners and not as
assignees, a majority of the outstanding Units actually voting on the Interested
Transaction (not including those Units held by the General Partner or any of its
Affiliates other than officers, directors or employees of the General Partner or
any of its Affiliates); provided, however, that no Interested Transaction shall
be deemed to be approved unless a majority of the Units held by Limited Partners
other than the General Partner and its Affiliates are present in person or by
proxy at the meeting at which such Interested Transaction is considered, or, if
written consents are sought with respect to such Interested Transaction,
consents representing a majority of the Units held by Limited Partners other
than the General Partner and its Affiliates are returned and not withdrawn prior
to the expiration of the consent solicitation period. With respect to all
matters other than an Interested Transaction, the General Partner and its
Affiliates may vote Units held by them as Limited Partners in their sole and
absolute discretion.
SECTION 10.02. Special Voting Rights of Limited Partners
A. If at any time any agreement (including the Hotel Operating Lease,
if the Operating Tenant is an Affiliate of the General Partner) pursuant to
which operating management of any property of the Partnership is vested in the
General Partner or an Affiliate of the General Partner or in Marriott
International, Inc. or any of its Affiliates and if pursuant to the terms of
such agreement the Partnership has a right to terminate such agreement as a
result of the failure of the operation of such property to attain any economic
objective, the Limited Partners, without the Consent of the General Partner,
may, upon the affirmative vote of Limited Partners holding a majority of the
Units, take action to exercise the right of the Partnership to terminate such
agreement.
B. To the extent not inconsistent with applicable law, in the event
that the General Partner has breached its obligations under Section 5.03B, has
committed any act of fraud or has committed and not, within a reasonable period
of time, remedied any act of bad faith or gross negligence in carrying out its
duties as the general partner, Limited Partners holding a majority of the Units
may, without the Consent of the General Partner, vote to:
(i) amend this Agreement, provided, however, that the
allocable percentage interests of the Partners in the allocations set
forth in Article Four may not be altered, and no new material
obligation may be imposed on any Partner without such Partner's
approval;
<PAGE>
(ii) dissolve the Partnership; or
(iii) remove the General Partner.
ARTICLE ELEVEN
MISCELLANEOUS PROVISIONS
SECTION 11.01. Appointment of General Partner as Attorney-in-Fact
A. Each Limited Partner, including each Substituted Limited Partner, by
the execution and delivery of this Agreement, irrevocably constitutes and
appoints the General Partner and the President, any Vice President, Secretary,
Treasurer, Assistant Secretary and Assistant Treasurer of any corporate General
Partner as his true and lawful attorney-in-fact with full power and authority in
such Limited Partner's name, place, and stead to execute, acknowledge, deliver,
swear to, file, and record at the appropriate public offices such documents as
may be necessary or appropriate to carry out the provisions of this Agreement,
including but not limited to:
(i) all counterparts of this Agreement, and any amendment or
restatement thereof, including all certificates and instruments, which
the General Partner deems appropriate to form, qualify or continue the
Partnership as a limited partnership (or a partnership in which the
Limited Partners will have limited liability comparable to that
provided by the Act) in the jurisdictions in which the Partnership may
conduct business or in which such formation, qualification or
continuation is, in the opinion of the General Partner, necessary or
desirable to protect the limited liability of the Limited Partners;
(ii) all amendments to this Agreement adopted in accordance
with the terms hereof and all instruments which the General Partner
deems appropriate to reflect a change or modification of the Agreement
in accordance with the terms hereof;
(iii) all documents or instruments which the General Partner
deems appropriate to reflect the admission of a Limited Partner
(including any Substituted Limited Partner), in accordance with this
Agreement, the dissolution of the Partnership, sales or transfers of
Partnership property, sales or transfers of Interests, or the initial
amount or increase or reduction in amount of any Partner's Capital
Contribution or reduction in any Partner's Capital Account;
(iv) any instrument or document requested by the Partnership
or any purchaser of the Interest of a Defaulting Limited Partner under
the provisions of Section 3.05 of this Agreement;
(v) all documents, including but not limited to financing
statements, necessary or appropriate to perfect and continue the
Partnership's security interest in such Limited Partner's Interest; and
(vi) any instrument, certificate or document to implement the
provisions of Section 5.01C(vii).
<PAGE>
B. The appointment by all Limited Partners of the General Partner and
the aforesaid officers of any corporate General Partner as attorney-in-fact
shall be deemed to be a power coupled with an interest, in recognition of the
fact that each of the Partners under this Agreement will be relying upon the
power of the General Partner to act as contemplated by this Agreement in any
filing and other action by it on behalf of the Partnership, and shall survive,
and not be affected by the subsequent bankruptcy, death, incapacity, disability,
adjudication of incompetence or insanity, or dissolution of any Person hereby
giving such power and the transfer or assignment of all or any part of the Units
or Interest of such Person; provided, however, that in the event of the transfer
by a Limited Partner of all of such Limited Partner's Interest, the foregoing
power of attorney of a transferor Partner shall survive such transfer only until
such time as the transferee shall have been admitted to the Partnership as a
Substituted Limited Partner and all required documents and instruments shall
have been duly executed, filed and recorded to effect such substitution.
SECTION 11.02 Amendments
A. Each Limited Partner, Substituted Limited Partner and any successor
General Partner shall become a signatory hereof by signing such number of
counterpart signature pages to this Agreement and such other instrument or
instruments, and in such manner, as the General Partner shall determine. By so
signing, each Limited Partner, Substituted Limited Partner or successor General
Partner, as the case may be, shall be deemed to have adopted, and to have agreed
to be bound by all the provisions of, this Agreement subject to the provisions
of Section 7.02D.
B. In addition to the amendments otherwise authorized herein,
amendments may be made to this Agreement from time to time by the General
Partner with the Consent of the holders of a majority of the Units; provided,
however, that without the Consent of all Partners, this Agreement may not be
amended so as to (i) convert the Interest of a Limited Partner into a general
partner's Interest; (ii) modify the limited liability of a Limited Partner;
(iii) alter the Interest of a Partner in Net Profits, Net Losses, or Gain or
Loss or distributions of Cash Available for Distribution, Sale Proceeds,
Refinancing Proceeds or change the percentage of Partners which is required to
Consent to any action hereunder; (iv) modify the liability of the General
Partner as provided in Section 3.08; (v) permit the General Partner to take any
action prohibited by Section 5.02; (vi) cause the Partnership to be treated for
Federal income tax purposes as an association taxable as a corporation; or (vii)
effect any amendment or modification to this Section 11.02B.
C. If this Agreement shall be amended as a result of adding or
substituting a Limited Partner, the amendment to this Agreement shall be signed
by the General Partner and by the Person to be substituted or added and, if a
Limited Partner is to be substituted, by the assigning Limited Partner. If this
Agreement shall be amended to reflect the withdrawal or removal of the General
Partner when the business of the Partnership is being continued, such amendment
shall be signed by the withdrawing General Partner (and the General Partner
hereby so agrees) and by the successor General Partner.
<PAGE>
D. In making any amendments, there shall be prepared and filed for
recordation by the General Partner such documents and certificates as shall be
required to be prepared and filed, no such filing being required solely by
reason of this Agreement, under the Act and under the laws of the other
jurisdictions under the laws of which the Partnership is then formed or
qualified, not less frequently, in the case of a substitution of a Limited
Partner, than once each calendar quarter.
F. The General Partner may, without the Consent of the Limited
Partners, make any amendment to this Agreement as is necessary to clarify the
provisions hereof so long as such amendment does not adversely affect the rights
of the Limited Partners or assignees of their Interests under this Agreement in
any material respect.
SECTION 11.03. General Partner Representations and Warranties. The
General Partner represents that the Partnership shall not incur the cost of any
insurance which insures any party against any liability as to which such party
is prohibited from being indemnified under this Agreement.
SECTION 11.04. Binding Provisions. The covenants and agreements
contained herein shall be binding upon, and inure to the benefit of, the heirs,
executors, administrators, personal representatives, successors and assigns of
the respective parties hereto.
SECTION 11.05. Applicable Law. This Agreement shall be construed and
enforced in accordance with the laws of the State of Delaware.
SECTION 11.06. Counterparts. This Agreement may be executed in several
counterparts, all of which together shall constitute one agreement binding on
all parties hereto, notwithstanding that all the parties have not signed the
same counterpart.
SECTION 11.07. Separability of Provision. Each provision of this
Agreement shall be considered separable and if for any reason any provision or
provisions hereof are determined to be invalid and contrary to any existing or
future law, such invalidity shall not impair the operation of or affect those
portions of this Agreement which are valid.
<PAGE>
SECTION 11.08. Article and Section Titles. Article and section titles
are for descriptive purposes only and shall not control or alter the meaning of
this Agreement as set forth in the text.
SECTION 11.09. Short-Form Filings. The General Partner shall have
authority to sign any short-form Certificate of Limited Partnership or restated
or amended Certificate of Limited Partnership meeting the requirement of
applicable law which reflects this Agreement, as same may be amended.
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first above written.
GENERAL PARTNER:
MARRIOTT DESERT SPRINGS CORPORATION
By
LIMITED PARTNERS:
All Limited Partners
now and hereafter admitted to the
Partnership as limited partners of the
Partnership pursuant to powers of
attorney now and hereafter executed in
favor of and delivered to the General
Partner.
By: MARRIOTT DESERT SPRINGS CORPORATION
as Attorney-in-Fact for all the Limited
Partners
By
<PAGE>
ACKNOWLEDGEMENT
STATE OF NEW YORK )
COUNTY OF )
On this day of , 1997,
before me personally appeared , to me known,
who, first by me duly sworn, did depose seal and say that he is the Vice
President of Marriott Desert Springs Corporation that he knows the seal of such
corporation and that such seal hereto affixed is such seal and that it was so
affixed by order of the Board of Directors of Marriott Desert Springs
Corporation and that he signed his name thereof on behalf of the General Partner
by order of the Board of Directors of Marriott Desert Springs Corporation.
<PAGE>
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official
seal the day and year in this certificate first above written.
(SEAL) Notary Public for:
My Commission Expires:
<PAGE>
ACKNOWLEDGEMENT
STATE OF NEW YORK )
COUNTY OF )
On this day of , 1997,
before me personally appeared
, to me known,
who, first by me duly sworn, did depose and say that he is the Vice President of
Marriott Desert Springs Corporation that he knows the seal of such corporation
and that such seal hereto affixed is such seal and that it was so affixed by
order of the Board of Directors of Marriott Desert Springs Corporation, and that
he signed his name thereto on behalf of the General Partner as attorney in fact
for all the Limited Partners of the Partnership.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official
seal the day and year in this certificate first above written.
(SEAL) Notary Public for:
My Commission Expires:
<PAGE>
Exhibit A
$75,000 per Unit _______________, 1987
__________ Units
LIMITED PARTNER NOTE
FOR VALUE RECEIVED, the undersigned promises to pay to the order of
Desert Springs Marriott Limited Partnership, a Delaware limited partnership (the
"Partnership") at its offices at 10400 Fernwood Road, Bethesda, MD 20058, or at
such other place as the holder hereof from time to time shall designate in
writing to the undersigned, the principal sum of Seventy Five Thousand Dollars
($75,000) per Unit for the number of Units set forth above, without interest, in
the following installments per Unit at the following times:
<TABLE>
<S> <C>
Due Date Amount
June 15, 1988............................................ $30,000 per Unit for
the number of Units
set forth above
June 15, 1989............................................ $25,000 per Unit for
the number of Units
set forth above
June 15, 1990............................................ $20,000 per Unit for
the number of Units
set forth above
</TABLE>
In the event the undersigned fails to pay in lawful money of the United
States of America any amount which he is required to pay to the Partnership on
or before the 20th day following the date when such amount is due and payable, a
late payment fee of five percent (5%) of the amount of the overdue payment shall
be added to the amount due. If default shall continue beyond 30 days after
notice thereof to the undersigned, in addition to the aforesaid late charge, the
unpaid portion of such installment shall bear interest from the due date of such
installment until paid in full at a rate equal to the lesser of four percentage
points in excess of the base rate of interest announced from time-to-time by
<PAGE>
Bankers Trust Company, New York, New York, charged to its best commercial
customers, or the maximum rate permitted by law. In no event may the late
charge, if deemed to be interest under law, when added to any interest exceed
the rate permitted by law. If the default continues beyond 30 days after notice
thereof to the undersigned, the general partner of the Partnership (the "General
Partner") shall also have the option of accelerating the payment of the entire
unpaid balance of the note, and exercising all of the Partnership's rights and
remedies under the provisions of the Amended and Restated Agreement of Limited
Partnership (the "Partnership Agreement"), as hereinafter defined.
The undersigned shall have the right to repay, in whole or in part, at
any time, the unpaid principal balance to this note.
All the provisions of the Partnership Agreement regarding this note are
incorporated herein by reference.
The undersigned agrees that in the event his subscription for a limited
partnership interest in the Partnership is reduced, this note may be modified by
the General Partner in its sole discretion, to reflect a corresponding reduction
of the principal amount hereof, and the General Partner shall allocate such
reduction equally among the installment payments due under this note.
This note may not be modified orally, and shall be governed by,
enforced, determined and construed in accordance with the laws of the State of
Delaware. The undersigned hereby consents to the non-exclusive jurisdiction and
venue of the courts of the State of Delaware and of the United States for the
District of Delaware in connection with the collection of this note or any
matter relating thereto and hereby irrevocably appoints the General Partner as
its agent to receive service of process in the State of Delaware in connection
with any such matter.
In the event of default, the undersigned agrees to pay the costs of
collection, including, without limitation, reasonable attorneys' fees and
disbursements and court costs.
The undersigned waives presentment, demand for payment, notice of
dishonor, notice of protest, protest and all other notices or demands in
connection with the delivery, acceptance, performance, default, endorsement or
guaranty of this instrument, except as set forth in the Partnership Agreement.
No failure or delay by the holder of this note in exercising any right, power or
privilege hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise thereof or course of dealing preclude any other or further
exercise thereof or the exercise of any other right, power or privilege.
<PAGE>
To secure repayments of the outstanding amounts hereunder, the
undersigned has, pursuant to the Partnership Agreement, hereby granted to the
Partnership a security interest in all of the undersigned's right, title and
interest in the undersigned's limited partnership interest in the Partnership.
In the event that this note is negotiated, endorsed, assigned, transferred
and/or pledged, all references to the Partnership shall apply to the one which
receives the Partnership's interest as if the one instead of the Partnership was
named as the original payee under this note.
If any part of this note is determined by any court to be invalid or
unenforceable, the remaining portions of this note will remain in effect. Any
ambiguity or uncertainty in the note will be construed in favor of the
Partnership.
The terms of this note shall be binding upon and inure to the benefit
of the respective successors and assigns of the Partnership and the undersigned.
All definitions as used herein shall have the same meaning as such
terms are used in the Partnership Agreement:
<PAGE>
<TABLE>
<S>
If Subscriber is an individual:
<C> <C>
.........
.........Print Name of Subscriber Signature of Subscriber
.........
.........Print Name of Co-Subscriber (if any) Signature of Co-Subscriber (if any)
If Subscriber is a corporation, partnership or trust:
By:
Print Name of Subscribing Entity
Print Name of Authorized Signature of Authorized Officer,
Officer, Partner or Trustee Partner or Trustee
Print Title of Authorized
Partner or Trustee
Print Name of Co-Trustee Signature of Co-Trustee
(if required by trust instrument) (if required by trust instrument)
</TABLE>
<PAGE>
SECOND AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
DESERT SPRINGS MARRIOTT
LIMITED PARTNERSHIP
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE ONE DEFINED Terms...................................................D-1
ARTICLE TWO FORMATION, NAME, PLACE OF BUSINESS, PURPOSE AND TERM
2.01 Formation........................................................D-7
2.02 Name and Offices.................................................D-7
2.03 Purpose..........................................................D-7
2.04 Term.............................................................D-8
2.05 Agent for Service of Process.....................................D-8
ARTICLE THREE PARTNERS AND CAPITAL
3.01 General Partner..................................................D-8
3.02 [Intentionally Omitted]..........................................D-8
3.03 Limited Partners.................................................D-8
3.04 Capital Contribution by the General Partner......................D-8
3.05 Capital Contributions by the Limited Partners....................D-8
3.06 Partnership Capital.............................................D-11
3.07 Liability of the Limited Partners...............................D-12
3.08 Liability of the General Partner................................D-12
ARTICLE FOUR ALLOCATION OF PROFITS AND LOSSES; DISTRIBUTIONS OF CASH AND
CERTAIN PROCEEDS
4.01 Allocation of Net Profits.......................................D-12
4.02 Allocation of Net Losses and Losses.............................D-13
4.03 Allocation of Gain..............................................D-13
4.04 Allocation Among Limited Partners of Net Profits, Gains, Net Losses
and Losses......................................................D-14
4.05 Allocation of Recapture Income..................................D-14
4.06 Distribution of Cash Available for Distribution.................D-14
4.07 Distribution of Refinancing Proceeds............................D-14
4.08 Distribution of Sale Proceeds...................................D-15
4.09 Allocation Among Limited Partners of Cash Available for
Distribution, Refinancing Proceeds and Sale Proceeds............D-15
4.10 Section 754 Adjustments.........................................D-15
4.11 Special Allocation of Syndication Expenses......................D-15
4.12 Contingent Adjustments..........................................D-16
4.13 Special Allocation of Interest on Purchase Debt.................D-17
4.14 Special Allocation in Event of Advances by General Partner......D-17
<PAGE>
ARTICLE FIVE RIGHTS, POWERS AND DUTIES OF THE GENERAL PARTNER
5.01 Authority of the General Partner to Manage the Partnership......D-17
5.02 Restrictions on Authority of the General Partner................D-20
5.03 Duties and Obligations of the General Partner...................D-22
5.04 Compensation of the General Partner.............................D-24
5.05 Other Business of Partners......................................D-24
5.06 Limitation on Liability of General Partner; Indemnification.....D-24
5.07 Designation of Tax Matters Partner and Designated Person for
Purposes of Investor List.......................................D-26
ARTICLE SIX WITHDRAWAL AND REMOVAL OF GENERAL PARTNER
6.01 Limitation on Voluntary Withdrawal..............................D-28
6.02 Bankruptcy or Dissolution of the General Partner................D-28
6.03 Liability of Withdrawn General Partner..........................D-28
6.04 Removal of General Partner......................................D-28
6.05 Substitute General Partner......................................D-29
ARTICLE SEVEN ASSIGNABILITY OF UNITS
7.01 Restrictions on Assignments.....................................D-29
7.02 Assignees and Substituted Limited Partners......................D-30
ARTICLE EIGHT DISSOLUTION AND LIQUIDATION OF THE PARTNERSHIP
8.01 Events Causing Dissolution......................................D-31
8.02 Liquidation.....................................................D-31
ARTICLE NINE BOOKS AND RECORDS, ACCOUNTING, REPORTS, TAX ELECTIONS, ETC.
9.01 Books and Records...............................................D-33
9.02 Accounting and Fiscal Year......................................D-33
9.03 Bank Accounts and Investments...................................D-33
9.04 Reports.........................................................D-33
9.05 Tax Depreciation and Elections..................................D-34
9.06 Interim Closing of the Books....................................D-35
ARTICLE TEN MEETINGS AND VOTING RIGHTS OF LIMITED PARTNERS
10.01 Meetings.......................................................D-35
10.02 Special Voting Rights of Limited Partners......................D-36
ARTICLE ELEVEN MISCELLANEOUS PROVISIONS
11.01 Appointment of General Partner as Attorney-in-Fact.............D-37
11.02 Amendments.....................................................D-38
11.03 General Partner Representations and Warranties.................D-39
11.04 Binding Provisions.............................................D-39
11.05 Applicable Law.................................................D-39
11.06 Counterparts...................................................D-39
11.07 Separability of Provisions.....................................D-39
11.08 Article and Section Titles.....................................D-40
11.09 Short Form Filings.............................................D-40
EXHIBIT A Limited Partner Note
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this Form 10-Q to be signed on its behalf by the
undersigned, thereunto duly authorized.
DESERT SPRINGS MARRIOTT
LIMITED PARTNERSHIP
By: MARRIOTT DESERT SPRINGS CORPORATION
General Partner
October 27, 1997 By:
Patricia K. Brady
Vice President and Chief Accounting Officer
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this Form 10-Q to be signed on its behalf by the
undersigned, thereunto duly authorized.
DESERT SPRINGS MARRIOTT
LIMITED PARTNERSHIP
By: MARRIOTT DESERT SPRINGS CORPORATION
General Partner
October 27, 1997 By: /s/ Patricia K. Brady
Patricia K. Brady
Vice President and Chief Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
QUARTERLY REPORT 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.</LEGEND>
<CIK> 0000832345
<NAME> DESERT SPRINGS MARRIOTT LIMITED PARTNERSHIP
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