SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, For Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-12
MARRIOTT RESIDENCE INN LIMITED PARTNERSHIP
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box): [ ] No fee required.
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
Units of limited partnership interest in Marriott Residence Inn Limited
Partnership
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(2) Aggregate number of securities to which transaction applies:
65,600 units of limited partnership interest in Marriott Residence Inn
Limited Partnership
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it is determined):
The filing fee was determined by (1) adding (a) the general partner's merger
consideration of $200,000 to (b) the product of 65,600, the sum of units of
limited partnership interest in Marriott Residence Inn Limited Partnership,
and the merger consideration of $636.43 per unit in cash and (2) multiplying
that result ($41,949,808) by 1/50 of one percent.
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(4) Proposed maximum aggregate value of transaction:
$41,949,808
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(5) Total fee paid:
$8,390
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[X] Fee paid previously with preliminary proxy materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the form or schedule and the date of its filing.
(1) Amount previously paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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MARRIOTT RESIDENCE INN LIMITED PARTNERSHIP
10400 Fernwood Road
Bethesda, Maryland 20817
(301) 380-9000
March 1, 2002
To the Limited Partners of Marriott Residence Inn Limited Partnership:
Your general partner is seeking your consent to the agreement and plan
of merger, dated as of November 28, 2001, among the partnership, RIBM One LLC,
Apple Hospitality Two, Inc. and AHT Res Acquisition, L.P., a wholly owned
indirect subsidiary of Apple Hospitality. If the merger agreement is approved
and the merger becomes effective, each unit of limited partnership interest that
you own immediately prior to consummation of the merger will be converted into
$636.43 in cash. Thereafter, the partnership will be a wholly owned indirect
subsidiary of Apple Hospitality.
In addition to the $636.43 per unit of merger consideration that you
will receive from Apple Hospitality, you also will receive the following if the
merger is completed:
o certain unrestricted partnership cash -- you will receive a
distribution from the partnership of certain unrestricted partnership
cash available as of the closing of the merger which, if the merger
had closed at the end of the third quarter of 2001, would have been
approximately $100 per unit;
o debt service reimbursement -- you will receive a cash payment equal to
your pro rata portion of the amount of the partnership's scheduled
debt service that was paid by the partnership immediately prior to the
closing of the merger and which is required by the merger agreement to
be reimbursed by the surviving partnership within three days after the
closing of the merger; and
o beneficial interest in a liquidating trust -- you will receive your
pro rata beneficial interest in a liquidating trust to be established
by the partnership to, among other things, facilitate certain
post-closing adjustments among the parties and hold certain contingent
assets of the partnership. Prior to the closing of the merger, the
partnership will contribute $1.5 million of partnership cash
(approximately $22.87 per unit) and assign certain contingent assets
of the partnership to the liquidating trust. As soon as the
liquidating trust has satisfied the obligations for which it is
created, which is expected to occur two years after the completion of
the merger, it will be liquidated and all of its remaining assets will
be distributed to the beneficiaries of the liquidating trust.
The liquidating trust will be administered without profit by RIBM One
LLC. The beneficial interests in the liquidating trust will not be certificated
and will not be transferable.
Completion of the merger requires the consent of the holders of a
majority of the issued and outstanding units of limited partnership interest in
the partnership. Only holders of record of the units at the close of business on
February 28, 2002 will be entitled to consent to the merger agreement.
In its capacity as general partner of the partnership, RIBM One LLC
carefully reviewed and considered the terms and conditions of the proposed
merger. Based on our review, we have determined that the terms of the merger
agreement and the merger are advisable and fair to and in the best interests of
the partnership and its limited partners. In making this determination, we
considered, among other things, the opinion of Merrill Lynch & Co., the
partnership's financial advisor, to the effect that, as of the date of the
opinion, and based upon the assumptions made, matters considered and limitations
on Merrill Lynch's review described in the opinion, the $636.43 per unit to be
received by the limited partners pursuant to the merger, exclusive of the
intended distributions of available and unrestricted partnership cash,
reimbursed debt service and beneficial interests in the liquidating trust to be
made in connection with the merger, is fair from a financial point of view to
the limited partners.
After careful consideration, we have determined that the merger
agreement and the merger are fair to and in the best interests of the
partnership and the limited partners and we recommend that you vote "FOR"
approval of the merger agreement by checking the "FOR" box on the enclosed
consent form.
The attached consent solicitation statement provides you with detailed
information about the proposed merger. A copy of the merger agreement is
attached to the consent solicitation statement as Appendix A. Please read these
materials carefully.
Your vote is very important. Abstentions or failure to return the
enclosed consent form will have the same effect as voting against the merger.
Therefore, you are requested to complete, sign and return the consent form in
the enclosed pre-paid envelope at your earliest convenience and, in any event,
by the expiration date of the consent solicitation period which is 6:00 p.m.,
New York City time, on March 28, 2002, or such later date and time as we may
set. You may withdraw your consent at any time before the expiration of the
consent solicitation period.
If you have any questions about the consent solicitation statement,
please call our information agent, Georgeson Shareholder Communications, Inc. at
(866) 761-0261.
Very truly yours,
RIBM One LLC
General Partner
/s/ Robert E. Parsons, Jr.
Robert E. Parsons, Jr.
President and Manager
PLEASE COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED CONSENT FORM.
This consent solicitation statement is dated March 1, 2002. This
consent solicitation statement and the related consent form are being mailed to
limited partners on or about March 1, 2002.
TABLE OF CONTENTS
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QUESTIONS AND ANSWERS ABOUT THE MERGER.......................................iii
SUMMARY TERM SHEET...........................................................1
The Parties............................................................1
The Consent Solicitation (See page 8)..................................2
The Merger Agreement (See page 36).....................................2
Recommendation of the General Partner (See page 19)....................7
Opinion of Financial Advisor (See page 20).............................7
Interests of the General Partner and its Affiliates in the Merger
(See page 25).......................................................7
THE CONSENT SOLICITATION.....................................................8
Purpose of Consent Solicitation........................................8
Record Date; Units Outstanding Entitled to Vote........................8
Required Vote..........................................................8
Consent Solicitation Period............................................8
Consent Procedures; Change or Withdrawal of Consents...................8
Effective Time of the Merger...........................................9
No Special Meeting.....................................................9
Solicitation of Consents; Expenses.....................................9
Recommendation of the General Partner..................................10
THE PARTIES..................................................................11
Marriott Residence Inn Limited Partnership.............................11
The General Partner....................................................12
Apple Hospitality and AHT Res Acquisition..............................12
THE MERGER...................................................................13
Background of the Merger...............................................13
Reasons for the Merger.................................................18
Recommendation of the General Partner..................................19
Opinion of Financial Advisor...........................................20
Merger Financing.......................................................25
Regulatory Approvals...................................................25
Interests of the General Partner and Affiliates in the Merger..........25
Material Federal Income Tax Considerations of the Merger...............26
Material Federal Income Tax Considerations of the Receipt of Interests
in the Liquidating Trust............................................29
No Rights of Appraisal.................................................33
Failure to Approve the Merger Agreement................................33
THE MERGER AGREEMENT.........................................................36
Structure of the Merger................................................36
The Effective Time of the Merger.......................................36
Merger Consideration; Conversion of Partnership Interests in the Merger36
Other Distributions to be Made in Connection with the Merger...........37
Escrow Deposit.........................................................37
Exchange of Units for Merger Consideration.............................38
Establishment of the Liquidating Trust.................................39
Representations and Warranties.........................................42
Conduct of Business by the Partnership Pending the Merger..............43
Additional Covenants...................................................45
i
Indemnification by the General Partner and the Liquidating Trust.......48
No Solicitation by the Partnership or the General Partner..............49
Conditions to Completion of the Merger.................................52
Termination of the Merger Agreement....................................54
Termination Fee........................................................56
Expenses ..............................................................57
Waiver and Amendment of the Merger Agreement...........................58
Deposit Escrow Agreement...............................................58
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.............................................................60
PRICE RANGE FOR THE UNITS....................................................61
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS.........................62
WHERE YOU CAN FIND ADDITIONAL INFORMATION....................................63
APPENDIX A AGREEMENT AND PLAN OF MERGER
APPENDIX B OPINION OF MERRILL LYNCH & CO.
ii
QUESTIONS AND ANSWERS ABOUT THE MERGER
The following questions and answers are intended to address briefly
some commonly asked questions regarding the merger. These questions and answers
may not address all questions that may be important to you as a limited partner.
Please refer to the more detailed information contained elsewhere in this
consent solicitation statement and its appendices.
Q: To what am I being asked to consent?
A: You are being asked to consent to the merger agreement. Approval of the
merger agreement will also constitute approval of the merger and the other
transactions contemplated by the merger agreement, including the
establishment of the liquidating trust. The merger agreement provides that
AHT Res Acquisition, a wholly owned indirect subsidiary of Apple
Hospitality, will merge with and into the partnership, with the partnership
being the surviving entity, and the partners of AHT Res Acquisition
becoming the sole partners of the partnership. After the merger, the
partnership will be a wholly owned indirect subsidiary of Apple
Hospitality.
Q: What will I receive as a result of the merger?
A: Upon completion of the merger, you will receive $636.43 in cash for each
unit of limited partnership interest that you own immediately prior to the
closing of the merger.
In addition to the $636.43 per unit of merger consideration described
above, you also will receive the following if the merger is completed:
o a distribution from the partnership of certain unrestricted
partnership cash available as of the closing of the merger which, if
the merger had closed at the end of the third quarter of 2001, would
have been approximately $100 per unit;
o a cash payment equal to your pro rata portion of the amount of the
partnership's scheduled debt service that was paid by the partnership
immediately prior to the closing of the merger and which is required
by the merger agreement to be reimbursed by the surviving partnership
within three days after the closing of the merger; and
o your pro rata beneficial interest in a liquidating trust to be created
by the partnership to hold several contingent assets of the
partnership and to facilitate certain cash flow adjustments and other
transactions to be made by the parties after the closing of the
merger.
Q: How much will the general partner receive in the merger?
A: The general partner will receive $200,000 in cash for its 1% general
partner interest. The general partner's merger consideration will be
retained by Apple Hospitality for a period of time after completion of the
merger to satisfy certain indemnification obligations that the general
partner agreed to fund under the merger agreement.
iii
Q: What is the general partner's recommendation with respect to the merger?
A: After careful consideration, which included obtaining an opinion from
Merrill Lynch & Co. concerning the fairness, from a financial point of
view, of the $636.43 per unit to be received by the limited partners
pursuant to the merger, the general partner has determined that the merger
agreement and the merger are fair to and in the best interests of the
partnership and the limited partners. Therefore, the general partner
recommends that you vote "FOR" approval of the merger agreement.
Q: Who is entitled to vote on the merger?
A: Only limited partners of record holding units of limited partnership
interest as of the close of business on February 28, 2002 are entitled to
vote on the merger. Each limited partner who has been admitted to the
partnership is entitled to cast one vote for each unit held of record.
Holders of fractional units are entitled to cast a fractional vote with
respect to any fractional unit held of record.
Q: What vote is required for limited partners to approve the merger agreement?
A: In order for the merger agreement to be approved, limited partners holding
a majority of the issued and outstanding units must affirmatively approve
the merger agreement.
Q: What happens if I abstain or fail to return a consent form?
A: Abstentions or failure to return the enclosed consent form will have the
same effect as voting against the merger agreement.
Q: What happens if I properly execute a consent form but do not include voting
instructions?
A: All properly executed consent forms that contain no voting instructions
will be deemed to have been voted for the approval of the merger agreement.
Q: What do I need to do now?
A: You should carefully read and consider the information contained in this
consent solicitation statement. You should then complete, date and sign
your consent form and return it in the enclosed return envelope as soon as
possible so that your units will be voted.
iv
Q: What is the deadline to return my consent form?
A: The consent solicitation period ends at 6:00 p.m., New York City time, on
March 28, 2002, unless this period is extended by the general partner in
its sole discretion. You will be notified by mail if this period is
extended. Consent forms received after the consent solicitation period will
not be voted.
Q: Can I change my vote after I have mailed the consent form?
A: Yes. You may withdraw your consent or change your vote at any time before
the expiration of the consent solicitation period by executing and
delivering a subsequently dated consent form or a written notice stating
that the consent is withdrawn to Georgeson Shareholder Communications,
Inc., 17 State Street, New York, NY 10004. Consent forms and notices of
withdrawal or change of vote received after the expiration of the consent
solicitation period will not be valid.
Q: What happens if the limited partners do not approve the merger agreement?
A: If the limited partners do not approve the merger agreement the merger will
not occur. In such event, you will not receive the merger consideration or
any of the other distributions described in this consent solicitation
statement which are to be made subject to and in connection with the
merger.
Regardless of whether the merger is completed, the general partner and the
manager of the partnership's inns expect to make certain changes to the
management agreement pursuant to which the manager operates the inns. These
changes are discussed in detail in this consent solicitation statement. If
the limited partners do not approve the merger agreement, they will
continue to own a limited partner interest in the partnership and receive,
if enacted, the benefits, if any, of such proposed changes to the
management agreement. There can be no assurance, however, that such changes
will be made or that such changes will be made in substantially the form
described in this consent solicitation statement.
Q: Are there any other conditions to completion of the merger?
A: Yes. In addition to the approval of the limited partners, consummation of
the merger also is conditioned upon the consent of the partnership's
lenders, the consent of the manager of the partnership's inns and other
customary conditions.
Q: Will I have appraisal rights as a result of the merger?
A: No. Limited partners are not entitled to appraisal rights as a result of
the merger.
Q: When will I receive the merger consideration?
A: The merger is expected to be completed as soon as practicable following the
expiration of the consent solicitation period. Following the merger, you
will receive instructions on how to receive your cash payment in exchange
for your units of limited partnership interest. You will receive your cash
payment promptly after you return your letter of transmittal to the paying
agent. Because your units are held by the partnership in book entry form,
you do not have to return any certificates you may have with the letter of
transmittal. You also will receive the intended distributions of available
and unrestricted partnership cash, reimbursed debt service and beneficial
interests in the liquidating trust promptly after the closing of the
merger.
v
Q: What material federal income tax considerations should I consider in
connection with the merger?
A: You will be treated as having made a taxable disposition of your units of
limited partnership interest pursuant to the merger. In general, it is
expected that you will recognize long- or short-term capital gain or loss
in the merger in an amount equal to the difference between (a) the sum of
the cash you receive as merger consideration and the portion of the
partnership's liabilities allocable to your units for federal income tax
purposes and (b) your tax basis in your units. In addition, the issuance to
you of beneficial interests in the liquidating trust to be created by the
partnership generally will be taxable, but only to the extent that your pro
rata share of the cash held by the liquidating trust (estimated as
approximately $22.87 per unit) exceeds your basis in your units immediately
before the issuance.
Pursuant to the terms of the merger agreement, the limited partners will
not receive any distribution of cash with respect to the "operating profit"
of the partnership's inns attributable to the last full accounting period,
and any portion of the subsequent accounting period, occurring prior to the
closing of the merger. Instead, these payments of "operating profit" will
become the property of Apple Hospitality. The agreement to transfer
ownership of the partnership's "operating profit" for these periods was in
partial consideration for Apple Hospitality's agreement to increase the
aggregate merger consideration to be paid for the units. However, the
taxable income associated with all "operating profit" of the partnership's
inns, including that attributable to the last full accounting period, and
any portion of the subsequent accounting period, occurring prior to the
closing of the merger, will be allocated to the limited partners. Any
allocation of such taxable income to you will increase your adjusted tax
basis in your units and, thus, will decrease the amount of capital gain, or
increase any capital loss, recognized by you as a result of the disposition
of your units pursuant to the merger.
We recommend that you read the sections entitled "The Merger--Material
Federal Income Tax Considerations of the Merger" and "The Merger--Material
Federal Income Tax Considerations of the Receipt of Beneficial Interests in
the Liquidating Trust" in this consent solicitation statement for a more
detailed explanation of the tax considerations of the merger and the
issuance of beneficial interests in the liquidating trust. You also should
consult your tax advisor regarding the specific tax consequences of these
events that are applicable to you.
Q: Who can help answer more questions?
A: If you have more questions about the merger after reading this consent
solicitation statement, you should contact the information agent:
Georgeson Shareholder Communications, Inc.
(866) 761-0261
vi
SUMMARY TERM SHEET
This summary term sheet, together with the preceding question and
answer section, highlights selected information from this consent solicitation
statement and may not contain all of the information that is important to you.
To understand fully the transactions contemplated by the merger agreement, you
should carefully read this entire consent solicitation statement, the merger
agreement which is attached as Appendix A and the other documents to which this
consent solicitation statement refers you. For details on how you can obtain
more information about the partnership, see "Where You Can Find Additional
Information" on page 63. Each item in this summary term sheet includes a page
reference directing you to a more complete description of that item.
The Parties (See page 11)
Marriott Residence Inn Limited Partnership
RIBM One LLC
10400 Fernwood Road
Bethesda, Maryland 20817
(301) 380-2070
The partnership is a limited partnership formed under the laws of
Delaware to acquire and own 15 Marriott Residence Inn properties and the land on
which the properties are located. The partnership's inns have a total of 2,129
suites and are located in seven states in the United States: four in Ohio, three
in California, three in Georgia, two in Missouri and one in each of Illinois,
Colorado and Michigan. The partnership's inns are operated as part of the
Residence Inn by Marriott franchise system and are managed by Residence Inn by
Marriott, Inc., a wholly owned subsidiary of Marriott International, Inc., under
a long-term management agreement. The partnership was formed in 1988 through a
public offering of 65,600 units of limited partnership interest.
RIBM One LLC is the sole general partner of the partnership. The
general partner has exclusive authority to conduct the business and affairs of
the partnership in accordance with the partnership agreement and applicable
laws. The general partner owns a 1% general partner interest in the partnership.
Apple Hospitality Two, Inc.
AHT Res Acquisition, L.P.
10 South Third Street
Richmond, Virginia 23219
(804) 344-8121
Apple Hospitality Two, Inc., a Virginia corporation, was formed on
January 17, 2001. Apple Hospitality focuses on purchasing and owning upper-end,
extended-stay hotel properties located in selected metropolitan areas. A wholly
owned indirect subsidiary of Apple Hospitality currently owns 10 extended-stay
hotels located in seven states in the United States. Apple Hospitality leases
all of its hotels to Apple Hospitality Management Inc., its taxable real estate
investment trust subsidiary. Through Apple Hospitality Management, Apple
Hospitality engages Marriott International to operate its hotels, all of which
are operated as part of the Residence Inn by Marriott franchise system.
AHT Res Acquisition, L.P. is a wholly owned indirect subsidiary of
Apple Hospitality that was formed solely for the purpose of effecting the
merger.
1
"Residence Inn by Marriott" is a trademark of Marriott International,
Inc. This consent solicitation statement also includes trademarks and trade
names of other parties.
The Consent Solicitation (See page 8)
Consent Requested; Record Date (See page 8)
The general partner is soliciting the limited partners' approval of the
merger agreement. Approval of the merger agreement also will constitute approval
of the merger and the other transactions contemplated by the merger agreement,
including the establishment of the liquidating trust. The general partner has
set the close of business on February 28, 2002 as the record date for the
determination of limited partners entitled to approve the merger agreement. Only
holders of record of the units of limited partnership interest on the record
date will be entitled to approve the merger agreement. As of the record date,
there were 65,600 units issued and outstanding, held of record by 3,343 limited
partners. Except for the 1% general partner interest held by the general
partner, the partnership has no other class of securities.
Required Consent (See page 8)
Under the terms of the partnership agreement, approval of the merger
agreement requires the affirmative consent of limited partners holding a
majority of the issued and outstanding units, excluding units held by the
general partner and its affiliates. As of the record date, neither the general
partner nor affiliates of the general partner owned any units. Each limited
partner is entitled to cast one vote for each unit held of record on the record
date. Holders of fractional units are entitled to cast a fractional vote with
respect to any fractional unit held of record.
Solicitation Period (See page 8)
To have your vote count, you must complete, sign and return the consent
form in the enclosed postage-paid envelope prior to 6:00 p.m., New York City
time, on March 28, 2002, or such later date and time as the general partner may
set. You may withdraw your consent at any time before the expiration of the
consent solicitation period.
The Merger Agreement (See page 36)
The Structure of the Merger (See page 36)
In the merger, AHT Res Acquisition will be merged with and into the
partnership, with the partnership being the surviving entity. As a result of the
merger, the outstanding units of limited partnership interest and the general
partner interest of the partnership will be converted into the right to receive
the merger consideration provided for in the merger agreement, and the partners
of AHT Res Acquisition will become the sole partners of the partnership. After
the merger, the partnership will be a wholly owned indirect subsidiary of Apple
Hospitality.
The merger agreement is included as Appendix A to this consent
solicitation statement. It is the legal document that governs the merger.
2
Merger Consideration and Other Distributions in Connection with the Merger (See
page 36)
If the merger is completed, you will receive $636.43 in cash for each
unit of limited partnership interest that you own immediately prior to the
effective time of the merger. In addition, the general partner will receive
$200,000 in cash for its 1% general partner interest. The general partner's
merger consideration will be retained by Apple Hospitality for a period of time
after completion of the merger to satisfy the general partner's indemnification
obligations under the merger agreement.
In addition to the $636.43 per unit of merger consideration that you
will receive from Apple Hospitality, you also will receive the following if the
merger is completed:
o a distribution from the partnership equal to the unrestricted cash of
the partnership available as of the closing of the merger reduced by:
- the contribution of $1.5 million of partnership cash to the
liquidating trust to be created by the partnership,
- transaction costs related to the merger estimated at
approximately $2.4 million, and
- $5 million of partnership cash which will remain with the
surviving partnership.
If the merger had closed at the end of the third quarter of 2001, the
amount of such distribution would have been approximately $100 per unit.
o a cash payment equal to your pro rata portion of the amount of the
partnership's scheduled debt service that was paid by the partnership
prior to the closing of the merger with respect to the last full
accounting period, and any portion of the subsequent accounting
period, occurring prior to the closing. Such amount is required by the
merger agreement to be reimbursed by the surviving partnership within
three days after the closing of the merger.
o your pro rata beneficial interest in a liquidating trust to be
established by the partnership to, among other things, facilitate
certain post-closing adjustments among the parties and hold certain
contingent assets of the partnership. The beneficial interests in the
liquidating trust will not be certificated and will not be
transferable. As soon as the liquidating trust has satisfied the
obligations for which it is created, which is expected to occur two
years after the completion of the merger, it will be liquidated and
all of its remaining assets will be distributed to the beneficiaries
of the liquidating trust.
Apple Hospitality has deposited into escrow $35 million of the $41.95
million purchase price, $3 million of which is being held as an earnest money
deposit and $32 million of which is being held as evidence of Apple
Hospitality's financial ability to consummate the merger. The remaining amount
of the limited partner merger consideration will be delivered to the paying
agent by Apple Hospitality at the closing of the merger.
3
Payment of Merger Consideration, Partnership Distribution and Debt Service
Reimbursement (See pages 37 and 38)
After the merger occurs, the paying agent designated by Apple
Hospitality will send a letter of transmittal to you that will provide
instructions on the procedures for obtaining the merger consideration due to
you. The intended distribution of partnership cash and evidence of the issuance
of beneficial interests in the liquidating trust, both of which are subject to
the closing of the merger, will be sent to you directly from the partnership.
The distribution to the limited partners of an amount equal to the scheduled
debt service to be reimbursed by the surviving partnership, if any, will be made
promptly after consummation of the merger by the liquidating trust to be created
by the partnership.
Establishment of the Liquidating Trust (See page 39)
Pursuant to the merger agreement, the partnership will establish a
liquidating trust to hold several contingent assets of the partnership and to
facilitate certain cash flow adjustments and other transactions to be made by
the parties after the closing of the merger. Among other things, the liquidating
trust will permit the limited partners to receive certain cash flows of the
partnership attributable to the period prior to the closing that will not be
known or available to the partnership until after the merger has been completed.
The liquidating trust also will be responsible for paying or reimbursing the
surviving partnership for certain expenses that are attributable to the period
prior to the closing of the merger and for indemnifying the surviving
partnership and related parties against damages or liabilities, if any,
resulting from certain litigation involving the partnership's inns which existed
prior to the merger.
Promptly after its establishment, the partnership will contribute $1.5
million of partnership cash (approximately $22.87 per unit) and assign certain
contingent assets of the partnership to the liquidating trust. Subject to the
closing of the merger, the partnership will issue to each limited partner your
pro rata beneficial interest in the liquidating trust. Beneficial interests in
the liquidating trust will not be certificated but will be maintained in
book-entry format by the liquidating trust. In addition, the beneficial
interests in the liquidating trust will not be transferable, except by will,
intestate succession or operation of law. The liquidating trust will be
administered by the general partner without profit. As soon as the liquidating
trust has satisfied the obligations for which it is created, which is expected
to occur two years after the completion of the merger, it will be liquidated and
all of its remaining assets will be distributed to the beneficiaries of the
liquidating trust.
No Appraisal Rights (See page 33)
There are no dissenters' rights of appraisal in connection with the
merger.
The Effective Time of the Merger (See page 36)
The merger will be completed when all of the conditions to completion
of the merger set forth in the merger agreement are satisfied or waived. The
merger will become effective upon the filing of a certificate of merger with the
Secretary of State of the State of Delaware or at such later time as is provided
in the certificate of merger. Consummation of the merger is expected to occur
during the first quarter of 2002.
4
What is Needed to Complete the Merger (See page 52)
The partnership and Apple Hospitality will complete the merger only if
they satisfy or, if the law permits, waive several conditions, including the
following:
o holders of a majority of the issued and outstanding units of limited
partnership interest approve the merger;
o the lenders of the partnership's outstanding indebtedness consent to
the transactions contemplated by the merger agreement;
o the manager of the partnership's inns confirms certain effects of the
merger under the partnership's management agreement;
o the manager consents to changes to the management agreement to permit
or facilitate AHT Res Acquisition's proposed real estate investment
trust structure;
o the cash remaining in the partnership at the closing of the merger is
at least equal to the amount required under the merger agreement;
o the partnership has corrected or settled certain material title
deficiencies and all tax and judgment liens affecting the partnership
or its properties;
o the operating agreement of the general partner is amended to permit
the consummation of the transactions contemplated by the merger
agreement;
o required third-party consents to the merger are received;
o the representations and warranties of each party to the merger
agreement are true and correct in all respects, except for such
inaccuracies that would not, in the aggregate, reasonably be expected
to have a material adverse effect on the business, financial condition
or results of operation of such party;
o each party to the merger agreement has performed and complied in all
material respects with its obligations required by the merger
agreement;
o there does not exist any material adverse change in the business,
financial condition or results of operation of the partnership, other
than adverse effects caused by general industry and economic factors
or specified in the merger agreement; and
o other customary contractual conditions set forth in the merger
agreement are satisfied.
Regulatory Approvals (See page 25)
We are not aware of any material governmental or regulatory approvals
required for completion of the merger, other than compliance with applicable
law.
5
Federal Income Tax Considerations (See page 26)
You will be treated as having made a taxable disposition of your units
of limited partnership interest pursuant to the merger. In general, it is
expected that you will recognize long- or short-term capital gain or loss in the
merger in an amount equal to the difference between (a) the sum of the cash you
receive and the portion of the partnership's liabilities allocable to your units
for federal income tax purposes and (b) your tax basis in your units. In
addition, the issuance to you of beneficial interests in the liquidating trust
to be established by the partnership generally will be taxable, but only to the
extent that your pro rata share of the cash held by the liquidating trust
(estimated as approximately $22.87 per unit) exceeds your basis in your units
immediately before the issuance.
Pursuant to the terms of the merger agreement, the limited partners
will not receive any distribution of cash with respect to the "operating profit"
of the partnership's inns attributable to the last full accounting period, and
any portion of the subsequent accounting period, occurring prior to the closing
of the merger. Instead, these payments of "operating profit" will become the
property of Apple Hospitality. The agreement to transfer ownership of the
partnership's "operating profit" for these periods was in partial consideration
for Apple Hospitality's agreement to increase the aggregate merger consideration
to be paid for the units. However, the taxable income associated with all
"operating profit" of the partnership's inns, including that attributable to the
last full accounting period, and any portion of the subsequent accounting
period, occurring prior to the closing of the merger, will be allocated to the
limited partners. Any allocation of such taxable income to you will increase
your adjusted tax basis in your units and, thus, will decrease the amount of
capital gain, or increase any capital loss, recognized by you as a result of the
disposition of your units pursuant to the merger.
Determining the tax consequences of the merger to you can be
complicated. Such consequences will depend on your specific situation and on
variables not within the control of the partnership or Apple Hospitality. You
should consult with your own tax advisors for a full understanding of the tax
consequences to you of the merger and the issuance of beneficial interests in
the liquidating trust.
Termination of the Merger Agreement (See page 54)
The merger agreement contains provisions addressing the circumstances
under which the partnership or Apple Hospitality may terminate the merger
agreement. In addition, the merger agreement provides that, in several
circumstances, the partnership may be required to pay Apple Hospitality a
termination fee of $1.2 million.
Failure to Approve the Merger Agreement (See page 33)
If the limited partners do not approve the merger agreement, the merger
will not occur and the general partner will continue to conduct the business and
affairs of the partnership in accordance with the partnership agreement. In such
event, you will not receive the merger consideration. In addition, if the merger
does not occur, you also will not receive the other distributions described in
this consent solicitation statement.
Regardless of whether the merger is completed, the general partner and
the manager of the partnership's inns expect to make certain changes to the
management agreement pursuant to which the manager operates the inns. These
changes are discussed in detail in this consent solicitation statement. If the
limited partners do not approve the merger agreement, they will continue to own
a limited partner
6
interest in the partnership and receive, if enacted, the benefits, if any, of
such proposed changes to the management agreement. There can be no assurance,
however, that such changes will be made or that such changes will be made in
substantially the form described in this consent solicitation statement.
Recommendation of the General Partner (See page 19)
After careful consideration, which included obtaining an opinion from
Merrill Lynch & Co. concerning the fairness, from a financial point of view, of
the $636.43 per unit to be received by the limited partners pursuant to the
merger, the general partner has determined that the merger agreement and the
merger are fair to and in the best interests of the partnership and the limited
partners. The general partner recommends that limited partners vote "FOR"
approval of the merger agreement.
Opinion of Financial Advisor (See page 20)
Merrill Lynch & Co., the partnership's financial advisor, delivered a
written opinion to the board of managers of the general partner to the effect
that, as of November 28, 2001, the $636.43 per unit to be received by the
limited partners pursuant to the merger, exclusive of the intended distributions
of available and unrestricted partnership cash, reimbursed debt service and
beneficial interests in the liquidating trust to be made in connection with the
merger, is fair from a financial point of view to the limited partners. Merrill
Lynch has confirmed its opinion as of February 19, 2002 and delivered a written
copy to the board of managers of the general partner. We have attached a copy of
Merrill Lynch's opinion, dated February 19, 2002, as Appendix B to this consent
solicitation statement. The opinion of Merrill Lynch does not constitute a
recommendation as to whether you should provide your consent with respect to the
merger agreement. We urge you to read the opinion of Merrill Lynch in its
entirety for a description of the procedures followed, assumptions made, matters
considered and limitations on the review undertaken by Merrill Lynch.
Interests of the General Partner and its Affiliates in the Merger (See page 25)
As part of the merger, the general partner will receive $200,000 in
cash for its 1% general partner interest. The general partner's merger
consideration will be retained by Apple Hospitality for a period of time after
completion of the merger to satisfy the general partner's indemnification
obligations under the merger agreement. The merger agreement requires the
general partner to indemnify Apple Hospitality and its affiliates for any claims
by limited partners against the partnership or the general partner with respect
to matters occurring prior to the closing of the merger, excluding claims with
respect to the transactions contemplated by the merger agreement. Neither the
general partner nor any affiliate of the general partner owns any units of
limited partnership interest as of the record date.
7
THE CONSENT SOLICITATION
Purpose of Consent Solicitation
The general partner is soliciting the consent of the limited partners
to approve the merger agreement which provides, among other things, for the
acquisition by a wholly owned indirect subsidiary of Apple Hospitality of all
outstanding units of limited partnership interest for $636.43 in cash per unit.
In addition to the merger consideration described in the preceding sentence, the
merger agreement provides for the establishment of the liquidating trust and
payment of the other distributions described in this consent solicitation
statement if the merger is completed.
Record Date; Units Outstanding Entitled to Vote
The general partner has set the close of business on February 28, 2002
as the record date for the determination of limited partners entitled to consent
to the merger agreement. Only holders of record of the units on the record date
will be entitled to consent to the merger agreement. As of the record date,
there were 65,600 units issued and outstanding, held of record by 3,343 limited
partners. Except for the 1% general partner interest held by the general
partner, the partnership has no other class of securities.
Required Vote
Under the terms of the partnership agreement, approval of the merger
agreement requires the affirmative consent of limited partners holding a
majority of the issued and outstanding units, excluding units held by the
general partner and its affiliates. As of the record date, neither the general
partner nor affiliates of the general partner owned any units. Each limited
partner is entitled to cast one vote for each unit held of record on the record
date. Holders of fractional units are entitled to cast a fractional vote with
respect to any fractional unit held of record.
Consent Solicitation Period
The consent solicitation period is the time during which limited
partners may vote for or against the merger agreement. The consent solicitation
period will commence upon delivery of this consent solicitation statement and
the consent form and will expire at 6:00 p.m., New York City time, on March 28,
2002. The general partner may, in its sole discretion, elect to extend the
consent solicitation period.
Consent Procedures; Change or Withdrawal of Consents
A consent form is included with this consent solicitation statement. To
consent, simply mark your consent form, sign and date it, and return it in the
postage-paid envelope provided. All consent forms that are properly executed and
returned to the partnership's information agent, Georgeson Shareholder
Communications, Inc., prior to the expiration of the consent solicitation period
will be voted in accordance with the instructions contained therein. Consent
forms will be effective only when actually received by the partnership's
information agent.
8
You may vote "FOR" or "AGAINST" or abstain on the approval of the
merger agreement. All properly executed consent forms that contain no voting
instructions will be deemed to have voted "FOR" approval of the merger
agreement. If you properly execute and date your consent form and mark
"ABSTAIN," your units will have the same effect as a vote against the approval
of the merger agreement. Failure to return the consent form will also have the
same effect as a vote against the approval of the merger agreement.
Consent forms may be withdrawn at any time prior to the expiration of
the consent solicitation period. In addition, following the submission of a
consent form, but before the expiration of the consent solicitation period,
limited partners may change their vote. For a withdrawal or change of vote to be
effective, you must execute and deliver, prior to the expiration of the consent
solicitation period, a subsequently dated consent form or a written notice
stating that the consent is withdrawn to Georgeson Shareholder Communications,
Inc., 17 State Street, New York, NY 10004. Consent forms and notices of
withdrawal or change of vote received after the expiration of the consent
solicitation period will not be valid.
If you have any questions about (1) how to complete the consent form,
(2) where to send the consent form or (3) how to obtain additional consent
forms, please contact Georgeson Shareholder Communications, Inc. at (866)
761-0261.
Effective Time of the Merger
As soon as practicable after all conditions of the merger agreement
have been satisfied or waived, if waivable, the general partner will file a
certificate of merger with the Secretary of State of the State of Delaware. The
merger will become effective upon the filing of the certificate of merger with
the Secretary of State of the State of Delaware or upon such later time as is
provided in the certificate of merger.
No Special Meeting
The general partner is seeking the approval of limited partners of the
merger agreement through this consent solicitation. Accordingly, no meeting of
the limited partners will be held to consider this matter.
Solicitation of Consents; Expenses
The partnership will pay the expenses of soliciting consents and the
cost of copying and mailing this consent solicitation statement.
In addition to solicitations by mail, consents may be solicited by the
general partner's officers and managers. These officers and managers will not be
specifically compensated, but may be reimbursed for out-of-pocket expenses
incurred in connection with the solicitation. Arrangements also will be made to
furnish copies of solicitation materials to custodians, nominees, fiduciaries
and brokerage houses for forwarding to beneficial owners of units. Such persons
will be paid for reasonable expenses incurred in connection therewith. To assist
in the solicitation of consents, the partnership has engaged Georgeson
Shareholder Communications, Inc. to act as information agent for a fee of
$12,500, plus reasonable out-of-pocket expenses.
9
Recommendation of the General Partner
After careful consideration, the general partner has determined that
the merger agreement and the merger are fair to and in the best interest of the
partnership and the limited partners. The general partner recommends that
limited partners vote "FOR" approval of the merger agreement. See "The
Merger--Recommendation of the General Partner."
10
THE PARTIES
Marriott Residence Inn Limited Partnership
The partnership, a Delaware limited partnership, was formed to acquire
and own 15 Marriott Residence Inn properties and the land on which the
properties are located. The partnership's inns have a total of 2,129 suites and
are located in seven states in the United States: four in Ohio, three in
California, three in Georgia, two in Missouri and one in each of Illinois,
Colorado and Michigan. The partnership's inns are operated as part of the
Residence Inn by Marriott franchise system and are managed by Residence Inn by
Marriott, Inc., a wholly owned subsidiary of Marriott International, Inc., under
a long-term management agreement. The partnership was formed in 1988 through a
public offering of 65,600 units of limited partnership interest.
The partnership's inns range in age between 14 and 17 years. The
partnership's inns generally have fewer guest rooms than traditional
full-service hotels, in most cases containing between 100 to 150 guest suites,
as compared to full-service Marriott hotels which typically contain 350 or more
guest rooms. The partnership's inns are extended-stay, limited service hotels
which cater primarily to business and family travelers who stay more than five
consecutive nights. The partnership's inns have an average of 142 suites, which
are a mixture of studio, one bedroom, two bedroom and two story penthouse
suites. They are located in suburban settings throughout seven states and
feature a series of residential style buildings with landscaped walkways,
courtyards and recreational areas. To maintain the overall quality of the
partnership's properties, each property undergoes refurbishments and capital
improvements on a regularly scheduled basis. Typically, refurbishing at Marriott
Residence Inn properties is provided at intervals of five to seven years, based
on an annual review of the condition of each property. The following table sets
forth the location and number of rooms for each of the partnership's properties.
Inn Number of Suites
--- ----------------
California
Costa Mesa ............................... 144
La Jolla ............................... 287
Long Beach ............................... 216
Colorado
Boulder ............................... 128
Georgia
Atlanta Buckhead............................ 136
Atlanta Cumberland.......................... 130
Atlanta Dunwoody............................ 144
Illinois
Chicago Lombard............................. 144
Michigan
Southfield ............................... 144
Missouri
St. Louis Chesterfield...................... 104
St. Louis Galleria.......................... 152
Ohio
Cincinnati North............................ 144
Columbus North.............................. 96
Dayton North 64
Dayton South 96
-----------------------
Total Number of Suites.......................... 2,129
=======================
11
The partnership has no employees. Host Marriott, L.P., the owner of the
general partner, provides the services of certain of its employees, including
the general partner's executive officers, to the partnership and the general
partner. To the extent that any officer, manager or employee devotes time to the
partnership, the general partner or Host Marriott, L.P., as applicable, is
entitled to reimbursement from the partnership for the cost of providing such
services.
The partnership's executive offices are located at 10400 Fernwood Road,
Bethesda, Maryland 20817, and the telephone number of its Partnership Investor
Relations Group is (301) 380-2070.
The General Partner
The partnership's sole general partner, RIBM One LLC, a Delaware
single-member limited liability company, owns a 1% general partner interest in
the partnership. The general partner has exclusive authority to conduct the
business and affairs of the partnership in accordance with the partnership
agreement and applicable laws. Host Marriott, L.P. owns a 1% Class A managing
economic interest and Rockledge Hotel Properties, Inc., a Delaware corporation
and an indirect wholly owned subsidiary of Host Marriott, L.P., owns a 99% Class
B non-managing economic interest in the general partner.
The general partner is required to devote to the partnership such time
as may be necessary for the proper performance of its duties, but the officers
and managers of the general partner are not required to devote their full time
to the performance of such duties. The partnership reimburses the general
partner or Host Marriott L.P., as applicable, for the cost of providing
administrative and other services to the extent that any officer or manager
devotes time to the partnership. In addition, the general partner is entitled to
receive distributions of the partnership's operating cash flow and net sale or
refinancing proceeds.
The general partner's offices are located at 10400 Fernwood Road,
Bethesda, Maryland 20817 and its telephone number is (301) 380-2070.
Apple Hospitality and AHT Res Acquisition
Apple Hospitality Two, Inc., a Virginia corporation, was formed on
January 17, 2001. Apple Hospitality focuses on purchasing and owning upper-end,
extended-stay hotel properties located in selected metropolitan areas. A wholly
owned indirect subsidiary of Apple Hospitality currently owns 10 extended-stay
hotels located in seven states in the United States: three in California, two in
Texas and one in each of Alabama, Connecticut, Georgia, Massachusetts and Ohio.
Apple Hospitality leases all of its hotels to Apple Hospitality Management Inc.,
its taxable real estate investment trust subsidiary. Through Apple Hospitality
Management, Apple Hospitality engages Marriott International to operate its
hotels, all of which are operated as part of the Residence Inn by Marriott
franchise system.
AHT Res Acquisition is a wholly owned indirect subsidiary of Apple
Hospitality that was formed solely for the purpose of effecting the merger.
Apple Hospitality and AHT Res Acquisition's offices are located at 10
South Third Street, Richmond, Virginia 23219, and their telephone number is
(804) 344-8121.
12
THE MERGER
Background of the Merger
The terms of the partnership agreement obligate the general partner to
consider, from time to time, whether or not, in the reasonable judgment of the
general partner, it would be in the best interests of the partnership to
effectuate a sale or refinancing of all or a portion of the partnership's inns.
The partnership agreement further requires the general partner after 2000 to use
its reasonable best efforts to sell the partnership's inns, in one or more
transactions, subject to the terms of the management agreement and the
partnership's senior loan agreement. To satisfy its obligations under the
partnership agreement and the investment objectives established at the formation
of the partnership, the general partner has regularly evaluated different
strategies involving the sale of some or all of the partnership's assets with a
view towards maximizing the value of the limited partnership interests of the
partnership. Set forth below is a chronology of events that lead up to the
execution of the merger agreement.
In the summer of 1996, the general partner began discussions with
Merrill Lynch regarding strategic alternatives to maximize value and achieve
liquidity for the limited partners. As a result of these discussions, in 1997
the partnership pursued a "roll-up" strategy intended to result in the initial
public offering of a limited service hotel REIT which would own, among other
things, the assets of the partnership. Due to deteriorating capital markets in
1998, this strategy, as well as subsequent attempts to identify potential
strategic acquirors, were abandoned.
In 1999, the partnership engaged Merrill Lynch as its financial advisor
to market the partnership's inns or, in the alternative, the units of limited
partnership interest. In June 1999, this process culminated with the receipt by
the partnership of several non-binding preliminary proposals relating to the
acquisition of the units. These proposals contained offers for the units ranging
from $85 per unit to $500 per unit. The general partner decided at that time
that it was not in the best interests of the partnership and the limited
partners to accept any such offer.
On November 27, 2000, James Risoleo, Executive Vice President
responsible for acquisitions and development for Host Marriott Corporation,
which indirectly owns the general partner and provides administrative services
to the partnership, received a telephone call from Justin Knight during which
Mr. Knight indicated that the soon to be formed Apple Hospitality would be
interested in purchasing the partnership's inns. During the call, Mr. Knight did
not propose any specific price or terms for a transaction. Mr. Risoleo indicated
an interest in continuing these discussions and agreed to further discussions
with Apple Hospitality once Mr. Risoleo had discussed the matter with officers
of the general partner. From time to time over the following two months,
representatives of the partnership and Apple Hospitality discussed generally the
possibility of an acquisition transaction involving the partnership.
In January 2001, Edward Walter, Executive Vice President of the general
partner, spoke with Douglas Greene, managing member of Haberhill LLC and a
former senior executive of Host Marriott Corporation, at a conference they both
were attending. Mr. Walter and Mr. Greene discussed the partnership's desire to
sell some or all of the partnership's inns or, in the alternative, support a
transaction involving a sale of the partnership interests. As a result of these
discussions, Haberhill executed a confidentiality agreement with the
partnership, dated February 1, 2001, and was provided with certain material
non-public information about the partnership.
In February 2001, the general partner and Apple Hospitality determined
that, as a result of the progress of their discussions, it would be beneficial
for Apple Hospitality to proceed with its due diligence of the partnership. On
February 3, 2001, Apple Hospitality and the partnership entered into a
13
mutual confidentiality agreement. Promptly thereafter, the parties began to
exchange financial, business and other non-public information and business,
legal and accounting due diligence commenced.
Mr. Risoleo and Lan Elliott, Vice President, Acquisitions of Host
Marriott Corporation, met with Mr. Greene of Haberhill on February 8, 2001 to
discuss a possible acquisition transaction involving the partnership. At this
meeting, the parties discussed Haberhill's valuation of the partnership based on
the partnership's 2001 budget which had been provided to Mr. Greene under the
Confidentiality Agreement.
On March 1, 2001, Mr. Greene contacted representatives of the general
partner and proposed to acquire the general partner interest of the partnership
but not the units of limited partnership interest.
Also on March 1, 2001, the general partner received a preliminary
acquisition proposal from Apple Hospitality pursuant to which Apple Hospitality
proposed a business combination in which Apple Hospitality would acquire the
partnership's inns and, in exchange, the limited partners of the partnership
would receive units of a new partnership to be created by Apple Hospitality.
Pursuant to this proposal, the new partnership to be created by Apple
Hospitality would have had the right, effective one year after the closing of
the transaction, to redeem the units issued to the limited partners for cash or
common stock in Apple Hospitality.
In early March 2001, Mr. Greene contacted representatives of the
general partner and made a proposal pursuant to which (a) RIBM One LLC would
withdraw and Haberhill would be substituted as the partnership's general partner
and (b) Haberhill would make a cash tender offer for not less than all of the
outstanding units of limited partnership interest of the partnership. Haberhill
would be joined in this proposed acquisition by Madison Capital Management, LLC.
On March 16, 2001, Ms. Elliott and Mr. Greene had a telephone
conversation to discuss the Madison/Haberhill proposal. During this call, Mr.
Greene described a modified proposal pursuant to which Haberhill would (a) be
substituted as the general partner of the partnership and (b) make a cash tender
offer for all, but not less than 51%, of the outstanding units of limited
partnership interest of the partnership. On March 19, 2001, Mr. Greene sent a
letter to Robert E. Parsons, Jr., president and manager of the general partner,
outlining this modified proposal.
Mr. Parsons and other representatives of the general partner met with
Mr. Greene and Ronald Dickerman and Bryan Gordon of Madison Capital Management
on March 23, 2001 to discuss the modified acquisition proposal. In response to
various questions and issues raised by Mr. Parsons during these discussions, Mr.
Greene sent a letter to Mr. Parsons on March 26, 2001 addressing such questions
and issues.
On March 27, 2001, representatives of the general partner met at the
offices of Hogan & Hartson L.L.P., the partnership's legal counsel, to discuss
the Apple Hospitality and Madison/Haberhill acquisition proposals and the
process to be undertaken in considering these proposals.
On March 28, 2001, representatives of the general partner and Merrill
Lynch met with Glade Knight and Jay Olander of Apple Hospitality to discuss
Apple Hospitality's acquisition proposal in greater detail. Merrill Lynch had
been previously contacted by the general partner concerning its potential
engagement as financial advisor in connection with a possible business
combination involving the partnership. The parties discussed various
alternatives by which Apple Hospitality could acquire the partnership's inns as
well as the tax and timing implications of Apple Hospitality's proposal.
14
The general partner received a revised offer from Apple Hospitality on
April 1, 2001 pursuant to which, based on more current financial information of
the partnership, Apple Hospitality revised its proposal to increase the amount
of equity that the limited partners would receive in the new partnership to be
created by Apple Hospitality.
On April 4, 2001, the officers of the general partner determined that
it was appropriate to engage an independent financial advisor to assist the
general partner in evaluating the proposals submitted by Apple Hospitality and
Madison/Haberhill. The officers also concluded that, in order to obtain the
highest value for the limited partners in any sale transaction, the partnership
should solicit bids from other interested parties. The general partner engaged
Merrill Lynch as its financial advisor on April 9, 2001 in connection with a
possible business combination involving the partnership, and publicly announced
the retention of a financial advisor for this purpose in the partnership's
Quarterly Report on Form 10-Q filed with the SEC on May 7, 2001. The general
partner notified both Apple Hospitality and Madison/Haberhill that Merrill Lynch
would be conducting a broad marketing process in an effort to maximize value for
the limited partners and invited both parties to participate in the process.
Apple Hospitality agreed to participate in the process, while Madison/Haberhill
declined to participate.
After its expiration, the partnership became aware of a mini-tender
offer by Sutter Opportunity Fund 2, LLC, dated May 7, 2001, to purchase up to
3,000 units of limited partnership interest at a price equal to $175 per unit in
cash. According to the partnership's records, Sutter Opportunity Fund 2 accepted
for purchase all of the approximately 373 units that had been tendered in the
offer.
During the week of May 14, 2001, Merrill Lynch began to actively seek
indications of interest for the purchase of the partnership's inns or, in the
alternative, the units of limited partnership interest. Merrill Lynch contacted
48 entities it had identified as potential purchasers. The partnership entered
into confidentiality agreements with 19 of these entities, each of whom received
detailed confidential information packages. The deadline for receiving
non-binding initial indications of interest from these parties was set as June
29, 2001.
On May 16, 2001, Madison Liquidity Investors 114, LLC, a Delaware
limited liability company owned by MRI Partners LLC, a joint venture between
subsidiaries of Madison and Haberhill, and other affiliates of Madison, filed
with the SEC a Tender Offer Statement on Schedule TO offering to purchase up to
13,120 units of limited partnership interest at a price equal to $300 per unit
in cash, reduced by any cash distributions made or declared by the partnership
on or after May 16, 2001. The Offer to Purchase, dated May 16, 2001, indicated
that the bidders would pay interest at the rate of 7% per annum on the $300
tender offer consideration from the expiration date of the tender offer to the
date of payment of the tender offer consideration.
On May 30, 2001, the partnership filed with the SEC a Statement on
Schedule 14D-9 stating that the general partner was not expressing an opinion or
making a recommendation on the tender offer by Madison Liquidity Investors. The
general partner noted in the Statement on Schedule 14D-9 that prior to the
commencement of the tender offer, Haberhill, together with Madison, had been in
discussions with representatives of the general partner regarding a possible
acquisition transaction involving the partnership. The general partner also
referenced the previous disclosure that the general partner had hired Merrill
Lynch to explore the sale of the partnership's inns or, in the alternative, the
units of limited partnership interest.
After the expiration of its tender offer on June 26, 2001, Madison
Liquidity Investors issued a press release on July 9, 2001 indicating that it
had accepted for purchase all of the approximately 2,271 units that had been
tendered in the offer.
15
By the June 29, 2001 deadline for receiving non-binding initial
indications of interest, Merrill Lynch had received three written proposals, all
relating to the acquisition of the units of limited partnership interest. Apple
Hospitality offered an aggregate of $38.0 million for the units, equaling
$579.27 per unit. Apple Hospitality also offered to acquire the general partner
interest for an amount equal to the lesser of the amount credited to the general
partner's capital account or $200,000. The other two bidders offered an
aggregate price of $41.9 million, equaling $638.92 per unit, and $33.9 million,
equaling $516.97 per unit, respectively, for the units without offering a price
for the general partner interest.
Between June 29, 2001 and July 19, 2001, the manager of the
partnership's inns was made available to the first-round bidders to discuss the
management agreement pursuant to which the manager operates the inns and the
partnership's renovation/capital expenditure plan. The general partner also
responded during this time to questions from the bidders and provided each of
the bidders with updated financial results for the partnership through Period 6
of the manager's fiscal year, which covers the period December 30, 2000 through
June 15, 2001.
All three bidders were asked to submit "best and final" offers by July
19, 2001. In addition, two new bidders submitted offers after the June 29, 2001
deadline for the first round of bidding. The general partner determined that it
was in the best interests of the partnership to consider these additional bids.
Several of the original bidders increased their bids for the final round. Apple
Hospitality increased its offer for the units by an aggregate of $7.5 million
and made a final offer of $45.5 million, equaling $693.60 per unit. Apple
Hospitality's bid provided the highest consideration to the partnership's
limited partners of all of the final bids. The four other final bids that were
received for the units ranged from an aggregate of $39.4 million, equaling $600
per unit, to $42.9 million, equaling $654.16 per unit.
The general partner, after determining that the offer from Apple
Hospitality was the most favorable to the limited partners of the partnership,
began exclusive negotiations with Apple Hospitality. On August 15, 2001, the
parties entered into a non-binding letter of intent for the sale of the
partnership to Apple Hospitality for $45.7 million in cash, consisting of $45.5
million for the units of limited partnership interest and the lesser of the
amount credited to the general partner's capital account or $200,000 for the
general partner interest. This purchase price equaled $693.60 per unit.
Negotiations and drafting immediately began on a definitive merger agreement. In
addition, Apple Hospitality began an on-site due diligence review of each of the
partnership's inns.
On August 31, 2001, Madison Liquidity Investors filed with the SEC a
second Tender Offer Statement on Schedule TO offering to purchase up to 13,120
units for $400 per unit in cash, reduced by any cash distributions made or
declared on or after August 31, 2001. As it did in its initial tender offer,
Madison Liquidity indicated that it would pay interest at the rate of 7% per
annum from the expiration date of the tender offer to the date of payment of the
tender offer consideration.
The partnership filed with the SEC a Statement on Schedule 14D-9 on
September 14, 2001 stating that the general partner would not express an opinion
or make a recommendation on this new tender offer. In the Statement on Schedule
14D-9, the general partner again noted the prior negotiations with Haberhill and
Madison regarding a possible acquisition transaction involving the partnership.
The general partner also noted that the partnership had begun exclusive
discussions with one potential acquirer and that the proposed per unit purchase
price submitted by several potential acquirers as a result of the solicitation
process by Merrill Lynch exceeded the $400 per unit cash offer by Madison
Liquidity Investors.
16
After the expiration of the tender offer on October 19, 2001, Madison
Liquidity Investors issued a press release on October 26, 2001 indicating that
it had accepted for purchase all of the approximately 3,234 units that had been
tendered in the offer.
During the period when Apple Hospitality and the general partner were
negotiating the merger agreement, terrorists destroyed the World Trade Center
towers in New York City and damaged the Pentagon outside Washington, D.C. As a
result, airline travel was halted for several days and the demand for hotel
rooms was severely affected. The stock prices of companies in the lodging
business declined precipitously, including the stock prices of Host Marriott
Corporation and Marriott International, as investors became concerned about the
impact of significantly lighter travel nationwide on hotel occupancies and room
rates. Similar to the rest of the lodging industry, the partnership's inns
experienced a significant decrease in occupancy following the events of
September 11, 2001. As a further example of the weakened economic environment of
the domestic lodging industry, on September 21, 2001, Felcor Lodging Trust and
MeriStar Hospitality Corp. announced that they were canceling their previously
announced $2.7 billion merger due to a difficult financing environment and a
need for both companies to focus on their individual businesses. During the week
of September 24, 2001, David McKenney of Apple Hospitality contacted Merrill
Lynch concerning the effects of September 11, 2001 on the partnership. Mr.
McKenney noted the decline in the stocks of hotel chains in the wake of these
terrorist attacks. He indicated that these negative fundamentals had affected
Apple Hospitality's willingness to proceed with the merger at the price agreed
to in the letter of intent. Mr. McKenney indicated that Apple Hospitality would
be willing to continue to negotiate the acquisition but that it would only do so
at a lower price. As a result, Apple Hospitality revised its offer price for the
units downward by $5.5 million from $45.5 million to $40.0 million, which
resulted in a decrease in the limited partner consideration from $693.60 to
$609.76 per unit.
Representatives of the general partner met with Merrill Lynch to
consider Apple Hospitality's revised proposal. They discussed the merits of
continuing with the offer or instead seeking other opportunities for the
partnership. The group noted that the revised offer was still $2 million higher
than Apple Hospitality's initial bid in June 2001, and was only $1.9 million
less than the highest of the three initial bids. At the request of the general
partner, Merrill Lynch contacted the other four parties that had made final bids
to determine their interest in pursuing a transaction at their previous offered
price levels. None of the four parties were interested in proceeding with a
merger at an equity valuation for the units higher than the $40.0 million
offered by Apple Hospitality. Accordingly, the general partner determined to
proceed with the negotiations of the proposed acquisition with Apple
Hospitality.
Over the following two months, representatives of the partnership and
Apple Hospitality participated in numerous discussions to negotiate the terms of
the proposed merger and draft a definitive merger agreement. During these
negotiations, both the partnership and Apple Hospitality continued to evaluate
the aggregate merger consideration to be paid by Apple Hospitality in the
merger. As a result of these negotiations, Apple Hospitality agreed on November
26, 2001 to increase the merger consideration by an aggregate of $1.75 million
and made a final offer for the partnership of $41.95 million, consisting of
$41.75 million for the units and $200,000 for the general partner interest. This
purchase price equaled $636.43 per unit. As partial consideration for agreeing
to this increase in the merger consideration, the partnership agreed to transfer
to Apple Hospitality the operating profit earned by the partnership's inns with
respect to the last full accounting period and any portion of the subsequent
accounting period occurring prior to the consummation of the merger, and Apple
Hospitality agreed to pay the partnership's scheduled debt service with respect
to the same period.
On November 26, 2001, the board of managers of the general partner met
to deliberate and make a decision on whether to approve the proposed merger with
Apple Hospitality. At the meeting, the board
17
of managers reviewed the material terms and conditions of the merger and the
transactions contemplated by the merger agreement. Merrill Lynch presented the
results of its financial and valuation analysis of the partnership and the
proposed transaction. Merrill Lynch then delivered its oral opinion, later
confirmed in writing, concerning the fairness, from a financial point of view,
of the $636.43 per unit to be received by the limited partners pursuant to the
merger. Hogan & Hartson L.L.P. also made a presentation to the board of managers
regarding the fiduciary duties of the board with respect to the proposed
transaction. The board of managers discussed the information presented by its
legal and financial advisors, asked questions of those advisors and adjourned
the meeting until the following day so that they could consider the information
received.
On November 27, 2001, the board of managers of the general partner
reconvened its meeting to discuss the proposed merger. After further discussion
and due consideration, the board of managers approved the merger agreement and
the related ancillary agreements, recommended that the merger agreement be
approved by the limited partners and directed the merger agreement be submitted
to the limited partners for approval.
On November 28, 2001, the partnership and Apple Hospitality finalized
and executed the merger agreement. On December 3, 2001, the general partner
distributed a letter to the limited partners announcing the execution of the
definitive merger agreement.
Reasons for the Merger
In making its determination that the merger is fair to and in the best
interests of the limited partners, and its decision to approve the merger
agreement and to recommend to the limited partners that they vote their units of
limited partnership interest in favor of adoption of the merger agreement, the
board of managers of the general partner identified and considered a number of
factors which weighed in favor of the approval of the merger and the adoption of
the merger agreement, including the following:
o the fact that the partnership agreement provides that after 2000 the
general partner is required to use its reasonable best efforts to sell
the partnership's inns;
o the general partner's belief that the sale process whereby Merrill
Lynch, the partnership's financial advisor, solicited 48 potential
purchasers, provided confidential information to 19 of these entities
and received indications of interest from five interested purchasers
is a reliable indicator of fair market value;
o the presentation by Merrill Lynch and the written opinion of Merrill
Lynch concerning the fairness, from a financial point of view, of the
$636.43 per unit to be received by the limited partners pursuant to
the merger;
o the fact that the merger agreement provides the opportunity for the
general partner to maximize value to the limited partners by
permitting the partnership to terminate the merger agreement, after
the payment to Apple Hospitality of a $1.2 million break-up fee, if
any person has proposed an acquisition transaction that the general
partner determines in good faith, after consultation with its
financial advisors, to be reasonably likely to result in a Superior
Acquisition Proposal (as defined in the merger agreement);
o the terms and conditions of the merger agreement, including the fact
that the terms were determined through arm's length negotiations;
18
o the assessment that Apple Hospitality has the financial capability to
acquire the partnership for the merger consideration, as evidenced by
the fact that $35 million of the $41.95 million purchase price has
been placed in escrow;
o information with respect to the financial condition, results of
operations, business and prospects of the partnership, particularly in
light of the events of September 11, 2001 and the current economic
environment, and the adverse impact that those events have had on the
travel and lodging industry;
o the fact that the merger will not occur without the consent of limited
partners holding a majority of the units of limited partnership
interest; and
o the fact that although there is no established trading market for the
units, the per unit merger consideration significantly exceeds the
prices that have been paid in the limited secondary market during the
past two years and pursuant to two recent third-party tender offers
conducted by Madison Liquidity Investors.
The general partner also considered the following potentially negative
facts in its deliberations concerning the merger agreement:
o the fact that because the limited partners would receive only cash in
the merger, and not an interest in the surviving entity, the limited
partners would not have the opportunity to participate in future
growth prospects of the partnership; and
o the fact that the partnership is being offered for sale at a time when
the domestic lodging industry is experiencing a weak economic
environment, which environment was further negatively affected by the
events of September 11, 2001.
After due consideration, the general partner concluded that the
benefits to the limited partners of the merger outweighed the negative factors.
In view of the variety of factors considered with its evaluation of the
merger and the transactions contemplated by the merger agreement, the general
partner did not quantify or otherwise assign relative weights to the various
factors that it considered or determine that any factor was of particular
importance in reaching its determination that the merger is fair to and in the
best interests of the limited partners. Rather, the general partner made its
determination based on the totality of the information it considered.
Recommendation of the General Partner
After careful consideration, the general partner has determined that
the merger agreement and the merger are fair to and in the best interest of the
partnership and the limited partners. The general partner recommends that
limited partners vote "FOR" approval of the merger agreement.
19
Opinion of Financial Advisor
On April 9, 2001, the partnership and the general partner retained
Merrill Lynch to act as financial advisor in connection with a possible business
combination involving the partnership. The partnership and the general partner
retained Merrill Lynch based on Merrill Lynch's experience, expertise,
reputation and its familiarity with the partnership and its business. Merrill
Lynch is an internationally recognized investment banking and financial advisory
firm with experience in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, secondary
distributions of securities, private placements and valuations for corporate
purposes. Merrill Lynch currently provides, and has in the past provided,
financial advisory and financing services to the partnership, Host Marriott,
L.P., Host Marriott Corporation, the general partner of Host Marriott, L.P., and
entities that may be deemed their "affiliates."
On November 26, 2001, Merrill Lynch delivered its oral opinion to the
board of managers of the general partner that, as of that date and based upon
the assumptions made, matters considered and limitations on Merrill Lynch's
review, the proposed $636.43 per unit to be received pursuant to the merger by
the holders of units of limited partnership interest who are admitted as limited
partners immediately prior to the effective time of the merger, exclusive of the
intended distributions of available and unrestricted partnership cash,
reimbursed debt service and beneficial interests in the liquidating trust to be
made in connection with the merger, is fair from a financial point of view to
these limited partners. Following its review of the final merger agreement, on
November 28, 2001, Merrill Lynch confirmed its oral opinion with a written
opinion as of that date and based upon the assumptions made, matters considered
and limitations on Merrill Lynch's review described in the opinion. Merrill
Lynch subsequently confirmed its opinion by delivering to the board of managers
of the general partner a written opinion, dated as of February 19, 2002, based
upon the assumptions made, matters considered and limitations on Merrill Lynch's
review described in the opinion. In connection with the written opinion dated as
of February 19, 2002, Merrill Lynch updated the analyses used to render its
earlier opinion. The consideration to be paid pursuant to the merger was
determined through arm's length negotiations between Apple Hospitality's senior
management and the general partner with the assistance of Merrill Lynch. Other
than with respect to limiting Merrill Lynch's analyses to the consideration to
be paid to the limited partners, neither the partnership nor the general partner
provided specific instructions to, or placed any limitations on, Merrill Lynch
with respect to the procedures to be followed or factors to be considered by
Merrill Lynch in performing its analyses or providing its opinion.
The full text of Merrill Lynch's opinion, dated as of February 19,
2002, which sets forth the assumptions made, matters considered and limitations
on the review undertaken, is attached as Appendix B to this consent solicitation
statement and is incorporated into this document by reference. The description
of Merrill Lynch's opinion below sets forth the material terms of the opinion.
You are urged to and should read carefully the opinion in its entirety. The
following summary of Merrill Lynch's opinion is qualified in its entirety by
reference to the full text of the opinion.
Merrill Lynch's opinion is addressed to the board of managers of the
general partner and addresses only the fairness from a financial point of view
of the $636.43 per unit to be received pursuant to the merger by the holders of
units of limited partnership interest who are admitted as limited partners
immediately prior to the effective time of the merger, exclusive of the intended
distributions of available and unrestricted partnership cash, reimbursed debt
service and beneficial interests in the liquidating trust to be made in
connection with the merger. The opinion does not address any other aspect of the
merger or any related transaction, including the consideration to be paid for
the general partner interest in the partnership or the merits of the general
partner's underlying decision to engage in the merger, and
20
the opinion does not constitute, nor should it be construed as, a recommendation
by Merrill Lynch to any limited partner as to whether he or she should provide
his or her consent with respect to the merger agreement.
In connection with the preparation of the opinion, Merrill Lynch, among
other things:
o reviewed certain publicly available business and financial information
relating to the partnership that it deemed to be relevant;
o reviewed certain information, including financial forecasts, relating
to the business, earnings, cash flow, assets, liabilities and
prospects of the partnership furnished to it by the general partner;
o conducted discussions with members of senior management of the general
partner concerning the matters described above;
o performed various valuation analyses that it deemed relevant,
including a "cap rate" analysis, discounted cash flow analysis,
analysis of the secondary market transfer prices for the units of
limited partnership interest and analysis of recent third-party tender
offer prices for the units of limited partnership interest;
o reviewed the results of the partnership's operations and compared them
with those of certain publicly traded companies that it deemed to be
relevant;
o participated in discussions and negotiations among representatives of
the general partner and Apple Hospitality and their legal advisors;
o reviewed the final version of the merger agreement, dated as of
November 28, 2001;
o conducted a "market test" regarding the sale of the partnership to
other potential acquirors, including public and private hotel
companies, real estate opportunity funds and other financial buyers;
and
o reviewed other financial studies and analyses and took into account
other matters that it deemed necessary, including its assessment of
general economic, market and monetary conditions and specific economic
and market conditions affecting the domestic lodging industry as a
result of the September 11, 2001 terrorist attacks in the United
States.
In preparing its opinion, Merrill Lynch assumed and relied on the
accuracy and completeness of all information supplied or otherwise made
available to it, discussed with or reviewed by it, or which was publicly
available, and it did not assume any responsibility for independently verifying
any of this information or undertake an independent evaluation or appraisal of
any of the assets or liabilities of the partnership, nor was Merrill Lynch
furnished with an independent evaluation or appraisal. In addition, Merrill
Lynch did not assume any obligation to conduct any physical inspection of the
properties or facilities of the partnership. With respect to the financial
forecast information furnished to or discussed with Merrill Lynch by the general
partner, Merrill Lynch has assumed that they have been reasonably prepared and
reflect the best currently available estimates and judgment of the general
partner as to the expected future financial performance of the partnership.
Merrill Lynch expresses no opinion as to the financial forecast information or
the assumptions on which they were based. Merrill Lynch also assumed
21
the effectiveness of the proposed amendments to the management agreement
pursuant to which the partnership's inns are managed, as furnished to it
verbally by the general partner in February 2002 and described in this consent
solicitation statement.
Merrill Lynch's opinion is necessarily based upon market, economic and
other conditions as they existed and could be evaluated on, and upon the
information made available to Merrill Lynch as of, the date of its opinion.
In accordance with customary investment banking practice, Merrill Lynch
employed generally accepted valuation methods in reaching its opinion.
The following is a summary of the material financial and valuation
analyses utilized by Merrill Lynch in connection with both its presentation to
the board of managers of the general partner on November 26, 2001 in connection
with the rendering of its opinion on that date, and its presentation materials
provided to the board of managers of the general partner in connection with the
rendering of its opinion as of February 19, 2002.
Solicited Third Party Interest. In connection with the preparation of
its opinion, Merrill Lynch was authorized by the general partner to solicit, and
did actively solicit, third-party indications of interest for the acquisition of
the partnership or, alternatively, all of the partnership's assets.
Specifically, Merrill Lynch contacted 48 potential purchasers, including public
and private hotel companies, real estate opportunity funds and other financial
buyers. Nineteen of these parties executed confidentiality agreements and
received detailed confidential information packages, and five made final offers
following various rounds of bidding, with Apple Hospitality having made the
highest final bid. Following the tragedies of September 11, 2001, Apple
Hospitality notified the general partner and Merrill Lynch that it was prepared
to move forward with the merger, but was reducing its offering price by
approximately 3.4% of the total transaction value implied by its previous offer.
Merrill Lynch subsequently re-contacted each of the other final round bidders,
none of whom expressed an interest in moving forward at or around its previously
indicated offer price, and therefore Apple Hospitality remained the high bidder.
In subsequent negotiations with the general partner and Merrill Lynch, Apple
Hospitality raised its offer price.
Historical Secondary Market Transfer Prices. Merrill Lynch reviewed the
historical secondary market transfer prices for the units of limited partnership
interest based upon information supplied by the general partner for the period
from January 2, 2001 through September 7, 2001, which represented the most
recent data available prior to disclosure of the transaction to the limited
partners, as the units only transfer through the general partner at the
beginning of each quarter. Apple Hospitality's offer represents a premium of
105% to the high of the units' secondary market transfer prices during this
period and a premium of 506% to the low during this period. For details on the
historical secondary market transfer prices for the units, see "Price Range for
the Units" on page 61.
Third-Party Tender Offer Prices. Merrill Lynch reviewed the price
offered for the units of limited partnership interest pursuant to third-party
tender offers based upon information provided by the general partner for the
period from January 2, 2001 through November 23, 2001, which represented the
most recent data available prior to disclosure of the transaction to the limited
partners. Apple Hospitality's offer represents a premium of 59% to the offered
high during this period and a premium of 264% to the offered low during this
period. The most recent of these tender offers, made at a price of $400.00 per
unit, expired on October 19, 2001.
22
Going-in Cap Rate Analysis. Merrill Lynch performed a "going-in cap
rate" analysis (i.e., an analysis of the capitalized value of forecasted 2001
net operating income) based upon projections and assumptions provided by the
general partner. Assuming a deduction for incentive management fees, commonly
referred to as "IMF," projected by the general partner to be paid in 2001 to
the manager of the partnership's inns based upon the hotel management
agreement between the partnership and the manager and a normalized 5.5%
furniture, fixtures and equipment reserve provided by the general partner,
Merrill Lynch applied a range of going-in cap rates from 12.0% to 14.0% to the
forecasted 2001 net operating income. In determining the appropriate range of
going-in cap rates, Merrill Lynch relied on its extensive industry knowledge
and considered, among other things, (a) the current general economic
environment, (b) the uncertainty associated with the U.S. lodging sector
fundamentals in the wake of the tragedies of September 11, 2001, (c) the local
markets in which the individual properties are located, (d) the age and
condition of the properties, (e) the significance of the required renovations
and other capital expenditures and (f) the terms of similar transactions.
These calculations produced a range of aggregate enterprise values for the
partnership. After adding $5 million in cash, Merrill Lynch then subtracted
partnership debt and the net present values of required renovation and other
capital expenditures projected by the general partner and future payments of
deferred IMF projected by the general partner (using 10% as a market discount
rate) to arrive at a total equity value. Merrill Lynch then subtracted
$200,000 from the total equity value, representing payment for the general
partnership interest, to arrive at a total limited partnership equity value.
Merrill Lynch then divided this total limited partnership equity value by the
number of the partnership's outstanding units of limited partnership interest
to determine a reference range for an implied value of $389 to $747 per unit.
In connection with delivering its written opinion dated as of February 19,
2002, Merrill Lynch updated its going-in cap rate analysis to reflect the most
recent financial results and forecasts for the partnership provided by the
general partner, current estimates regarding required renovation and other
capital expenditures provided by the general partner and the proposed changes
to the management agreement described in this consent solicitation statement
as provided verbally by the general partner. As a result of these updates,
Merrill Lynch applied the same procedures described above to determine a
reference range for an implied value of $355 to $716 per unit.
Discounted Cash Flow Analysis. Merrill Lynch performed a discounted
cash flow analysis (i.e., an analysis of the present value of the projected
leveraged cash flows) for the partnership for the 5-year period beginning in
2002 and ending in 2006 based upon projections and assumptions provided by the
general partner. Merrill Lynch discounted the projected leveraged cash flows
using equity discount rates ranging from 20% to 30%. In determining the
appropriate range of equity discount rates, Merrill Lynch relied on its
extensive industry knowledge and considered, among other things, (a) the current
general economic environment, (b) the uncertainty associated with the U.S.
lodging sector fundamentals in the wake of the tragedies of September 11, 2001,
(c) the local markets in which the individual properties are located, (d) the
age and condition of the properties, (e) the significance of the required
renovations and other capital expenditures, (f) the amount and terms of the
partnership's existing indebtedness and (g) the terms of similar transactions.
Merrill Lynch added to the present value of the annual cash flows the present
value of the terminal value of the partnership at the end of the year 2006 using
the same 20% to 30% discount rate range to arrive at a total equity value. The
terminal value at the end of 2006 was calculated using the projected 2006 net
operating income provided by the general partner and applying the same
methodology as in the going-in cap rate analysis, except utilizing a 12.5% to
14.5% cap rate range to reflect the aging of the hotel portfolio. Merrill Lynch
then subtracted $200,000 from the total equity value, representing payment for
the general partnership interest, to arrive at a total limited partnership
equity value. Merrill Lynch divided this total limited partnership equity value
figure by the number of the partnership's outstanding units of limited
partnership interest to determine a reference range for an implied value of $451
to $761 per unit. In connection with delivering its written opinion
23
dated as of February 19, 2002, Merrill Lynch updated its discounted cash flow
analysis to reflect the most recent financial results and forecasts for the
partnership provided by the general partner, current estimates regarding
required renovation and other capital expenditures provided by the general
partner and the proposed changes to the management agreement described in this
consent solicitation statement as provided verbally by the general partner. As a
result of these updates, Merrill Lynch applied the same procedures described
above to determine a reference range for an implied value of $399 to $730 per
unit.
The summaries set forth above do not purport to be complete
descriptions of the analyses presented by Merrill Lynch. The preparation of a
fairness opinion is a complex analytical process involving various
determinations as to the most appropriate and relevant methods of financial
analysis and the application of those methods to the particular circumstances
and therefore is not necessarily susceptible to partial analysis or summary
description. Merrill Lynch believes that selecting any portion of its analyses
or the summaries set forth above, without considering the analyses performed
with respect to its opinion as a whole, would create an incomplete view of the
process underlying Merrill Lynch's opinion. In arriving at its opinion, Merrill
Lynch considered the results of all its analyses performed with respect to that
opinion. Merrill Lynch did not attribute any particular weight to any analysis
or factor considered by it. The analyses performed by Merrill Lynch and
estimates contained in these analyses are not necessarily indicative of actual
values or actual future results, which may be significantly more or less
favorable than those suggested by Merrill Lynch's analyses. The analyses do not
purport to be appraisals or to reflect the prices at which the partnership might
actually be sold or the prices at which units of limited partnership interest
may be transferred at any time in the future. The analyses were prepared solely
for the purposes of Merrill Lynch providing its opinion to the board of managers
of the general partner. Because the analyses are inherently subject to
uncertainty, being based upon numerous factors and events, including, without
limitation, factors related to industry performance and general business,
economic, market, financial and competitive conditions beyond the control of the
parties or their respective advisors, none of Merrill Lynch, the partnership,
the general partner, Apple Hospitality or any other person assumes
responsibility if future results or actual values are materially different from
those forecast. The foregoing summaries do not purport to be complete
descriptions of the analyses performed by Merrill Lynch and are qualified by
reference to the written opinions of Merrill Lynch.
Under the terms of an engagement letter dated April 9, 2001, the
partnership and the general partner will pay Merrill Lynch for its services and
for rendering its opinion to the board of managers of the general partner.
Pursuant to this engagement letter, Merrill Lynch will be paid $500,000 for
rendering its opinion and will be paid a separate transaction fee, conditioned
on the merger becoming effective, equal to 1% of the aggregate purchase price
paid in the merger, including the merger consideration paid by Apple Hospitality
for the general partnership interest and limited partnership interests in the
partnership and the amount of mortgage indebtedness of the partnership or any
affiliate or subsidiary of the partnership assumed or acquired by Apple
Hospitality or retired or defeased in connection with the merger. In addition to
any fees payable to Merrill Lynch under the engagement letter, the partnership
has agreed to reimburse Merrill Lynch for its reasonable out-of-pocket expenses
incurred in connection with providing its services and rendering its opinion,
including the reasonable fees of its legal counsel. The partnership has also
agreed to indemnify Merrill Lynch, its affiliates and each of their respective
directors, officers, agents, employees and controlling persons against
liabilities, including liabilities under U.S. federal securities laws, related
to or arising out of the merger or the engagement and related performance of
Merrill Lynch and to reimburse Merrill Lynch, its affiliates and each of their
respective directors, officers, agents, employees and controlling persons for
reasonable related expenses, including reasonable outside counsel fees and
expenses. These indemnity obligations have been guaranteed by Host Marriott,
L.P.
24
Merrill Lynch currently provides, and has in the past provided,
financial advisory and financing services to the partnership, Host Marriott,
L.P., Host Marriott Corporation and entities that may be deemed their
"affiliates" and may continue to do so and has received, and may receive, fees
for the rendering of these services. In addition to acting as financial advisor
in connection with the merger, Merrill Lynch has, during the past two years,
participated as co-manager in the underwriting of an unsecured senior notes
offering for Host Marriott, L.P. in December of 2001, participated as co-manager
in the underwriting of an unsecured senior notes offering for Host Marriott,
L.P. in September of 2000, provided financial advisory services to two
subsidiaries of Host Marriott Corporation with respect to the sale of two
partnerships, in which the subsidiaries held the general partnership interests,
to two affiliates of Host Marriott Corporation, and currently provides financial
advisory services to a subsidiary of Host Marriott Corporation with respect to a
potential business combination involving a separate partnership in which the
subsidiary acts as general partner. In connection with the provision of these
services, Merrill Lynch has received, and expects to receive, compensation from
Host Marriott, L.P., Host Marriott Corporation and their affiliates. During the
past two years, Merrill Lynch has received an aggregate of $5.6 million for
providing these services. Merrill Lynch may provide financial advisory and
financing services to Apple Hospitality or its affiliates in the future and
receive fees for providing those services. In the ordinary course of its
business, Merrill Lynch may also engage in transactions involving units of
limited partnership interest and the securities of Host Marriott, L.P., Host
Marriott Corporation and their affiliates for Merrill Lynch's own account and
for the accounts of its customers and, accordingly, Merrill Lynch may at any
time hold a long or short position in these securities.
Merger Financing
The total amount of funds required to pay the merger consideration to
the limited partners and the general partner is estimated to be approximately
$41.95 million. Apple Hospitality has deposited into escrow $35 million of the
$41.95 million purchase price, $3 million of which is being held as an earnest
money deposit and $32 million of which is being held as evidence of Apple
Hospitality's financial ability to consummate the merger. The remaining amount
of the limited partner merger consideration will be delivered to the paying
agent by Apple Hospitality at the closing of the merger. Apple Hospitality will
use cash on hand to fund the remaining amount of the merger consideration.
Regulatory Approvals
We are not aware of any material filings, approvals or other action by
any federal or state governmental administrative or regulatory authority
required for the completion of the merger, other than compliance with applicable
law.
Interests of the General Partner and Affiliates in the Merger
In considering the recommendation of the general partner to vote in
favor of the merger agreement, you should be aware that the general partner will
receive $200,000 for its general partner's interest. As described more fully
below, the general partner's merger consideration will be retained by Apple
Hospitality for a period of time after the completion of the merger in order to
satisfy certain indemnification obligations that the general partner agreed to
fund under the merger agreement. Neither the general partner nor any affiliate
of the general partner owns any units of limited partnership interest as of the
record date. In addition, if the merger is completed and the liquidating trust
created, the general partner will administer the liquidating trust without
profit.
25
Material Federal Income Tax Considerations of the Merger
General. The following discussion summarizes certain federal income tax
considerations related to the receipt by the limited partners of the merger
consideration.
The information in this section is based upon the Internal Revenue Code
of 1986, as amended (the "Code"), Treasury Regulations thereunder, rulings, and
other pronouncements and decisions now in effect, all of which are subject to
change (perhaps with retroactive effect). The general partner has not requested,
and does not plan to request, any rulings from the IRS concerning the tax
treatment of the limited partners in connection with the merger. Thus, it is
possible that the IRS would challenge the statements in this discussion, which
do not bind the IRS or the courts, and that a court would agree with the IRS.
The discussion set forth herein is not intended to be exhaustive of all
possible tax considerations. For example, this summary does not give a detailed
discussion of any state, local, or foreign tax considerations. Nor does it
discuss all aspects of federal income taxation that may be relevant to specific
limited partners in light of their particular circumstances. Except where
specifically indicated, the discussion below describes general federal income
tax considerations applicable to individuals who are citizens or residents of
the United States. Accordingly, the following discussion has limited application
to domestic corporations and persons subject to specialized federal income tax
treatment, such as foreign persons, tax-exempt entities, regulated investment
companies and insurance companies.
The following discussion includes an estimate by the general partner,
on a per unit basis, of a limited partner's adjusted tax basis in his units
(including the amount of syndication costs includible in his basis, if any) and
the amount of the partnership's liabilities allocable to such limited partner.
These amounts are only estimates, and there could be material differences
between these estimated amounts and the actual numbers due to a variety of
factors. In addition, these estimates apply only to a limited partner who
purchased his units on the date of the original offering of the units by the
partnership and who has held his units continuously since that time. The
estimated amounts could differ considerably for a limited partner who acquired
some or all of his units after the date of the original offering. The amount of
gain recognized by such limited partners in connection with the disposition of
their units pursuant to the merger will depend upon when they acquired their
units and the price they paid for the units (as adjusted for subsequent
allocations of partnership income and loss and subsequent partnership
distributions).
LIMITED PARTNERS SHOULD BOTH REVIEW THE FOLLOWING DISCUSSION AND
CONSULT WITH THEIR TAX ADVISORS TO DETERMINE THE TAX CONSEQUENCES - INCLUDING
ANY FEDERAL, STATE, LOCAL OR NON-U.S. TAX CONSEQUENCES - TO THEM OF THE MERGER
IN LIGHT OF THEIR PARTICULAR TAX SITUATION.
Material Tax Considerations to Limited Partners of the Merger. Each
limited partner will be treated as having made a taxable disposition of his
units pursuant to the merger, which disposition will be deemed to occur on the
effective date of the merger. The gain or loss recognized by a limited partner
upon the disposition of his units will equal the difference between the amount
considered realized by the limited partner for tax purposes in exchange for his
units in the merger and the limited partner's adjusted tax basis in such units.
See "--Basis of Units" below.
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The amount realized by each limited partner will equal the sum of the
following items: (a) the cash received for his units at the time of the merger
and (b) the portion of the partnership's liabilities allocable to the limited
partner's units for federal income tax purposes immediately prior to the merger.
The general partner estimates that, as of December 31, 2001, the dollar amount
of the partnership's liabilities allocable to each limited partner was
approximately $1,399 per unit.
To the extent that the amount realized, as determined in the preceding
paragraph, exceeds the limited partner's adjusted tax basis in the units, such
limited partner will recognize gain. The taxable gain recognized by the limited
partner will exceed the cash amount received with respect to his units by an
amount equal to the excess (if any) of his share of the partnership's
liabilities allocable to him for federal tax purposes over his adjusted tax
basis in his units (which is commonly referred to as a "negative capital
account").
To the extent that the limited partner's adjusted tax basis in his
units exceeds the amount realized by the limited partner in the merger, such
limited partner will recognize a loss.
For a discussion of the federal income tax rates applicable to the gain
or loss recognized by a limited partner from the disposition of a unit in the
merger that has been held as a capital asset by the limited partner, see
"--Federal Income Tax Rates Applicable to Gain or Loss from Disposition of Units
in the Merger" below.
Allocations of Profits and Losses to Limited Partners. Limited partners
will be allocated partnership profits and losses through the period ending on
the effective date of the merger. Any allocation of taxable income received by a
limited partner prior to the effective date of the merger will increase such
limited partner's adjusted tax basis in his units and, thus, will decrease the
amount of capital gain, or increase any capital loss, recognized by the limited
partner as a result of the disposition of his units pursuant to the merger. As
described below in "The Merger Agreement--Other Distributions to be Made in
Connection with the Merger," the partnership intends to declare a distribution
to the limited partners, payable upon the closing of the merger, of a certain
amount of partnership cash. Any such distribution received by a limited partner
will decrease such limited partner's adjusted tax basis in his units and,
consequently, will increase the amount of capital gain, or decrease any capital
loss, recognized by the limited partner as a result of the disposition of his
units.
Pursuant to the terms of the merger agreement, the limited partners
will not receive any distribution of cash with respect to the "operating profit"
of the partnership's inns attributable to the last full accounting period, and
any portion of the subsequent accounting period, occurring prior to the closing
of the merger. Instead, these payments of "operating profit" will become the
property of Apple Hospitality. The agreement to transfer ownership of the
partnership's "operating profit" for these periods was in partial consideration
for Apple Hospitality's agreement to increase the aggregate merger consideration
to be paid for the units. However, the taxable income associated with all
"operating profit" of the partnership's inns, including that attributable to the
last full accounting period, and any portion of the subsequent accounting
period, occurring prior to the closing of the merger, will be allocated to the
limited partners. Any allocation of such taxable income to you will increase
your adjusted tax basis in your units and, thus, will decrease the amount of
capital gain, or increase any capital loss, recognized by you as a result of the
disposition of your units pursuant to the merger.
Basis of Units. In general, a limited partner had an initial tax basis
in his units ("Initial Basis") equal to his cash investment in the partnership,
plus his share of the partnership's liabilities allocable to him for tax
purposes at the time he acquired his units. A limited partner's Initial Basis
generally has
27
been increased by (a) such limited partner's share of partnership taxable
income, and (b) any increases in his share of liabilities of the partnership.
Generally, such limited partner's Initial Basis has been decreased (but not
below zero) by (1) his share of partnership cash distributions, (2) any
decreases in his share of liabilities of the partnership, (3) his share of
losses of the partnership, and (4) his share of nondeductible expenditures of
the partnership that are not chargeable to capital. A limited partner's basis in
his units would include his share of the syndication costs incurred by the
partnership at formation if he acquired his units in the original offering.
The general partner believes that, as of December 31, 2001, a limited
partner who acquired his units at the time of the original offering of such
units and has held such units at all times since the offering had an adjusted
basis in each unit of approximately $2,384. This amount includes approximately
$1,399 attributable to his share of the partnership's nonrecourse liabilities
and approximately $113 attributable to his share of syndication costs, but does
not take into account the reductions in basis the limited partner will incur
either as a result of the issuance of beneficial interests in the liquidating
trust prior to the merger or as a result of the distribution of certain
unrestricted partnership cash at the closing of the merger. See "Material
Federal Income Tax Considerations of the Receipt of Interests in the Liquidating
Trust--Taxation of Receipt of Interests in the Liquidating Trust."
Federal Income Tax Rates Applicable to Gain or Loss from Disposition of
Units in the Merger. The disposition of units by a limited partner pursuant to
the merger generally will result in the recognition of capital gain or capital
loss by the limited partner if the units have been held by the limited partner
as a capital asset. To the extent, however, that a portion of the amount
realized attributable to the limited partner's share of "unrealized receivables"
of the partnership differs from the limited partner's share of the basis
attributable to those assets, the difference will be treated as ordinary income
(taxable to non-corporate limited partners at a maximum statutory rate of 38.6%
effective January 1, 2002) or ordinary loss. The ordinary income or loss to be
realized by a limited partner is the amount that would have been allocated to
the limited partner if the partnership had sold all of its property for its fair
market value immediately prior to the merger. Unrealized receivables include, to
the extent not previously included in the partnership's income, any rights to
payment for services rendered or to be rendered. Unrealized receivables also
include amounts that would be subject to recapture as ordinary income (for
example, recapture of depreciation with respect to personal property) if the
partnership had sold its assets at their fair market value immediately prior to
the merger. The general partner has not estimated the fair market value of the
partnership's personal property, and thus takes no position at this time as to
whether the value is such that a limited partner would recognize ordinary income
pursuant to Sections 751 and 1245 upon the disposition of his units. In any
event, the ordinary income amount, if any, would be equal to the limited
partner's share of the excess, if any, of the value of such personal property at
the time of disposition of the units over its adjusted basis at such time.
For corporations, the maximum rate of tax on the net capital gain from
a sale or exchange of a capital asset held for more than twelve months, or with
regard to ordinary income, is currently 35%. For individuals, trusts and
estates, net capital gain from the sale of a capital asset held one year or less
is subject to tax at the applicable rate for ordinary income. For these
taxpayers, the maximum rate of tax on the net capital gain from a sale or
exchange of an asset held for more than one year generally is 20%. However,
applicable Treasury regulations apply a 25% tax rate to a sale of an interest in
a pass-through entity, such as a partnership, to the extent that the gain
realized on the sale of the interest is attributable to prior depreciation
deductions by the partnership that have not otherwise been recaptured as
ordinary income under other depreciation recapture rules. Accordingly, any gain
from the disposition of units held for more than one year could be treated
partly as gain from the sale of a long-term capital asset subject to a 20% tax
rate, partly as gain from the sale of depreciable real property subject to a 25%
tax rate to the extent attributable to prior depreciation deductions by the
partnership that have not otherwise
28
been recaptured as ordinary income, and partly as ordinary income to the extent
attributable to unrealized receivables. Each limited partner should consult with
his own tax advisor regarding the application of these different rates to the
disposition of his units in the merger.
The partnership anticipates providing limited partners with any
information reasonably necessary to permit them to determine which portion, if
any, of the gain or loss recognized from the disposition of their units will be
subject to tax at ordinary income rates or at the special 25% rate.
Passive Activity Income and Loss Carryforwards of Limited Partners. Any
gain recognized by a limited partner in connection with the disposition of his
units pursuant to the merger will constitute "passive activity income" for
purposes of the "passive activity loss" limitation rules. Accordingly, such
income generally may be offset by losses from all sources, including "passive
activity loss" carryforwards with respect to the partnership and "passive" or
active losses from other activities. Each limited partner should consult with
his own tax advisor regarding whether he may treat any loss recognized in
connection with the disposition of his units pursuant to the merger, together
with any "passive activity loss" carryforward with respect to the partnership,
as an active loss that may be used to offset the limited partner's taxable
income in light of the receipt by the limited partner of beneficial interests in
the liquidating trust.
Federal and State Tax Withholding Applicable to Limited Partners. The
federal income tax laws require that taxes be withheld on amounts payable to
foreign persons by reason of a disposition of certain United States real
property interests, which include interests in certain partnerships that hold
real property in the United States. Withholding of ten percent (10%) of the
amount realized by a limited partner pursuant to the merger may be required
unless the limited partner completes, executes and returns a Certificate of
Non-Foreign Status. The "amount realized" by a limited partner in connection
with the merger will be the sum of (a) the cash amount received for his units at
the time of the merger, plus (b) the limited partner's share of the
partnership's nonrecourse liabilities immediately prior to the disposition of
his units.
In addition, Apple Hospitality may be required to withhold a portion of
the merger consideration to be paid to each limited partner to satisfy the
withholding obligations of certain states, including the State of North
Carolina.
Material Federal Income Tax Considerations of the Receipt of Interests in the
Liquidating Trust
Classification of the Liquidating Trust for Federal Income Tax
Purposes. As discussed in greater detail below under "The Merger
Agreement--Establishment of the Liquidating Trust," the liquidating trust will
be formed as a trust under the laws of the State of Delaware to permit the
limited partners to receive the benefit of certain cash flows of the partnership
attributable to the period prior to the closing that will not be known or
available to the partnership until after the merger has been completed and to
realize the value of certain contingent assets of the partnership. The
liquidating trust also will be responsible for paying or reimbursing the
surviving partnership for certain expenses that are attributable to the period
prior to the closing and for indemnifying the surviving partnership and related
parties with respect to any damages or liabilities resulting from certain
litigation involving the partnership's inns that existed prior to the merger.
Pursuant to the trust agreement governing the liquidating trust, the general
partner will administer the liquidating trust and the beneficial interests in
the liquidating trust will be issued to the limited partners, as beneficiaries
of the trust, based pro rata upon each limited partner's ownership of units as
of the time of such issuance. The liquidating trust will terminate upon payment
to the limited partners of all of the liquidating trust's assets, which is
expected to
29
occur approximately two years after the completion of the merger. The life of
the liquidating trust may be extended if the general partner, as administrator,
is currently engaged in the determination, defense or settlement of a claim by
or against the liquidating trust.
Treasury Regulations addressing the classification of entities provide
that an organization will be considered a liquidating trust for federal income
tax purposes if it is organized for the primary purpose of liquidating and
distributing the assets transferred to it, and if its activities are all
reasonably necessary to, and consistent with, the accomplishment of that
purpose. However, if the liquidation is unreasonably prolonged or if the
liquidation purpose becomes so obscured by business activities that the declared
purpose of liquidation can be said to be lost or abandoned, the status of the
organization will no longer be that of a liquidating trust. An organization that
is treated as a liquidating trust for federal income tax purposes and its
beneficiaries are generally subject to tax under the rules applicable to grantor
trusts. In general, and as described in greater detail below under "--Taxation
of Receipt of Interests in the Liquidating Trust," each limited partner, as a
beneficiary of the liquidating trust, will be required to report on his income
tax return his pro rata share of the income, deductions and credits of the
liquidating trust as if the limited partner had received the items directly,
while the liquidating trust itself will not be taxable as a separate entity.
The determination of whether an organization will be classified as a
liquidating trust for federal income tax purposes is a factual one relating to
the operation and activities of the organization. Although none of the
partnership, the general partner or the liquidating trust will seek a private
letter ruling from the IRS regarding the classification of the liquidating trust
as a "liquidating trust" for federal income tax purposes, the Internal Revenue
Service has issued guidance specifying certain conditions that, if satisfied,
generally will result in the issuance of a ruling that an organization is
classified as a liquidating trust. The relevant factors identified by the IRS
are the following:
o the trust instrument provides that the trust is organized for the
primary purpose of liquidating the assets transferred to it with no
objective to continue or engage in the conduct of a trade or business;
o the trust instrument contains a fixed or determinable termination date
that is generally not more than three years from the date of creation
of the trust and that is reasonable based on all the facts and
circumstances;
o the trust instrument provides that the investment powers of the
trustee are limited to powers to invest in demand and time deposits in
banks or savings institutions or temporary investments such as
short-term certificates of deposit or Treasury bills;
o the trust instrument provides that the trust does not receive or
retain cash in excess of a reasonable amount to meet claims and
contingent liabilities;
o the trust instrument provides that the trust does not receive
transfers of any listed stocks or securities, any readily-marketable
assets, or any operating assets of a going business;
o the trust instrument provides that the trust does not receive
transfers of any unlisted stock of a single issuer that represents 80%
or more of the stock of such issuer and does not receive transfers of
any general or limited partnership interests;
o the trust instrument provides that the trust is required to distribute
at least annually to known shareholders any proceeds from the sale of
assets or income from investments; and
30
o the party requesting the ruling represents that the trustee will make
continuing efforts to dispose of the trust assets, make timely
distributions, and not unduly prolong the duration of the trust.
The trust agreement governing the liquidating trust will contain
provisions intended to satisfy each of the first four factors and the eighth
factor above. With regard to the fifth and sixth factors above, the trust
agreement will provide that the liquidating trust will not make any loans or
incur any indebtedness or acquire any securities (other than short-term
investments described in the third factor above). In addition, the exclusive
purposes and functions of the liquidating trust, as set forth in the trust
agreement, will specifically exclude the objective to continue or engage in the
conduct of a trade or business. With regard to the seventh factor above, the
general partner, as administrator of the liquidating trust, may make annual or
frequent distributions of proceeds from the sale of assets or income from
investments if the general partner determines, in its sole discretion, that the
amount of cash remaining in the liquidating trust is sufficient to satisfy the
liquidating trust's outstanding claims and contingent liabilities. In light of
these provisions of the trust agreement, the liquidating trust should be
classified as a liquidating trust for federal income tax purposes, although the
matter is not free from doubt.
Taxation of Receipt of Interests in the Liquidating Trust. For federal
income tax purposes, the transfer of assets by the partnership to the
liquidating trust, followed by the issuance to the limited partners of
beneficial interests in the liquidating trust, will be treated as if the
partnership had distributed the transferred assets to the limited partners on a
pro rata basis and the limited partners had then contributed such assets to the
liquidating trust. The deemed distribution to the limited partners of the assets
to be held by the liquidating trust generally will be taxable to a limited
partner for federal income tax purposes, but only to the extent that the cash
portion of the amount deemed distributed to the limited partner exceeds such
limited partner's basis in his units of limited partnership interest immediately
before such deemed distribution.
The general partner estimates that, on a per unit basis, the amount of
cash that will be deemed to have been distributed to each limited partner, and
contributed by such limited partner to the liquidating trust, will be
approximately $22.87. The characterization of, and federal income tax rates
applicable to, any recognized gain will be determined in accordance with the
rules described above in "Material Federal Income Tax Considerations of the
Merger--Federal Income Tax Rates Applicable to Gain or Loss from Disposition of
Units in the Merger." A limited partner will not recognize gain or loss on the
deemed contribution of the assets to the liquidating trust.
Each limited partner's basis in his limited partnership units will be
decreased (but not below zero) by an amount equal to the lesser of the
partnership's basis, immediately prior to the distribution, in the assets deemed
distributed to the limited partner or the limited partner's basis, immediately
prior to the distribution, in his limited partnership units. The general partner
estimates that the partnership's basis in the assets deemed distributed will be
approximately $22.87 per limited partnership unit on the date of distribution.
This decrease in basis in limited partnership units will increase the amount of
capital gain, or decrease the amount of capital loss, recognized by the limited
partner as a result of the exchange of his units in the merger. See "Material
Federal Income Tax Considerations of the Merger--Material Tax Considerations to
Limited Partners of the Merger" and "--Basis of Units" above.
Initial Tax Basis of Assets Deemed Distributed by the Liquidating
Trust. In general, a limited partner will have an Initial Basis in the assets
deemed distributed to him equal to the lesser of the partnership's basis,
immediately prior to the distribution, in such assets deemed distributed to him
or his basis in his limited partnership units immediately prior to the deemed
distribution, increased to reflect
31
any gain required to be recognized in connection with the deemed distribution.
Upon the deemed contribution of the assets to the liquidating trust, the
liquidating trust will have the same adjusted basis in its assets as the limited
partners had in those assets prior to the transfer to the liquidating trust.
Income and Deductions in General; Income Tax Returns. Each limited
partner, as a beneficiary of the liquidating trust, will be required to report
on his income tax return his pro rata share of the income, deductions and
credits of the liquidating trust as if the limited partner had received the
items directly. Such items must be included on the limited partner's federal
income tax return without regard to whether the liquidating trust makes a
distribution of money to the limited partner. The liquidating trust plans to
furnish the limited partners with the tax information relating to the
liquidating trust reasonably required by them for federal and state income tax
reporting purposes within 120 days of the close of each of the liquidating
trust's taxable years. No federal income tax will be payable by the liquidating
trust.
Treatment of Liquidating Trust Distributions. Distributions of money by
the liquidating trust to a limited partner, whether made currently or in
connection with the dissolution of the liquidating trust, will not be taxable to
such limited partner.
Limitations on Deductibility of Losses; Treatment of Passive Activity
Income. The passive loss limitations generally provide that individuals,
estates, trusts and certain closely held corporations and personal service
corporations can only deduct losses from passive activities (generally,
"activities" in which the taxpayer does not materially participate, which would
include a limited partner's beneficial interest in the liquidating trust,
although the matter is not free from doubt) to the extent that such losses are
not in excess of the taxpayer's income from passive activities or investments. A
limited partner will be able to offset losses from other passive activities
against income from the liquidating trust that is considered passive income.
In addition to the foregoing limitation, a limited partner who holds
interests in the liquidating trust may not deduct from taxable income his share
of liquidating trust losses, if any, to the extent that such losses exceed the
amount for which such holder is considered "at risk" at the end of that year. In
general, a limited partner will initially be "at risk" to the extent of the
amount of cash and the adjusted bases, if any, in the other assets the limited
partner is deemed to have contributed to the liquidating trust. Losses
disallowed to a limited partner as a result of these rules can be carried
forward and may be allowable to such limited partner to the extent that his "at
risk" amount is increased in a subsequent year. The "at risk" rules apply to an
individual limited partner, an individual shareholder of a corporate limited
partner that is an S corporation and a corporate limited partner if fifty
percent (50%) or more of the value of stock of such corporate limited partner is
owned directly or indirectly by five or fewer individuals at any time during the
last half of the taxable year.
Each limited partner should consult with his own tax advisor regarding
the application of the passive loss limitations (including whether and to what
extent the ownership of beneficial interests in the liquidating trust
constitutes one or more "passive activities") and the "at risk" rules in light
of his particular tax situation.
Alternative Minimum Tax on Items of Tax Preference. The Code contains
different sets of minimum tax rules applicable to corporate and non-corporate
taxpayers. The discussion below relates only to the alternative minimum tax
applicable to non-corporate taxpayers. LIMITED PARTNERS THAT ARE CORPORATIONS
SHOULD CONSULT WITH THEIR TAX ADVISORS WITH
32
RESPECT TO THE EFFECT OF THE CORPORATE MINIMUM TAX PROVISIONS FOLLOWING THE
ISSUANCE OF BENEFICIAL INTERESTS IN THE LIQUIDATING TRUST.
Non-corporate taxpayers are subject to an alternative minimum tax to
the extent the tentative minimum tax ("TMT") exceeds the regular income tax
otherwise payable. The rate of tax imposed on alternative minimum taxable income
("AMTI") in computing TMT is 26% for AMTI that does not exceed $175,000 and 28%
for AMTI over $175,000. AMTI consists of the taxpayer's taxable income, as
adjusted under Sections 56 and 58 of the Code, plus his items of tax preference;
certain taxpayers are entitled to an exemption amount equal to $49,000 for a
joint return or a return filed as a surviving spouse, $35,750 for a single
return, $24,500 for married persons filing separate returns, and $22,500 for
estates and trusts. These exemption amounts will be phased out if the AMTI of a
taxpayer exceeds certain thresholds.
The liquidating trust will not be subject to the alternative minimum
tax, but the limited partners as beneficiaries of the liquidating trust will be
required to take into account on their own tax returns their pro rata shares of
the liquidating trust's tax preference items and adjustments in order to compute
AMTI. Since the impact of this tax depends on each limited partner's particular
situation, the limited partners are urged to consult their own tax advisors as
to the applicability of the alternative minimum tax to them.
State and Local Taxes. In addition to the federal income tax aspects
described above, a limited partner should be aware of the potential state and
local tax consequences of being a beneficiary of the liquidating trust. Tax
returns may be required and tax liability may be imposed both in the state or
local jurisdictions where a limited partner resides and in each state or local
jurisdiction in which the liquidating trust has assets. The liquidating trust
anticipates providing the limited partners with any information reasonably
necessary to permit them to satisfy state and local return filing requirements.
A limited partner should consult with his personal tax advisor with respect to
the state and local income tax implications for such limited partner of being a
beneficiary of the liquidating trust.
No Rights of Appraisal
There are no dissenters' rights of appraisal in connection with the
merger agreement.
Failure to Approve the Merger Agreement
If the limited partners do not approve the merger agreement, the merger
will not occur and the general partner will continue to conduct the business and
affairs of the partnership in accordance with the partnership agreement. In such
event, you will not receive the merger consideration. In addition, if the merger
does not occur, you also will not receive the other distributions described in
this consent solicitation statement.
Proposed Additional Capital Improvements. Regardless of whether the
merger is completed, the manager of the partnership's inns has proposed
additional improvements that are intended to enhance the overall value and
competitiveness of the partnership's inns. Based on the anticipated capital
expenditures required to implement these proposed improvements and other routine
renovations, it appears unlikely that cash distributions will be possible for
the next several years. If the merger does not occur, the general partner
believes that cash generated by inn operations and cash available in partnership
reserves will be sufficient to fund the partnership's required debt service
payments and a portion of the partnership's anticipated capital expenditures.
The general partner is reviewing the manager's proposed
33
inn renovations and improvements and is discussing with the manager alternatives
under the management agreement for funding any shortfall related to these
proposed improvements.
Changes to Management Agreement. The general partner and the manager
have discussed making certain changes to the management agreement and have
entered into a non-binding memorandum of understanding with respect to the
changes described below.
In addition, Apple has entered into discussions with the manager
regarding certain changes to the management agreement. If the merger closes, it
is anticipated that the changes to the management agreement negotiated between
the general partner and the manager would be entered into at the same time as
the changes agreed to by Apple and the manager.
If the merger is not completed, the general partner and the manager
expect to complete their negotiation of the changes to the management agreement
discussed below. Therefore, if the limited partners do not approve the merger
agreement, they will continue to own a limited partner interest in the
partnership and receive, if the negotiations are successful, the benefits, if
any, of such proposed changes. Since the memorandum of understanding between the
general partner and the manager is non-binding, however, there can be no
assurance that such changes will be made or that such changes will be made in
substantially the form described below. The partnership and the manager will
execute mutual general releases in connection with the merger or, if the merger
is not completed, upon implementation of the changes to the management agreement
agreed to by the general partner and the manager.
As currently contemplated, the general partner and the manager propose
to revise the management agreement as follows:
o FF&E Reserve -- The partnership would be given the right to approve
the annual budget for furniture, fixtures and equipment expenditures
under the management agreement with respect to each expenditure of
$10,000 or more. Expenditures of less than $10,000 would be budgeted
and approved in the aggregate by inn.
o Adjustments to First Priority Return -- The First Priority Return
payable to the partnership under the management agreement would be
increased by $75,000. In addition, Additional Inn Investments (as that
term is defined in the management agreement) made after the date of
the amendment would be included in the calculation of the
partnership's First Priority Return rather than in the calculation of
the partnership's Second Priority Return (as those terms are defined
in the management agreement).
o Design Specifications -- With regard to capital-expenditure programs
proposed by the manager, the partnership would have the right to
select in its reasonable discretion a prototype design package for
such programs out of applicable prototype design packages then
available within the Residence Inn system. The partnership and the
manager would mutually agree on any custom design packages not
contemplated by then-current brand design standards and prototype
design packages.
o Chain Services and Marketing Fund -- Commencing in fiscal year 2002,
required contributions by the partnership to the marketing fund
maintained by the manager would not be increased without the prior
approval of a majority of the members of The Residence Inn
Association, an association of Residence Inn owners and franchisees.
34
o Renewal -- The manager would be required, if it wishes to renew the
management agreement, to renew the management agreement with respect
to at least 80% of the partnership's inns which either meet the
then-current brand standards or are in compliance with a specified
ten-year property-improvement program currently required by the
manager.
o Performance Termination -- Commencing in 2004, the partnership's
ability to terminate the management agreement due to inadequate
performance would be based on the inns' performance over the previous
two years rather than the previous three years, coupled with a new
test comparing the inns' aggregate "revenues per available room"
("RevPar") with the RevPar of hotels in their competitive sets. Any
cure payments made by the manager to avoid a performance termination
would not be recoverable in later years.
o Accounting -- The manager would be required to provide the partnership
with annual operating projections on both a consolidated and a per-inn
basis. The manager would also be required to meet with representatives
of the partnership and consider in good faith the suggestions of such
representatives regarding the partnership's annual operating
projections.
35
THE MERGER AGREEMENT
The following is a summary of the material provisions of the merger
agreement and the deposit escrow agreement but does not purport to describe all
of the terms of such agreements. This summary is qualified in its entirety by
reference to the merger agreement which is attached to this consent solicitation
statement as Appendix A. You are urged to read the merger agreement carefully
and in its entirety.
Structure of the Merger
In the merger:
o AHT Res Acquisition, a wholly owned indirect subsidiary of Apple
Hospitality, will merge with and into the partnership at the effective
time of the merger in a transaction in which the partnership will be
the surviving entity and the partners of AHT Res Acquisition will
become the sole partners of the partnership;
o the limited partners and the general partner of the partnership will
receive the merger consideration for their respective limited
partnership and general partner interests in the partnership; and
o the partnership will continue its existence as a limited partnership
under the laws of the State of Delaware.
The Effective Time of the Merger
As soon as practicable after all conditions of the merger agreement
have been satisfied or waived, the general partner will file a certificate of
merger with the Secretary of State of the State of Delaware. The merger will
become effective upon the filing of the certificate of merger with the Secretary
of State of the State of Delaware or upon such later time as is provided in the
certificate of merger.
Merger Consideration; Conversion of Partnership Interests in the Merger
At the effective time of the merger, without any further action on the
part of the limited partners or the general partner, as applicable:
o the issued and outstanding units of limited partnership interest will
be converted into the right to receive cash in an amount equal to
$636.43 per unit; and
o the general partner interest will be converted into the right to
receive cash in an amount equal to $200,000, which will be retained by
Apple Hospitality until the second anniversary of the effective date
of the merger to partially satisfy the general partner's
indemnification obligations under the merger agreement.
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Other Distributions to be Made in Connection with the Merger
In connection with the merger, the partnership intends to declare a
distribution to the limited partners, payable upon the closing of the merger, of
certain available and unrestricted partnership cash. The actual amount of the
distribution to be made will vary depending upon a number of factors,
particularly the performance of the partnership's inns prior to the closing of
the merger. The amount of such distribution is expected to be equal to the
unrestricted cash of the partnership available as of the closing of the merger
reduced by:
o the contribution of $1.5 million of partnership cash to the
liquidating trust to be created by the partnership as described in
this consent solicitation statement;
o transaction costs related to the merger estimated at approximately
$2.4 million; and
o $5 million of partnership cash which will remain with the surviving
partnership.
If the merger had closed at the end of the third quarter of 2001, the amount of
such distribution would have been approximately $100 per unit.
You also will receive, if the merger is consummated, a cash payment
equal to your pro rata portion of the amount of the partnership's scheduled debt
service that was paid by the partnership prior to the closing of the merger with
respect to the last full accounting period, and any portion of the subsequent
accounting period, occurring prior to the closing. Such amount is required by
the merger agreement to be reimbursed by the surviving partnership within three
days after the closing of the merger. For details on the reimbursement of debt
service, see "--Establishment of the Liquidating Trust--Reimbursement of Debt
Service."
The partnership also intends to issue to the limited partners,
effective upon the closing of the merger, all of the beneficial interests in the
liquidating trust. As soon as the liquidating trust has satisfied the
obligations for which it is created, which is expected to occur two years after
the completion of the merger, it will be liquidated and all of its remaining
assets will be distributed to the beneficiaries of the liquidating trust. For
details on the liquidating trust and the issuance of the beneficial interests in
the liquidating trust, see "--Establishment of the Liquidating Trust."
Escrow Deposit
Pursuant to the terms of the merger agreement, on December 3, 2001,
Apple Hospitality and the partnership entered into a deposit escrow agreement
with First Union National Bank as the deposit escrow agent. A summary of the
terms of the deposit escrow agreement is provided below. See "--Deposit Escrow
Agreement." Simultaneously with the execution and delivery of the deposit escrow
agreement, Apple Hospitality deposited $35 million in cash in an escrow account
established with the escrow agent, such amount and any interest earned thereon
to be held as a deposit on the merger consideration. At or before the effective
time of the merger, Apple Hospitality and the partnership will issue written
instructions to the deposit escrow agent to deliver the $35 million deposit and
any interest earned thereon to the paying agent for the merger. Also, at or
before the effective time of the merger, Apple Hospitality will deliver to the
paying agent an amount in cash equal to the difference between (1) the aggregate
cash consideration to be paid in the merger and (2) the $35 million deposit and
any interest earned thereon which was delivered to the paying agent.
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In the event that the merger agreement is terminated other than for a
breach by Apple Hospitality or AHT Res Acquisition, Apple Hospitality will be
entitled to the immediate return of the $35 million deposit and any interest
earned thereon. However, $3 million of the deposit will become the property of
and be delivered to the partnership and the remaining $32 million of the deposit
will be returned to Apple Hospitality in the event that the merger agreement is
terminated by the partnership upon a breach of any representation, warranty,
covenant, obligation or agreement on the part of Apple Hospitality or AHT Res
Acquisition contained in the merger agreement.
Exchange of Units for Merger Consideration
Prior to the closing of the merger, Apple Hospitality will designate a
bank or trust company acceptable to the partnership to act as paying agent in
the merger for the purpose of distributing the merger consideration. Promptly
after the effective time of the merger, the paying agent will mail to each
limited partner a letter of transmittal and instructions on how to receive the
cash merger consideration.
Upon receipt of a duly executed letter of transmittal and any other
required documents as set forth in the letter of transmittal, the holder of a
unit will be entitled to receive the cash merger consideration in exchange for
the unit. After the effective time of the merger, each unit will represent only
the right to receive the cash merger consideration.
In the event of a transfer of ownership of units that is not registered
in the transfer books of the partnership, payment of merger consideration may be
made to a person other than the registered holder of the surrendered units if:
o an agreement of assignment and transfer relating to the prior transfer
of ownership of units is provided to Apple Hospitality; and
o the person requesting such payment of cash merger consideration pays
any transfer or other taxes required by reason of payment to a person
other than the registered holder of such units or establishes to the
satisfaction of Apple Hospitality that such taxes have been paid or
are not applicable.
No interest will be paid or will accrue on the cash payable upon
surrender of any unit.
All cash merger consideration delivered upon the surrender of units
will be delivered in full satisfaction of all rights pertaining to the units.
At the effective time of the merger, the transfer books of the
partnership will be closed and there will be no further registration of
transfers of the units that were outstanding immediately prior to the effective
time. Units presented to the surviving partnership or the paying agent after the
effective time will be canceled and exchanged for the cash merger consideration.
Apple Hospitality, the surviving partnership or the paying agent will
be entitled to deduct and withhold from the consideration otherwise payable
pursuant to the merger agreement such amounts as Apple Hospitality, the
surviving partnership or the paying agent is required to deduct and withhold
with respect to such payment under the Internal Revenue Code or any provision of
state, local or foreign tax law. To the extent that amounts are withheld and
paid over to the appropriate taxing authority by Apple
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Hospitality, the surviving partnership or the paying agent, such withheld
amounts will be treated for all purposes of the merger agreement as having been
paid to the holder of units in respect of which such deduction and withholding
was made.
Establishment of the Liquidating Trust
Prior to consummation of the merger, the partnership will establish a
liquidating trust under the laws of the State of Delaware to hold several
contingent assets of the partnership and to facilitate certain cash flow
adjustments and other transactions to be made by the parties after the closing
of the merger. Among other things, the liquidating trust will permit the limited
partners to receive certain cash flows of the partnership attributable to the
period prior to the closing that will not be known or available to the
partnership until after the merger has been completed. The liquidating trust
also will be responsible for:
o paying or reimbursing the surviving partnership for certain expenses
that are attributable to the period prior to the closing of the
merger;
o indemnifying the surviving partnership and related parties with
respect to any damages or liabilities resulting from certain
litigation involving the partnership's inns which existed prior to the
merger;
o pursuing the contingent assets;
o satisfying the partnership's obligations to the general partner under
the partnership agreement; and
o satisfying any other obligations of the liquidating trust under the
merger agreement.
Promptly after the establishment of this liquidating trust, the
partnership will assign to the liquidating trust all of the partnership's
interest in the "contingent assets" described below. Immediately prior to the
closing of the merger, the partnership will issue to the limited partners,
effective upon the closing of the merger and on a pro rata basis based upon each
limited partner's ownership of units as of the time of such issuance, all of the
beneficial interests in the liquidating trust. The liquidating trust will be
administered by the general partner without profit. Beneficial interests in the
liquidating trust will not be certificated but will be maintained in book-entry
format by the liquidating trust. In addition, the beneficial interests in the
liquidating trust will not be transferable, except by will, intestate succession
or operation of law.
Prior to the closing of the merger, the partnership will contribute
$1.5 million of partnership cash to the liquidating trust to enable the
liquidating trust to satisfy its obligations under the merger agreement,
including those described above. Pursuant to the terms of the merger agreement,
the general partner, as the administrator of the liquidating trust, may only
permit the liquidating trust to use such funds for these purposes. However, the
liquidating trust may distribute such funds to the limited partners once such
obligations are satisfied. As soon as the liquidating trust has satisfied the
obligations for which it is created, which is expected to occur two years after
the completion of the merger, it will be liquidated and all of its remaining
assets will be distributed to the beneficiaries of the liquidating trust.
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Contingent Assets
The contingent assets of the partnership to be transferred to the
liquidating trust include the rights to:
o one-half of the "refunded incentive management fee," which is the cash
amount, if any, delivered or paid by the manager to the surviving
partnership after the closing of the merger with respect to excess
incentive management fees, and any interest earned thereon, which have
been retained by the manager for the partnership's 2001 fiscal year;
o the "refunded litigation reserves," which is the amount, if any, of
the cash reserves retained by the manager with respect to any damages
or liabilities resulting from litigation involving the partnership
existing prior to the closing of the merger which is returned to the
surviving partnership after the closing of the merger;
o the "other manager payments," which are any other payments received by
the surviving partnership from the manager that represent refunds or
returns of money to the partnership as a result of overpayment by the
partnership or underpayment by the manager of such amount during the
period prior to the closing of the merger;
o any positive difference between the prorated taxes paid or accrued by
the partnership at or prior to the closing of the merger for the 2001
tax year and the period in 2002 ending on the effective date of the
merger and the actual amount of such taxes due and payable by the
partnership for such period; and
o all claims or demands of any nature which have been or may be asserted
by or on behalf of the partnership and which arise out of events
occurring prior to the closing of the merger with respect to the
material contracts of the partnership.
Promptly after the surviving partnership receives the refunded
incentive management fee, the refunded litigation reserves or the other manager
payments from the manager, the surviving partnership will deliver or pay such
amounts or, in the case of the refunded incentive management fee, one-half of
such amount, to the liquidating trust.
Promptly after the surviving partnership's tax liability for the 2001
tax year and the period in 2002 ending on the effective date of the merger is
determined, the surviving partnership will deliver or pay to the liquidating
trust any positive difference between the prorated taxes paid or accrued by the
partnership at or prior to the closing of the merger for the respective period
and the actual amount of such taxes due and payable by the partnership for such
period.
The general partner, as the administrator of the liquidating trust,
will evaluate any claims that are assigned to the liquidating trust and
determine if it would be in the best interests of the limited partners, as the
beneficiaries of the liquidating trust, to pursue such claims.
With respect to the "other management payments" and the prorated taxes
described above, the liquidating trust also has corresponding obligations to
Apple Hospitality as described under "--Taxes" and "--Other Obligations of the
Liquidating Trust" below.
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Reimbursement of Debt Service
Pursuant to the terms of the merger agreement, the surviving
partnership has agreed to pay the partnership's scheduled debt service with
respect to the last full accounting period and any portion of the subsequent
accounting period occurring prior to the consummation of the merger. Depending
on when during an accounting period the closing of the merger occurs, however,
the partnership has agreed to pay some or all of such debt service on behalf of
the surviving partnership. In such case, within three business days after the
closing of the merger, the surviving partnership will pay to the liquidating
trust the amount, if any, of the scheduled debt service of the partnership that
has been paid by the partnership prior to the closing of the merger with respect
to such period. The general partner intends to cause the liquidating trust to
distribute to the limited partners the amount of such reimbursement by the
surviving partnership promptly after such reimbursement is received.
Taxes
Pursuant to the terms of the merger agreement, the partnership is
responsible for the payment of all taxes of the partnership for or with respect
to the period ending on or before the effective date of the merger. Taxes owed
by the partnership with respect to periods ending on or before the effective
date that are not paid by the partnership at or prior to the effective date will
be paid by the liquidating trust. In addition, after the effective date, the
liquidating trust, on behalf of the partnership, will prepare and file all tax
returns for the partnership for or with respect to all taxable periods, or
portions thereof, ending on or before the effective date. The liquidating trust
will pay all taxes, if any, at the time that any related tax return is filed,
and, in any event, on or prior to the date such taxes are due.
If the prorated taxes paid or accrued at or prior to the closing of the
merger for the 2001 tax year and the period in 2002 ending on the effective date
of the merger are less than the actual amount of such taxes due and payable for
the relevant period, the liquidating trust will promptly pay such difference to
Apple Hospitality, upon request, after receipt of such documentation from Apple
Hospitality that the liquidating trust reasonably believes is necessary to
support such request.
Indemnification by the Liquidating Trust
The liquidating trust will indemnify Apple Hospitality, the surviving
partnership and their affiliates and representatives against any damages and
liabilities, including all reasonable attorneys' fees and expenses, which any of
the indemnified parties may sustain and which result from certain litigation
involving the partnership's inns which exists prior to the closing of the
merger. The liquidating trust will not, however, have any obligation to provide
indemnification under the merger agreement for any damages or liabilities which
have been reserved for by the manager of the partnership's inns or which will be
reimbursed or otherwise covered by the partnership's insurance. The liquidating
trust's indemnification obligations under the merger agreement will terminate on
the second anniversary of the effective date of the merger.
In addition to the liquidating trust's obligations under the merger
agreement, the liquidating trust will indemnify the general partner after the
consummation of the merger on behalf of the partnership to the extent the
partnership is required to indemnify the general partner pursuant to the terms
of the partnership agreement.
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Other Obligations of the Liquidating Trust
If the surviving partnership is required to make any payments to the
manager as a result of an underpayment by the partnership to the manager or an
overpayment by the manager to the partnership with respect to the period prior
to the closing of the merger, the liquidating trust will, upon request, promptly
pay such amount to Apple Hospitality after receipt of such documentation from
Apple Hospitality that the liquidating trust reasonably believes is necessary to
support such request.
Distributions by the Liquidating Trust
The liquidating trust will distribute to the limited partners the
amount of the scheduled debt service of the partnership reimbursed by the
surviving partnership promptly after such reimbursement is received. Otherwise,
the general partner does not intend to cause the liquidating trust to make any
distribution until all of the liquidating trust's obligations under the merger
agreement are satisfied. As soon as the liquidating trust has satisfied the
obligations for which it is created, which is expected to occur two years after
the completion of the merger, it will be liquidated and all of its remaining
assets will be distributed to the beneficiaries of the liquidating trust.
Representations and Warranties
The merger agreement contains customary representations and warranties
made by each of the partnership, the general partner, Apple Hospitality and AHT
Res Acquisition relating to, among other things:
o due organization, good standing and qualification to conduct business;
o authorization, execution, delivery, performance and enforceability of
the merger agreement and related matters;
o no breach of organizational documents or material agreements or
violation of any laws as a result of the merger agreement or the
completion of the merger; and
o required consents, approvals, orders and authorizations of
governmental entities necessary to enter into the merger agreement and
complete the merger.
The merger agreement also contains additional representations and
warranties made by the partnership relating to, among other things:
o subsidiaries;
o capital structure;
o outstanding and pending litigation;
o compliance with SEC reporting requirements, accuracy of information
contained in the documents filed with the SEC and absence of
undisclosed liabilities;
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o absence of events that would constitute a material adverse change
since December 31, 2000, except as specified in the merger agreement;
o indebtedness;
o absence of defaults under certain contracts;
o tax matters;
o employee matters;
o compliance with applicable laws;
o environmental matters;
o payment of fees of brokers, finders and investment bankers;
o disclosure of potential conflicts of interest;
o receipt of fairness opinion from its financial advisor;
o required vote of the holders of a majority of units of limited
partnership interest to approve the merger; and
o real property owned by the partnership.
The merger agreement also contains additional representations and
warranties made by Apple Hospitality and AHT Res Acquisition, jointly and
severally, relating to, among other things:
o financial statements;
o outstanding and pending litigation;
o absence of events that would constitute a material adverse change
since June 30, 2001; and
o payment of fees of brokers, finders and investment bankers.
None of the representations and warranties made by the partnership, the
general partner, Apple Hospitality and AHT Res Acquisition in the merger
agreement will survive the effective time of the merger.
Conduct of Business by the Partnership Pending the Merger
Under the merger agreement, the partnership has agreed that, unless
otherwise permitted by the merger agreement or consented to in writing by Apple
Hospitality, from the date of the merger agreement
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until the effective time of the merger, it will, and will cause each of its
subsidiaries to, among other things:
o carry on its business as conducted at the time of the merger agreement
and only in the usual and ordinary course;
o make no amendments to the material contracts of the partnership or its
subsidiaries or any charter or similar organizational document adopted
by any subsidiary;
o use its commercially reasonable efforts to preserve its business
organization intact and cause the manager of the partnership's inns to
continue to (1) operate the partnership's inns in a good and
businesslike fashion consistent with past practices and in accordance
with the terms of the partnership's management agreement, (2) maintain
the partnership's inns in good working order and condition in a manner
consistent with past practices and in accordance with the terms of the
partnership's management agreement and (3) maintain the present level
of insurance with respect to the partnership's inns in full force and
effect;
o not incur any material liability or make any material commitment
(including, without limitation, making or entering into any new loan)
or enter into any other material transaction except in the ordinary
and usual course of business or pursuant to agreements existing on the
date of the merger agreement;
o not issue, deliver, sell, grant, pledge, transfer (other than a
transfer in the transfer books of the partnership to reflect a
transfer of ownership of units by a limited partner in accordance with
the partnership agreement) or otherwise encumber or dispose of or
subject to any lien, (1) any partnership interests or (2) any options
or rights to purchase partnership interests or securities convertible
into or exchangeable for partnership interests and not redeem,
purchase or otherwise acquire any of its partnership interests;
o not organize any subsidiary and not acquire or enter into an agreement
to acquire, by merger, consolidation or purchase of stock, interests
in or assets of, any business or entity;
o not enter into, modify, amend or terminate any material agreement with
respect to any of the partnership's inns, other than in the ordinary
course of business or pursuant to agreements existing on the date of
the merger agreement, which would encumber or be binding upon the
partnership's inns from and after the effective time of the merger;
o not make any distributions to the partners except for distributions of
unrestricted partnership cash made after receipt of approval of the
merger by the limited partners, provided, following any such
distribution, the aggregate amount of partnership cash remaining in
the partnership at the closing of the merger is not less than the sum
of (1) $5 million and (2) any amount of operating profit delivered or
paid by the manager to the partnership prior to the closing of the
merger with respect to the last full accounting period and any portion
of the subsequent accounting period occurring prior to the closing of
the merger;
o not make or change any material tax election or settle or compromise
any material tax liability or refund;
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o not adopt a plan or agreement of, or resolutions providing for or
authorizing, complete or partial liquidation, dissolution, merger,
consolidation, restructuring, recapitalization or other
reorganization;
o not make any change in accounting methods, principles or practices
affecting the reported assets, liabilities or results of operations of
the partnership or any subsidiary, except as required by a change in
GAAP;
o not (1) incur, assume or prepay any indebtedness for borrowed money or
guarantee, endorse or otherwise become liable or responsible (whether
directly, contingently or otherwise) for any indebtedness or
obligation of another person or issue or sell any debt securities or
warrants or other rights to acquire any debt securities of the
partnership or any subsidiary, or (2) make or forgive any loans,
advances or capital contributions to, or investments in, any other
person;
o not pay, discharge, settle or satisfy any claims, liabilities,
obligations or litigation of or against the partnership, other than
the payment, discharge, settlement or satisfaction, in the ordinary
course of business or in accordance with their terms, of liabilities
reflected or reserved against in the most recent financial statements
of the partnership included in the documents filed by the partnership
with the SEC since January 1, 1998 through the effective time of the
merger or incurred since the date of such financial statements in the
ordinary course of business; and
o not authorize, or commit or agree to take, any of the foregoing
actions or take any action that would make any representation or
warranty made by the partnership in the merger agreement untrue or
incorrect in any material respect.
None of the foregoing covenants will restrict the right of the manager
of the partnership's inns under the partnership's management agreement to enter
into, terminate, amend or otherwise modify any contracts or agreements related
to the partnership's inns or to take any other actions related to the
partnership's inns permitted by the management agreement. Similarly, the
foregoing covenants will not restrict the partnership from entering into,
terminating, amending or otherwise modifying any such contracts or agreements
where required by the manager as permitted under the management agreement. The
partnership, however, is not permitted to consent to, approve of or execute the
same to the extent that the partnership has the right under the management
agreement to withhold such consent or approval, except in accordance with the
requirements set forth above.
Additional Covenants
The partnership and/or the general partner have agreed to additional
covenants relating to, among other things:
o preparing and filing the consent solicitation statement with the SEC;
o using commercially reasonable efforts to respond as promptly as
practicable to any comments from the SEC with respect to the consent
solicitation statement;
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o using commercially reasonable efforts to obtain from its accountants
access to all work papers related to audits of the partnership
performed by its accountants and the continued cooperation of its
accountants with regard to the preparation of consolidated financial
statements for the surviving partnership;
o providing reasonable access to the partnership's properties, books,
agreements, commitments, personnel and records;
o paying all taxes of the partnership for or with respect to the period
ending on or before the effective date of the merger (taxes to be paid
after the closing of the merger will be paid by the liquidating trust
on behalf of the partnership);
o preparing and filing all tax returns of the partnership for or with
respect to all taxable periods ending on or prior to the effective
date of the merger;
o using commercially reasonable efforts to obtain, as soon as
practicable following the date of the merger agreement, confirmation
by the manager of the partnership's inns that:
- no net sales proceeds (as defined in the partnership's management
agreement) will result from the merger and related transactions;
- no contingent management fees (IMF) (as defined in the management
agreement) will become payable under the management agreement as
a result of the merger and related transactions or as a condition
to the manager's agreement to grant the consents and
confirmations required under the merger agreement to complete the
merger;
- the amount of adjusted capital contributions (as defined in the
management agreement) will not decrease as a result of the merger
and related transactions or as a condition to the manager's
agreement to grant the consents and confirmations required under
the merger agreement to complete the merger; and
- the balances relating to capital contributions, adjusted capital
contributions, additional inn investments and contingent
management fees (IMF) (as each term is defined in the management
agreement) are correct as set forth in the merger agreement;
notwithstanding anything to the contrary in this provision, the
partnership will not be obligated to make any payment to the manager
in consideration for the manager's agreement to grant these
confirmations to the partnership; and
o forwarding to Apple Hospitality, all promptly following their
preparation or receipt, as applicable, copies of (1) the partnership's
quarterly and annual financial reports, (2) the periodic rent letters
prepared by the manager of the partnership's inns relating to the
partnership's inns, (3) the inn-level income statements prepared by
the manager with respect to the partnership's inns and (4) any other
financial or capital expenditure reports prepared by the manager and
delivered to the partnership.
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The general partner has also agreed to additional covenants relating
to, among other things:
o recommending to the limited partners the approval of the merger
agreement, the merger and related transactions and seeking to obtain
such limited partner approvals; and
o (1) using commercially reasonable efforts to obtain, as soon as
practicable following the date of the merger agreement, all consents
of the partnership's lenders, including, without limitation, consent
to amend the operating agreement of the general partner as necessary
to permit the general partner under the operating agreement to approve
and consummate the merger and the other transactions contemplated by
the merger agreement and, (2) amending promptly (upon receipt of such
consent) the operating agreement as contemplated by such consent.
Apple Hospitality has agreed to additional covenants relating to, among
other things:
o providing the partnership in writing with all information relating to
Apple Hospitality and AHT Res Acquisition that is required to be
included in the consent solicitation statement with respect to the
Securities Exchange Act of 1934;
o paying all taxes of the partnership for or with respect to the period
commencing on the date following the effective date of the merger;
o preparing and filing all tax returns of the partnership for tax
periods which end on or after the date following the effective date of
the merger (including for tax periods which begin before the effective
date of the merger and end on or after the date following the
effective date of the merger);
o using commercially reasonable efforts to obtain all consents of the
partnership's lenders required to be obtained in connection with the
transactions contemplated by the merger agreement; and
o using commercially reasonable efforts to obtain, as soon as
practicable following the date of the merger agreement:
- the consent of the manager of the partnership's inns to the
changes to the partnership's management agreement, which changes
are deemed necessary by Apple Hospitality to permit or facilitate
AHT Res Acquisition's proposed real estate investment trust
structure;
- the consent of the manager under Section 17.01 of the management
agreement to the assignment of the management agreement by the
surviving partnership to an affiliate of the surviving
partnership; and
- the waiver by the manager of any right it may have under Section
18.01 of the management agreement with respect to the
transactions contemplated by the merger agreement or which are
necessary to implement AHT Res Acquisition's proposed real estate
investment trust structure;
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notwithstanding anything to the contrary in this provision, Apple
Hospitality will not be obligated to make any payment to the manager
in consideration for the manager's agreement to grant these consents
to Apple Hospitality.
Each of the parties to the merger agreement has agreed to additional
covenants relating to, among other things:
o causing the conditions to the merger to be fulfilled and the merger to
be completed, including making all required material filings and
submissions with governmental entities, and obtaining any other
required material consent or approval of any third party or any
governmental entity;
o cooperating with each party regarding all filings with the SEC;
o cooperating with each party and using commercially reasonable efforts
to defend against any pending or threatened action by any governmental
entity or other person challenging the merger or seeking damages in
connection with the merger;
o providing prompt written notification to the other parties of any
event which would reasonably be expected to cause any of the
representations or warranties of the parties to be materially untrue
or inaccurate or that will or would reasonably be expected to result
in the failure to satisfy any of the conditions to completion of the
merger;
o providing prompt written notification to the other parties of any
failure of such party to perform or comply in any material respect
with any covenant or other agreement required to be performed or
complied with under the merger agreement;
o providing prompt written notification to the other parties of any
applicable update to the schedules to the merger agreement;
o consulting with each other prior to issuing public announcements which
address in any manner the transactions contemplated by the merger
agreement;
o coordinating in the preparation, execution and filing of documents
related to transfer and gains taxes; and
o cooperating with each other and providing such assistance as may be
necessary or appropriate or reasonably requested by the other party to
obtain the consents required to be obtained by such requesting party.
Indemnification by the General Partner and the Liquidating Trust
Indemnification by the General Partner
The general partner will indemnify Apple Hospitality, the surviving
partnership and their affiliates and representatives against any damages and
liabilities, including all reasonable attorneys' fees and expenses, which any
indemnified party may sustain and which arise out of any claims, disputes,
litigation or similar actions by a limited partner against the partnership or
the general partner with respect
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to any matter or event occurring prior to the closing of the merger, other than
any claims, disputes, proceedings, litigation or similar actions by a limited
partner with respect to the transactions contemplated by the merger agreement.
The general partner will not have any obligation to provide
indemnification under the merger agreement for any losses which result from any
claims, disputes, proceedings, litigation or similar actions by a limited
partner for which the general partner has not received notice as required in the
merger agreement prior to the second anniversary of the effective date of the
merger.
In addition, the general partner's liability under the indemnification
provisions of the merger agreement will not exceed, in the aggregate, $500,000.
Apple Hospitality will withhold the general partner's merger consideration until
the second anniversary of the effective date of the merger in order to satisfy
the general partner's indemnification obligations under the merger agreement.
Apple Hospitality will deduct from the general partner's merger consideration
and pay to an indemnified party the amount of any losses for which such
indemnified party will be indemnified pursuant to the merger agreement. Provided
that all claims for which the indemnified parties have sought indemnification
have been definitively resolved, on the second anniversary of the effective date
of the merger, Apple Hospitality will deliver to the general partner (1) the
general partner's merger consideration, less any deductions provided for in the
previous sentence, by cashier's or certified check payable to the order of, or
by wire transfer to an account specified by, the general partner and (2) a
statement indicating the amounts deducted from the general partner's
consideration and a description of the losses for which the indemnified parties
were indemnified.
If the general partner merger consideration retained by Apple
Hospitality is not sufficient to satisfy the general partner's indemnification
obligations under the merger agreement, Apple Hospitality may request further
payment from the general partner up to the $500,000 maximum.
Indemnification by the Liquidating Trust
The liquidating trust will indemnify Apple Hospitality, the surviving
partnership and their affiliates and representatives against any damages and
liabilities, including all reasonable attorneys' fees and expenses, which any of
the indemnified parties may sustain and which result from certain litigation
involving the partnership's inns which exists prior to the closing of the
merger. The liquidating trust will not, however, have any obligation to provide
indemnification under the merger agreement for any damages or liabilities which
have been reserved for by the manager of the partnership's inns or which will be
reimbursed or otherwise covered by the partnership's insurance. The liquidating
trust's indemnification obligations under the merger agreement will terminate on
the second anniversary of the effective date of the merger.
No Solicitation by the Partnership or the General Partner
Except as set forth below, the partnership and the general partner have
agreed that, prior to the effective time of the merger, neither the partnership
nor the general partner will, nor will they permit any of their managers,
directors, officers, affiliates, agents, investment bankers, financial advisors,
attorneys, accountants, brokers, finders or other representatives retained by
the partnership, which we collectively refer to as "partnership's
representatives," to:
49
o invite, initiate, solicit or encourage, directly or indirectly, any
"alternative acquisition proposal" (as defined below); or
o engage in any discussions or negotiations concerning an alternative
acquisition proposal or provide any confidential or non-public
information or data to any person relating to an alternative
acquisition proposal, or otherwise facilitate any effort or attempt to
make or implement an alternative acquisition proposal.
The partnership and the general partner have agreed that they will:
o immediately cease and cause to be terminated any existing activities,
discussions or negotiations with any parties concerning any
alternative acquisition proposal;
o use their commercially reasonable efforts to cause the partnership's
representatives to immediately cease and cause to be terminated any
existing activities, discussions or negotiations with any parties
concerning any alternative acquisition proposal; and
o notify Apple Hospitality immediately if the partnership or the general
partner receives an alternative acquisition proposal, or any request
for information, or to initiate or continue any negotiations or
discussions related to any alternative acquisition proposal.
The merger agreement does not preclude the partnership or the general
partner from furnishing information to or entering into discussions or
negotiations with any person that makes a bona fide written alternative
acquisition proposal which was not invited, initiated, solicited or encouraged,
directly or indirectly, by the partnership, the general partner or any of the
partnership's representatives, provided that:
o the general partner determines in good faith, after consultation with
its independent financial advisors, that such alternative acquisition
proposal is likely to result in a "superior acquisition proposal" (as
defined below);
o the general partner determines in good faith, after consultation with
its outside legal counsel, that such action is appropriate for the
general partner to comply with its fiduciary duty to the limited
partners imposed by Delaware law;
o the partnership and the general partner comply with all of their
obligations under the merger agreement;
o before furnishing such information to, or entering into discussions or
negotiations with, such person, the partnership or the general partner
provides written notice to Apple Hospitality which states that it is
furnishing information to, or entering into discussions with, such
person;
o the partnership or the general partner provides Apple Hospitality with
a copy of such alternative acquisition proposal and any subsequent
written amendments thereto; and
o the partnership enters into a confidentiality agreement with such
person on terms no less favorable to the partnership, and no less
restrictive to the person making such alternative
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acquisition proposal, than those contained in the confidentiality
agreement entered into with Apple Hospitality.
If an alternative acquisition proposal constitutes a superior
acquisition proposal, the general partner may withdraw, modify, amend or qualify
its recommendation of the merger agreement and the merger and recommend the
superior acquisition proposal to the limited partners, provided that:
o the general partner and the partnership comply fully with the
non-solicitation provisions of the merger agreement and the general
partner provides Apple Hospitality with at least three business days'
prior written notice of its intent to withdraw, modify, amend or
qualify its recommendation of the merger agreement or the merger;
o if, during those three business days Apple Hospitality makes a counter
proposal to the superior acquisition proposal, the general partner,
taking into account the advice of its financial advisors, determines
in good faith that the Apple Hospitality's counter proposal is not as
favorable to the partners as the superior acquisition proposal from a
financial point of view; and
o the general partner and the partnership terminate the merger agreement
under the terms of the merger agreement and pay to Apple Hospitality
the termination fee discussed under the heading "--Termination Fee."
Under the merger agreement:
o the term "alternative acquisition proposal" means any inquiry,
proposal or offer (including, without limitation, any proposal or
offer to the partners of the partnership) with respect to:
- a merger, acquisition, tender offer, exchange offer, transaction
resulting in the issuance of equity securities of the
partnership; or
- a consolidation, share exchange, business combination, sale,
lease, exchange, mortgage, pledge, transfer or other disposition
of the assets (other than in the ordinary course of business) or
equity securities (including, without limitation, partnership
interests) of the partnership;
o the term "superior acquisition proposal" means a bona fide written
alternative acquisition proposal from a third party:
- on terms which the general partner determines in good faith,
after consultation with its independent financial advisors, are
superior, from a financial point of view, to the partners to
those provided for in the merger;
- for which financing, to the extent required, in the reasonable
judgment of the general partner is capable of being obtained; and
- which the general partner determines in good faith is reasonably
capable of being completed without undue delay.
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The merger agreement does not prohibit any disclosure that the
partnership or the general partner may be compelled to make with respect to the
receipt of an alternative acquisition proposal in order to comply with its
duties imposed by applicable law or Rule 14d-9 or 14e-2 promulgated under the
Securities Exchange Act of 1934.
Conditions to Completion of the Merger
The obligations of each party to complete the merger are subject to the
satisfaction or waiver of each of the following conditions prior to the
effective time of the merger:
o the limited partner approvals of the merger have been obtained;
o no law, order or injunction has been enacted or issued which has the
effect of preventing, or rendering illegal, completion of the merger
or any other material transaction contemplated by the merger
agreement;
o all consents, authorizations, orders and approvals of any governmental
entity required in connection with the completion of the merger have
been obtained;
o all required third-party consents to the merger and other transactions
contemplated in the merger agreement have been received, including,
without limitation, certain consents of the manager of the
partnership's inns, the consent of the partnership's lenders
(including consent to the amendment of the operating agreement of the
general partner as described below) and the other consents required by
the merger agreement; and
o the operating agreement of the general partner has been amended to
permit the general partner under the operating agreement to approve
and complete the merger and the other transactions contemplated by the
merger agreement and each other agreement in connection therewith to
which the general partner is or will be a party.
The obligations of the partnership and the general partner to complete
the merger are subject to the satisfaction or waiver of each of the following
conditions prior to the effective time of the merger:
o the representations and warranties of Apple Hospitality and AHT Res
Acquisition must be true and correct in all respects as of the date of
the merger agreement and the effective time of the merger as if made
on and as of that date, except:
- where the representations and warranties address matters only as
of a particular date, in which case they must be true and correct
as of that date; and
- where the failure to be true and correct would not reasonably be
expected to have, individually or in the aggregate, a "buyer
material adverse effect" (as defined below), and the partnership
receives a certificate to that effect from Apple Hospitality; and
o each of Apple Hospitality and AHT Res Acquisition, respectively, must
have performed and complied in all material respects with its
covenants and obligations required by the merger agreement to be
performed or complied with by it at or prior to the effective time of
the merger.
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As used in the merger agreement, a "buyer material adverse effect"
means a material adverse effect on the business, financial condition or results
of operations of Apple Hospitality or AHT Res Acquisition.
The obligations of Apple Hospitality and AHT Res Acquisition to
complete the merger are subject to the satisfaction or waiver of each of the
following conditions prior to the effective time of the merger:
o the representations and warranties of the partnership and the general
partner must be true and correct in all respects as of the date of the
merger agreement and the effective time of the merger as if made on
and as of that date, except:
- where the representations and warranties address matters only as
of a particular date, in which case they must be true and correct
as of that date; and
- where the failure to be true and correct would not reasonably be
expected to have, individually or in the aggregate, a
"partnership material adverse effect" (as defined below) and
Apple Hospitality and AHT Res Acquisition receive a certificate
to that effect from the general partner signed on behalf of the
partnership;
o each of the partnership and the general partner, respectively, must
have performed and complied in all material respects with its
covenants and obligations required by the merger agreement to be
performed or complied with by it at or prior to the effective time of
the merger;
o there has been no material adverse change in the business, financial
condition or results of operation of the partnership and its
subsidiaries, taken as a whole, other than adverse effects caused by
increased competition in the limited service hotel industry or in
specific inn markets, changes in the limited service hotel industry
not specifically relating to the partnership and its subsidiaries
(including adverse effects or changes resulting from the terrorist
acts committed in the United States on September 11, 2001) or changes
in the economy generally;
o Apple Hospitality has received a certificate signed by the general
partner on behalf of the partnership stating that, as of the closing
date of the merger, the aggregate amount of partnership cash remaining
in the partnership is not less than the sum of $5 million and any
amount delivered or paid by the manager to the partnership prior to
the closing of the merger with respect to the operating profit
delivered or paid by the manager pursuant to the terms of the
partnership's management agreement with respect to the last full
accounting period and any portion of the subsequent accounting period
occurring prior to the closing of the merger;
o Hospitality Properties Trust has waived in writing any rights of first
offer it may have under the Purchase-Sale and Option Agreement, dated
February 3, 1995, by and among HMH Courtyard Properties, Inc., HMH
Properties, Inc. and Hospitality Properties, Inc., as amended through
the date of the merger agreement, with respect to the transactions
contemplated by the merger agreement;
53
o Apple Hospitality has received, to its reasonable satisfaction,
evidence that the actions contemplated by provisions of the merger
agreement relating to the liquidating trust have occurred; and
o the partnership has, to the reasonable satisfaction of Apple
Hospitality, corrected, settled, discharged, satisfied or provided a
bond with respect to, as the case may be, all material title
deficiencies and all tax and judgment liens affecting the partnership
or it properties, except, in the case of title deficiencies other than
the title deficiencies identified in the merger agreement, where
failure to so correct such deficiencies would not reasonably be
expected to have a partnership material adverse effect (for purposes
of this provision, the failure to correct, settle, discharge, satisfy
or provide a bond with respect to the title deficiencies identified in
the merger agreement will not constitute a partnership material
adverse effect).
As used in the merger agreement, a "partnership material adverse
effect" means a material adverse effect on the business, financial condition or
results of operations of the partnership and its subsidiaries, taken as a whole.
Termination of the Merger Agreement
The merger agreement may be terminated at any time prior to the
effective time of the merger, even if the merger has been approved by the
limited partners or the certificate of merger has been filed with the Secretary
of State of the State of Delaware:
o by mutual written consent of the parties to the merger agreement;
o by either Apple Hospitality or the partnership if:
- any judgment, injunction, order, decree or action preventing the
completion of the merger becomes final and non-appealable;
- the merger is not completed by April 27, 2002 (or any later date
to which Apple Hospitality and the partnership may have extended
the closing deadline); however, the right to terminate the merger
agreement is not available to a party whose breach of its
obligations under the merger agreement is the primary reason that
the merger has not been completed;
- the approvals of limited partners have not been obtained prior to
the expiration of the solicitation period set forth in the
consent solicitation statement (as the same may be extended by
the partnership in its sole discretion);
- the other party materially breaches any of its representations,
warranties, covenants, obligations or agreements contained in the
merger agreement, or if any of its representations or warranties
becomes untrue, in either case such that the conditions to the
obligations of the non-breaching party cannot be satisfied as of
the date of such breach, which breach or failure to be true
either is not capable of being cured or, if it is capable of
being cured, has not been cured within 30 days following written
notice to the non-breaching party of such breach; provided that a
party in material breach of its own
54
obligations under the merger agreement cannot terminate the
agreement because of the material breach of the other party; or
- Hospitality Properties Trust will not have waived, prior to the
expiration of the solicitation period set forth in the consent
solicitation statement (as the same may be extended by the
partnership in its sole discretion), its rights of first offer,
if any, under the Purchase-Sale and Option Agreement, dated
February 3, 1995, by and among HMH Courtyard Properties, Inc.,
HMH Properties, Inc. and Hospitality Properties, Inc., as amended
through the date of the merger agreement, with respect to the
merger and related transactions; or
o by the partnership if:
- (1) the general partner has withdrawn, amended, modified, or
qualified in any manner adverse to Apple Hospitality its approval
or recommendation of either of the merger or the merger agreement
in connection with, or approved or recommended, any superior
acquisition proposal, or (2) necessary to enter into a binding
written agreement with respect to a superior acquisition
proposal, provided that in either case the partnership and the
general partner have complied with the terms of the
non-solicitation provisions of the merger agreement and the
partnership has paid to Apple Hospitality the termination fee as
provided in the merger agreement;
- Apple Hospitality has not, within 45 days after the date of the
merger agreement, obtained the consent of the manager to changes
to the partnership's management agreement necessary to permit or
facilitate AHT Res Acquisition's proposed real estate investment
trust structure; provided however, the partnership, in its sole
discretion, may extend the period of time during which such
consents may be obtained for up to 30 days; or
- Apple Hospitality has not, within 3 business days after the date
of the merger agreement, deposited $35 million into escrow with
the deposit escrow agent in accordance with the terms and
conditions of the deposit escrow agreement; or
o by Apple Hospitality if:
- (1) prior to the effective time of the merger, the general
partner has withdrawn, modified, amended or qualified in any
manner adverse to Apple Hospitality its approval or
recommendation of either of the merger or the merger agreement in
connection with, or approved or recommended, any superior
acquisition proposal, (2) the partnership has entered into any
agreement for any superior acquisition proposal or (3) the
general partner has unconditionally resolved to do any of the
foregoing;
- the weekly occupancy rate of the partnership's inns is less than
45% for four consecutive weeks at any time prior to the closing
of the merger, provided, for purposes of this clause, the weeks
of November 17, 2001 through November 30, 2001 and December 22,
2001 through January 4, 2002 are excluded from such calculation;
- the partnership has not, within 45 days after the date of the
merger agreement, obtained confirmation from the manager
regarding certain effects of the merger under the
55
partnership's management agreement; provided, however, Apple
Hospitality, in its sole discretion, may extend the period of
time during which the partnership consents may be obtained for up
to 30 days; or
- the amounts confirmed by the manager pursuant to the merger
agreement with respect to certain items identified in the merger
agreement are different from the amounts of such items as
originally set forth in the merger agreement.
Termination Fee
The partnership will pay to Apple Hospitality a termination fee of $1.2
million if the merger agreement is terminated:
o by the partnership:
- if the general partner has withdrawn, modified, amended or
qualified in any manner adverse to Apple Hospitality its approval
or recommendation of either of the merger or the merger agreement
in connection with, or approved or recommended, any superior
acquisition proposal; or
- in order to enter into a binding written agreement with respect
to a superior acquisition proposal.
o by Apple Hospitality, if:
- prior to the effective time of the merger, the general partner
has withdrawn, modified, amended or qualified in any manner
adverse to Apple Hospitality its approval or recommendation of
either of the merger or the merger agreement in connection with,
or approved or recommended, any superior acquisition proposal;
- the partnership has entered into any agreement for any superior
acquisition proposal; or
- the general partner has unconditionally resolved to do any of the
foregoing.
In general, the partnership is obligated to pay any termination fee to Apple
Hospitality within five business days after the termination event giving rise to
the obligation.
The partnership in certain circumstances will be obligated to pay to
Apple Hospitality a termination fee of $1.2 million concurrently with the
completion of an alternative acquisition proposal. This fee applies if the
merger agreement is terminated by Apple Hospitality or AHT Res Acquisition:
o upon a willful and material breach on the part of the partnership or
the general partner of any representation, warranty, covenant,
obligation or agreement contained in the merger agreement, or if any
of the partnership's or the general partner's representations or
warranties becomes untrue, in either case such that the conditions to
the obligations of Apple Hospitality or AHT Res Acquisition cannot be
satisfied as of the date of such breach, which breach or failure to be
true either is not capable of being cured or, if it is capable of
being
56
cured, has not been cured within 30 days following written notice to
Apple Hospitality from the partnership or general partner of such
breach;
o prior to such termination an alternative acquisition proposal has been
publicly announced, disclosed or communicated;
o on the date of such termination, neither Apple Hospitality nor AHT Res
Acquisition is in material breach of the merger agreement; and
o within nine months after such termination, the partnership completes
or enters into an agreement with respect to such alternative
acquisition proposal or any subsequent alternative acquisition
proposal made in response to or in competition with such alternative
acquisition proposal.
Expenses
The merger agreement provides that each party will pay its own fees and
expenses incurred in connection with the merger agreement and the transactions
contemplated by the merger agreement, except that:
o the partnership will pay all fees and expenses associated with (1) the
consent solicitation statement, (2) the solicitation of the manager's
confirmation of certain effects of the merger under the partnership's
management agreement and (3) the solicitation of any third-party
consents (other than consent of the partnership's lenders and the
consent of the manager to be obtained by Apple Hospitality) required
to be obtained from parties to contracts with the partnership in
connection with the transactions contemplated by the merger agreement;
and
o Apple Hospitality will pay all fees and expenses associated with (1)
the solicitation of any consents of the partnership's lenders required
to be obtained in connection with the transactions contemplated by the
merger agreement, (2) the solicitation of the consent from the manager
to several changes to the partnership's management agreement necessary
to permit or facilitate AHT Res Acquisition's proposed real estate
investment trust structure, (3) Apple Hospitality's due diligence
investigation of the partnership and (4) all transfer and gains taxes.
Notwithstanding the foregoing, in the event that, following distribution of the
consent solicitation statement to the limited partners, the partnership does not
receive the limited partner approvals for the merger, the partnership will
reimburse Apple Hospitality for up to $150,000 of its reasonable third-party due
diligence expenses, including legal fees, incurred in connection with Apple
Hospitality's due diligence review of the partnership and the partnership's
inns. In addition, the partnership has agreed to reimburse Apple Hospitality for
one-half of any consent fee required in order to obtain the consent of the
partnership's lenders, up to an aggregate amount of $50,000.
The partnership and Apple Hospitality will each pay one-half of all
title insurance premiums, including additional premiums attributable to extended
coverage, up to an aggregate amount of $100,000 each, and Apple Hospitality will
pay the amount of such premiums that exceeds $200,000 in the aggregate.
57
Waiver and Amendment of the Merger Agreement
At any time prior to the effective time of the merger, any party may:
o extend the time for the performance of any of the obligations or other
acts of the other parties;
o waive any inaccuracies in the representations and warranties contained
in the merger agreement or in any document delivered pursuant to the
merger agreement; or
o to the extent permitted by law, waive compliance with any of the
agreements or conditions of any party contained in the merger
agreement.
The merger agreement may be amended by the parties in writing at any
time before or after approval by the limited partners and prior to the effective
time of the merger. However, once the limited partners approve the merger, they
must also approve any subsequent amendment which by law requires the further
approval of the limited partners.
Deposit Escrow Agreement
The merger agreement required Apple Hospitality to deposit into escrow
$35 million in cash. In connection with this requirement, the partnership, Apple
Hospitality and First Union National Bank, as deposit escrow agent, entered into
a deposit escrow agreement as of December 3, 2001. Simultaneously with the
execution and delivery of the deposit escrow agreement, Apple Hospitality
deposited $35 million in cash into an escrow account established with First
Union, with $3 million of such amount and any interest earned thereon to be held
as an earnest money deposit, and $32 million of such amount and any interest
earned thereon to be held as evidence of Apple Hospitality's ability to
consummate the merger.
Pursuant to the deposit escrow agreement, the deposit escrow agent has
agreed to perform the following functions:
o invest the deposit in such bonds, treasury notes and other evidences
of indebtedness of the United States, and/or certificates of deposit
in commercial banks and savings and loan associations organized under
the laws of the United States or any state as Apple Hospitality may
direct in writing prior to the closing of the merger; and
o upon receiving written instructions, to deliver the deposit to the
specified party in the following manner:
- Release at closing of the merger - the deposit will be delivered
to the paying agent by cashier's check within five business days
after the receipt by the deposit escrow agent of written
instructions from Apple Hospitality and the partnership to such
effect;
- Release to the partnership - the earnest money deposit will be
delivered to the partnership within five business days after the
receipt by the deposit escrow agent of written instructions from
Apple Hospitality and the partnership to such effect. Pursuant to
the merger agreement, in the event that the merger agreement is
terminated by the
58
partnership for a material breach by Apple Hospitality of its
obligations and other provisions set forth in the merger
agreement and such breach is either incapable of being cured or
has not been cured in accordance with the merger agreement, the
earnest money deposit will be delivered to the partnership;
- Release to Apple Hospitality - the earnest money deposit will be
delivered to Apple Hospitality within five business days after
the receipt by the deposit escrow agent of written instructions
from Apple Hospitality and the partnership to such effect.
Pursuant to the merger agreement, in the event that the merger
agreement is terminated in accordance with the terms of the
merger agreement summarized under the heading "-Termination of
the Merger Agreement" (other than a termination by the
partnership for a material breach by Apple Hospitality of its
obligations and other provisions set forth in the merger
agreement where such breach is either incapable of being cured or
has not been cured in accordance with the merger agreement), the
earnest money deposit will be returned to Apple Hospitality. The
financial deposit will be delivered to Apple Hospitality within
five business days after the receipt by the deposit escrow agent
of (a) Apple Hospitality's written certification to the deposit
escrow agent that Apple Hospitality is entitled to receive the
financial deposit because the merger agreement has been
terminated and (b) evidence of delivery of a copy of such
certification by Apple Hospitality to the partnership.
Apple Hospitality and the partnership agreed to indemnify the deposit
escrow agent and its officers, directors, employees and agents for, and hold
them harmless against, any loss, liability or expense incurred without gross
negligence or willful misconduct on the part of the deposit escrow agent arising
out of or in connection with its entering into the deposit escrow agreement and
carrying out its duties thereunder, including but not limited to reasonable
attorney's fees and other costs and expenses of defending or preparing to defend
against any claims of liability with respect thereto. This indemnification
survives the termination of the deposit escrow agreement and the resignation of
the deposit escrow agent. The deposit escrow agent will not be liable to anyone
for any action taken or omitted to be taken by it under the deposit escrow
agreement except in the case of the deposit escrow agent's gross negligence or
willful misconduct in breach of the terms of the deposit escrow agreement.
The deposit escrow agent's fee of $1,500 was paid upon execution of the
deposit escrow agreement. Each of Apple Hospitality and the partnership agreed,
jointly and severally, to reimburse the deposit escrow agent on demand for all
reasonable costs and expenses incurred in connection with the administration of
the deposit escrow agreement or the escrow created thereby or the performance or
observance of its duties under the deposit escrow agreement which are in excess
of its compensation for normal services under the deposit escrow agreement,
including without limitation, payment of reasonable legal fees and expenses
incurred in connection with resolution of any claim by any party under the
deposit escrow agreement. Each of Apple Hospitality and the partnership agreed
as between themselves that they share, one-half each, all amounts payable to the
deposit escrow agent pursuant to the deposit escrow agreement, without altering
or limiting the joint and several liability of each thereunder.
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SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth each person that, to our knowledge,
beneficially owned more than 5% of the total number of units of limited
partnership interest as of February 28, 2002.
Number of Units of Percent of Total Units
Limited Partnership of Limited
Name and Address of Beneficial Owner Interest Partnership Interest
- ------------------------------------ -------- --------------------
Madison Investment unitholders(1) 5,990.25(1) 9.1%
________________
(1) Based upon information provided by the Madison Investment
unitholders in a Schedule 13G filed with the SEC on February 15, 2002,
the Madison Investment unitholders include Madison Avenue Investment
Partners, LLC, a Delaware limited liability company ("MAIP"); Madison
Value Fund, LLC, a Delaware limited liability company ("MVF"); Madison
Investment Partners 11, LLC, a Delaware limited liability company ("MIP
11"); First Equity Realty, LLC, a New York limited liability company
("First Equity"); The Harmony Group II, LLC, a Delaware limited
liability company ("Harmony"); Ronald M. Dickerman and Bryan E. Gordon.
The controlling members of MAIP are First Equity, of which Mr.
Dickerman is the Managing Member, and Harmony, of which Mr. Gordon is
the Managing Member. The controlling member of MVF is MIP 11. The
controlling member of MIP 11 is MAIP. The business address of each of
these persons except First Equity and Mr. Dickerman is P.O. Box 7533,
Incline Village, Nevada 89452. The business address of First Realty and
Mr. Dickerman is 555 Fifth Avenue, 9th Floor, New York, New York 10017.
The general partner does not own any units of limited partnership
interest in the partnership. The executive officers and managers of the general
partner and their respective affiliates have reported to the partnership that
they do not beneficially own any units of limited partnership interest as of
February 28, 2002. The general partner owns a 1% general partner interest in the
partnership. The general partner interest cannot be voted to consent to the
merger agreement.
Under the rules of the SEC, a person is deemed a "beneficial owner" of
a security if such person has or shares the power to vote or direct the voting
of such security or the power to dispose or direct the disposition of such
security. A person also is deemed to be the beneficial owner of any securities
of which that person has the right to acquire beneficial ownership within 60
days.
60
PRICE RANGE FOR THE UNITS
There is currently no established public trading market for the units,
and it is not anticipated that a public market for the units will develop.
Transfers of units on the books of the partnership are limited to the first day
of each fiscal quarter. As of February 28, 2002, there were 3,343 holders
(including holders of fractional units) of record of the 65,600 units.
During 1999, 2,074 units were transferred at prices ranging from $300
to $725 per unit, with an average price of $512.50 per unit. On January 1, 1999,
754 units were transferred at prices ranging from $500 to $725 per unit, with an
average price of $612.50 per unit. On March 26, 1999, 511 units were transferred
at prices ranging from $400 to $725 per unit, with an average price of $562.50
per unit. On June 18, 1999, 238 units were transferred at prices ranging from
$300 to $579 per unit, with an average price of $439.50 per unit. On September
10, 1999, 571 units were transferred at prices ranging from $300 to $573 per
unit, with an average price of $436.50 per unit.
During 2000, 513.5 units were transferred at prices ranging from $350
to $552 per unit, with an average price of $451 per unit. On January 1, 2000,
260.5 units were transferred at prices ranging from $397 to $552 per unit, with
an average price of $474.50 per unit. On March 25, 2000, 253 units were
transferred at prices ranging from $350 to $500 per unit, with an average price
of $425 per unit. There were no other transfers recorded during 2000.
During 2001, 5,254 units were transferred at prices ranging from $105
to $375 per unit, with an average price of $240 per unit. On January 1, 2001,
1,078 units were transferred at prices ranging from $180 to $375 per unit, with
an average price of $277.50 per unit. On March 24, 2001, 341 units were
transferred at prices ranging from $105 to $241, with an average price of $173
per unit. On June 16, 2001, 1,047 units were transferred at prices ranging from
$105 to $286, with an average price of $195.5 per unit.
Pursuant to a tender offer initiated on May 16, 2001, 2,271 units were
purchased at $300 per unit. Including the units purchased in the tender offer,
on September 9, 2001, 2,788 units were transferred at prices ranging from $175
to $310 per unit, with an average price of $242.50 per unit.
Pursuant to a second tender offer initiated on August 31, 2001, 3,234
units were purchased at $400 per unit. Including the units purchased in this
second tender offer, 3,667.25 units have been transferred during 2002 at prices
ranging from $165 to $495 per unit, with an average price of $393 per unit. All
of these transactions occurred on January 1, 2002.
Except in the case of the tender offers, the partnership does not have
any information regarding the circumstances surrounding any of the above sales
and believes that these sales prices are not necessarily indicative of the
market value of the units.
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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
The information incorporated by reference into this consent
solicitation statement contains certain forward-looking statements within the
meaning of Section 21E of the Securities Exchange Act of 1934 that are subject
to risks and uncertainties. Forward-looking statements include information
relating to the partnership's intent, belief or current expectations, primarily,
but not exclusively, with respect to:
o economic outlook
o capital needs and expenditures
o cost reductions
o cash flow
o operating performance
o financing activities
o possible inability to comply with debt agreements and maintain brand
standards or
o related industry developments, including trends affecting the
partnership's business, financial condition and results of operations.
Forward-looking statements in the information incorporated by reference
are identified by words or phrases such as "anticipate," "believe," "estimate,"
"expect," "intend," "may be," "objective," "plan," "predict," "project" and
"will be" and similar words or phrases (or the negative thereof). Actual events
or results may differ materially from those discussed in forward-looking
statements as a result of various factors, including, without limitation, those
discussed elsewhere in this consent solicitation statement.
Information contained herein regarding Apple Hospitality and AHT Res
Acquisition, their business, affiliates, beliefs and intentions is based solely
upon information provided by Apple Hospitality and AHT Res Acquisition.
62
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We file annual, quarterly and current reports and other information
with the SEC under the Securities Exchange Act of 1934. You may read and copy
any of this information at the following public reference rooms of the SEC:
450 Fifth Street, N.W. 560 West Madison Street 233 Broadway
Room 1024 Suite 1400 New York, NY 10279
Washington, D.C. 20549 Chicago, IL 60661
You may obtain information on the operation of the SEC's Public
Reference Room by calling the SEC at 1-800-SEC-0330.
The SEC also maintains an Internet Web site that contains these reports
and other information regarding issuers, like the partnership, that file
electronically with the SEC. The address of that site is http://www.sec.gov.
The SEC allows the partnership to "incorporate by reference"
information into this consent solicitation statement, which means that the
partnership can disclose important information to you by referring you to other
documents filed separately with the SEC. The information incorporated by
reference is considered part of this consent solicitation statement, except for
any information superseded by information contained directly in this consent
solicitation statement or in later filed documents incorporated by reference in
this consent solicitation statement. This consent solicitation statement
incorporates by reference the documents set forth below that the partnership has
previously filed with the SEC. These documents contain important information
about the partnership and its financial performance.
SEC Filings (File No. 033-20022)
o Annual Report on Form 10-K for its fiscal year ended December 31,
2000, filed April 2, 2001
o Quarterly Reports on Form 10-Q for the quarterly periods ended March
23, 2001, June 15, 2001 and September 7, 2001, filed on May 7, 2001,
July 30, 2001 and October 22, 2001, respectively
The partnership also incorporates by reference additional documents
that it may file with the SEC between the date of this consent solicitation
statement and the date that the merger is completed. These include periodic
reports, such as Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and
Current Reports on Form 8-K. If you are a limited partner, we may have sent you
some of the documents incorporated by reference, but you can obtain any of them
through the SEC or the SEC's Internet Web site as described above.
Documents incorporated by reference are available from the partnership
without charge, excluding all exhibits except that if the partnership has
specifically incorporated by reference an exhibit in this consent solicitation
statement, such exhibit will also be available without charge. Limited partners
may obtain documents incorporated by reference in this consent solicitation
statement and any exhibits filed herewith, including a copy of the merger
agreement and the partnership agreement, from the
63
partnership, without charge, by requesting them in writing or by telephone from
the partnership at the following address:
Marriott Residence Inn Limited Partnership
Department 903
10400 Fernwood Road
Bethesda, MD 20817
Telephone: (301) 380-9000
You should rely only on the information contained or incorporated by
reference in this consent solicitation statement. We have not authorized anyone
to provide you with information that is different from what is contained in this
consent solicitation statement. This consent solicitation statement is dated
March 1, 2002. You should not assume that the information contained in this
consent solicitation statement is accurate as of any date other than that date.
The mailing of this consent solicitation statement does not create any
implication of the contrary.
No person has been authorized to give any information or make any
representation on behalf of the partnership, the general partner, Apple
Hospitality, AHT Res Acquisition or Host Marriott LP not contained herein, if
given or made, such information or representation must not be relied on as
having been authorized.
Date: March 1, 2002 RIBM ONE LLC,
GENERAL PARTNER
64
APPENDIX A
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER
by and among
APPLE HOSPITALITY TWO, INC.
AHT RES ACQUISITION, L.P.
RIBM ONE LLC
AND
MARRIOTT RESIDENCE INN LIMITED PARTNERSHIP
DATE: NOVEMBER 28, 2001
TABLE OF CONTENTS
Page
----
1. DEFINITIONS.............................................................1
2. PLAN OF MERGER..........................................................1
2.1. The Merger.....................................................1
2.2. Certificate of Merger; Effective Time..........................2
2.3. Effects of Merger..............................................2
2.4. Escrow Deposit.................................................2
2.5. Closing........................................................3
2.6. Exchange and Conversion of Partnership Interests...............3
2.7. No Appraisal Rights............................................5
2.8. Approval of the Limited Partners...............................5
3. REPRESENTATIONS AND WARRANTIES OF THE PARTNERSHIP.......................5
3.1. Organization, Good Standing and Qualification..................5
3.2. Subsidiaries...................................................6
3.3. Power, Authority and Enforceability............................6
3.4. Capitalization.................................................7
3.5. Noncontravention...............................................7
3.6. Litigation.....................................................8
3.7. SEC Documents; Financial Statements; Liabilities...............8
3.8. No Material Adverse Changes....................................9
3.9. Indebtedness...................................................10
3.10. Default; Material Contracts....................................10
3.11. Tax Matters....................................................10
3.12. Employee Matters...............................................12
3.13. Compliance with Laws...........................................12
3.14. Environmental Compliance.......................................12
3.15. Brokers Fees...................................................13
3.16. Potential Conflicts of Interest................................13
3.17. Opinion of Financial Advisor...................................13
3.18. Vote Required..................................................13
3.19. Properties.....................................................13
4. REPRESENTATIONS AND WARRANTIES OF THE GENERAL PARTNER...................14
4.1. Organization, Good Standing and Qualification..................14
4.2. Power, Authority and Enforceability............................14
4.3. Noncontravention...............................................14
5. REPRESENTATIONS AND WARRANTIES OF BUYER AND MERGER SUB..................15
5.1. Organization, Good Standing and Qualification..................15
5.2. Power, Authority and Enforceability............................16
5.3. Financial Statements...........................................16
5.4. Noncontravention...............................................16
5.5. Litigation.....................................................17
5.6. No Material Adverse Changes....................................17
5.7. Brokers Fees...................................................18
6. COVENANTS...............................................................18
6.1. Conduct of Business by the Partnership.........................20
6.2. Reasonable Efforts; Further Assurances; Cooperation;
Notification..............................................20
6.3. No Solicitation................................................22
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6.4. Recommendation to the Limited Partners.........................24
6.5. Access to Information..........................................24
6.6. Public Announcements...........................................24
6.7. Transfer and Gains Taxes.......................................24
6.8. Tax Matters....................................................25
6.9. [Intentionally Deleted]........................................25
6.10. Lender Consent.................................................25
6.11. Manager Consents...............................................26
6.12. Financial and Operational Reports..............................27
6.13. Indemnification by the General Partner.........................27
6.14. Indemnification by the New Entity..............................29
6.15. Adjustment Account.............................................29
7. CONDITIONS TO CLOSING...................................................30
7.1. Conditions to Each Party's Obligations.........................30
7.2. Conditions to Obligations of the Partnership and the General
Partner...................................................31
7.3. Conditions to Obligations of Buyer and Merger Sub..............32
8. TERMINATION, EXPENSES, AMENDMENT AND WAIVER.............................33
8.1. Termination....................................................33
8.2. Break-Up Fee...................................................35
9. DEFINITIONS.............................................................35
10. GENERAL PROVISIONS......................................................41
10.1. No Survival....................................................41
10.2. Expenses.......................................................41
10.3. Amendment......................................................42
10.4. Extension; Waiver..............................................42
10.5. Notices........................................................42
10.6. Assignment and Binding Effect..................................43
10.7. Entire Agreement...............................................44
10.8. Governing Law..................................................44
10.9. Severability...................................................44
10.10. Further Assurances.............................................44
10.11. Counterparts...................................................44
Exhibit A Certificate of Merger
Exhibit B Deposit Escrow Agreement
Exhibit C Buyer's Financial Statements
ii
AGREEMENT AND PLAN OF MERGER
----------------------------
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") is entered into
as of November 28, 2001, by and among Apple Hospitality Two, Inc., a Virginia
corporation ("Buyer"), AHT Res Acquisition, L.P., a Delaware limited partnership
and a wholly owned indirect subsidiary of Buyer ("Merger Sub"), Marriott
Residence Inn Limited Partnership, a Delaware limited partnership (the
"Partnership"), and RIBM One LLC, a Delaware limited liability company and the
sole general partner of the Partnership (the "General Partner").
WHEREAS, the Partnership or a Subsidiary (as defined below) is the
owner of the Residence Inn hotels listed on Schedule 1 attached hereto (the
"Hotels"); and
WHEREAS, AHT Res I GP, Inc., a Virginia corporation and the sole
general partner of Merger Sub ("Merger Sub GP"), and the General Partner have
deemed it advisable for their respective limited partnerships and the partners
thereof that, upon the terms and subject to the conditions contained herein,
Merger Sub merge with and into the Partnership (the "Merger"), with the
Partnership being the surviving limited partnership (the "Surviving
Partnership") and the outstanding units of limited partnership interest (the
"Partnership Units") and the general partner interest in the Partnership
(collectively, the "Partnership Interests") being converted into the right to
receive the Merger Consideration and the General Partner Consideration,
respectively (each as defined below).
NOW, THEREFORE, for and in consideration of the foregoing and of the
mutual covenants and agreements hereinafter set forth and other good and
valuable consideration, the parties, each intending to be legally bound hereby,
agree as follows:
1. DEFINITIONS
For all purposes of this Agreement, certain capitalized terms
specified in Article 9 shall have the meanings specified or referred to in
Article 9, except as otherwise expressly provided.
2. PLAN OF MERGER
2.1. The Merger
Upon the terms and subject to the conditions hereof, and in accordance
with the provisions of Section 17-211 of the Delaware Revised Uniform Limited
Partnership Act (the "DRULPA"), Merger Sub shall be merged with and into the
Partnership at the Effective Time (as defined below), with the holders of
Partnership Interests (the "Partners") receiving the Merger Consideration and
the General Partner Consideration, as applicable, as set forth in Section 2.6
below, and with the partners in Merger Sub becoming the sole partners in the
Partnership. The Partnership shall be the Surviving Partnership and the separate
existence of
Merger Sub shall cease. The Surviving Partnership shall continue its existence
as a limited partnership under the laws of the State of Delaware, and its name
shall continue to be "Marriott Residence Inn Limited Partnership."
2.2. Certificate of Merger; Effective Time
Upon the terms and subject to the conditions hereof, at or prior to
the Closing (as defined below), the parties to this Agreement (each, a "Party,"
and collectively, the "Parties") shall execute a certificate of merger (the
"Certificate of Merger") substantially in the form attached hereto as Exhibit A
and the Partnership shall file the Certificate of Merger with the Office of the
Secretary of State of the State of Delaware in accordance with the provisions of
Section 17-211(c) of the DRULPA. The Merger shall become effective on the time
and date specified in the Certificate of Merger filed with the Secretary of
State of the State of Delaware or, absent any such indication, upon acceptance
of filing (the "Effective Time"). The date on which the Effective Time occurs is
referred to herein as the "Effective Date."
2.3. Effects of Merger
The Merger shall have the effects set forth in the DRULPA. The sole
general partner of the Surviving Partnership shall be Merger Sub GP, which is
the general partner of Merger Sub, until it withdraws or is removed in
accordance with the partnership agreement of the Surviving Partnership, and the
limited partners of the Surviving Partnership shall be the limited partners of
Merger Sub. The Agreement of Limited Partnership of Merger Sub shall be adopted
as the partnership agreement of the Surviving Partnership from and after the
Effective Time and shall continue in full force and effect after the Merger
until further amended in accordance with the terms and conditions thereof and
applicable Delaware law.
2.4. Escrow Deposit
(a) For and in partial consideration of the execution and delivery of
this Agreement, within 3 business days of the date hereof, Buyer and the
Partnership shall enter into an escrow agreement with the Deposit Escrow Agent
in substantially the form attached hereto as Exhibit B and as may be reasonably
modified by the Deposit Escrow Agent (the "Deposit Escrow Agreement").
(b) Simultaneously with the execution and delivery of the Deposit
Escrow Agreement, Buyer shall deposit in escrow with the Deposit Escrow Agent
$35,000,000 in cash, such amount and any interest earned thereon to be held as a
deposit (the "Deposit") in accordance with the terms and conditions of the
Deposit Escrow Agreement. Pursuant to the terms of the Deposit Escrow Agreement,
the Deposit shall be invested by the Deposit Escrow Agent in such bonds,
treasury notes and other evidences of indebtedness of the United States, and/or
certificates of deposit in commercial banks and savings and loan associations
organized under the laws of the United States or any state thereof as Buyer
shall select.
2
(c) In the event that this Agreement shall be terminated pursuant to
Section 8.1 (other than pursuant to Section 8.1(b)), Buyer shall be entitled to
the immediate return of the Deposit.
(d) In the event that this Agreement shall be terminated pursuant to
Section 8.1(b), $3,000,000 of the Deposit shall become the property of and be
delivered to the Partnership and the remaining $32,000,000 of the Deposit shall
be returned to Buyer.
2.5. Closing
The closing of the Merger (the "Closing") will take place as soon as
practicable following the date on which the last condition in Section 7 required
to be satisfied prior to the Closing is satisfied or waived or on such other
date as the Parties may agree (the "Closing Date"), at the offices of Hogan &
Hartson L.L.P., 555 13th Street, Washington, D.C. or such other place to which
the Parties may agree.
2.6. Exchange and Conversion of Partnership Interests
(a) At the Effective Time, the issued and outstanding Partnership
Units shall, by virtue of the Merger and without any action on the part of the
holder thereof, be converted into the right to receive cash in an amount equal
to $636.43 per Unit (the "Merger Consideration").
(b) Prior to the Effective Time, Buyer shall designate a bank or trust
company reasonably acceptable to the Partnership to act as Paying Agent in the
Merger (the "Paying Agent") for the purpose of exchanging certificates
representing the Partnership Units (the "Unit Certificates") for the Merger
Consideration. At or before the Effective Time, (i) Buyer and the Partnership
shall issue written instructions to the Deposit Escrow Agent to deliver the
Deposit to the Paying Agent and (ii) Buyer shall deliver to the Paying Agent
cash in an amount equal to the difference between (x) the aggregate Merger
Consideration and (y) the Deposit (such amounts referred to in (i) and (ii)
above collectively referred to herein as the "Exchange Fund").
(c) Promptly after the Effective Time, Buyer shall cause the Paying
Agent to mail to each Partner (i) a letter of transmittal (which shall specify
that delivery shall be effected, and risk of loss and title to Unit Certificates
shall pass, only upon proper delivery of the Unit Certificates to the Paying
Agent) and (ii) instructions for use in effecting the surrender of Unit
Certificates in exchange for the Merger Consideration. Upon surrender of a Unit
Certificate to the Paying Agent, together with a duly executed letter of
transmittal and such other documents as may reasonably be required by the Paying
Agent, the holder of such Unit Certificate shall be entitled to receive the
Merger Consideration into which the Partnership Units represented by such Unit
Certificate shall have been converted pursuant to this Section 2.6 and the Unit
Certificate so surrendered shall forthwith be canceled. Until so surrendered,
each Unit Certificate shall represent after the Effective Time for all purposes
only the right to receive the Merger Consideration. In the event of a transfer
of ownership of Partnership Units that is not registered in the transfer books
of the Partnership, payment may be made to a person other than the person in
whose name the Unit Certificate so surrendered is registered, if such Unit
Certificate shall be
3
properly endorsed or otherwise be in proper form for transfer and the person
requesting such payment shall pay any transfer or other taxes required by reason
of the payment to a person other than the registered holder of such Unit
Certificate or establish to the satisfaction of Buyer that such tax has been
paid or is not applicable. No interest shall be paid or shall accrue on the cash
payable upon surrender of any Unit Certificate.
(d) All Merger Consideration delivered upon the surrender of Unit
Certificates in accordance with the terms of this Section 2.6 shall be deemed to
have been paid in full satisfaction of all rights pertaining to the Partnership
Units represented by such Unit Certificates. At the Effective Time, the transfer
books of the Partnership shall be closed, and there shall be no further
registration of transfers on the transfer books of the Surviving Partnership of
the Partnership Units that were outstanding immediately prior to the Effective
Time. If, after the Effective Time, Unit Certificates are presented to the
Surviving Partnership or the Paying Agent for any reason, they shall be canceled
and exchanged for the Merger Consideration as provided in this Section 2.6.
(e) Promptly following the date which is 180 days after the Effective
Date, the Paying Agent will deliver to Buyer all certificates and other
documents in its possession relating to the transactions contemplated hereby,
and the Paying Agent's duties will terminate. Any portion of the Exchange Fund
(including interest or other income received by the Paying Agent in respect
thereof) that remains unclaimed by the holder of any Partnership Unit 180 days
after the Effective Date shall be delivered to the Surviving Partnership, upon
demand, and any such holder who has not exchanged such holder's Partnership
Units prior to such time shall thereafter look only to the Surviving Partnership
for payment of such holder's claim for Merger Consideration.
(f) If any Unit Certificate shall have been lost, stolen or destroyed,
upon the making of an affidavit of that fact by the person claiming such Unit
Certificate to be lost, stolen or destroyed and, if required by the Paying
Agent, the posting by such person of a bond or other surety in such amount as
the Paying Agent may reasonably direct as indemnity against any claim that may
be made with respect to such Unit Certificate and subject to such other
reasonable conditions as the Paying Agent may impose, the Paying Agent shall
deliver in exchange for such Unit Certificate the Merger Consideration into
which the Partnership Units represented by such Unit Certificate shall have been
converted pursuant to this Section 2.6.
(g) Buyer, the Surviving Partnership or the Paying Agent shall be
entitled to deduct and withhold from the consideration otherwise payable
pursuant to this Agreement to any holder of Partnership Units such amounts as
Buyer, the Surviving Partnership or the Paying Agent is required to deduct and
withhold with respect to the making of such payment under the Internal Revenue
Code of 1986, as amended (the "Code"), or any provision of state, local or
foreign tax law. To the extent that amounts are so withheld and paid over to the
appropriate taxing authority by Buyer, the Surviving Partnership or the Paying
Agent, such withheld amounts shall be treated for all purposes of this Agreement
as having been paid to the holder of Partnership Units in respect of which such
deduction and withholding was made by Buyer, the Surviving Partnership or the
Paying Agent.
4
(h) None of Buyer, the Surviving Partnership or the Paying Agent shall
be liable to any person in respect of any cash delivered to a public official
pursuant to any applicable abandoned property, escheat or similar law.
(i) At the Effective Time, the general partner interest in the
Partnership shall, by virtue of the Merger and without any action on the part of
the General Partner, be converted into the right to receive cash in an amount
equal to $200,000 (the "General Partner Consideration"). Buyer shall deliver the
General Partner Consideration to the General Partner in accordance with the
terms of Section 6.13(g).
(j) The Paying Agent shall invest the cash of the Exchange Fund, as
directed by the Surviving Partnership, on a daily basis. Any interest and other
income resulting from such investments shall be payable to the Surviving
Partnership on demand.
2.7. No Appraisal Rights
The holders of Partnership Interests are not entitled under applicable
law to appraisal rights as a result of the Merger.
2.8. Approval of the Limited Partners
The Partnership and the General Partner promptly shall seek the
approval of the holders of a majority of the Partnership Units who have been
admitted as limited partners of the Partnership to the Merger and the related
transactions to the extent required by the Partnership Agreement to effectuate
the transactions contemplated by this Agreement (collectively, the "Limited
Partner Approvals").
3. REPRESENTATIONS AND WARRANTIES OF THE PARTNERSHIP
The Partnership represents and warrants to Buyer as of the date of
this Agreement:
3.1. Organization, Good Standing and Qualification
The Partnership has been duly formed and is validly existing as a
limited partnership in good standing under the DRULPA with the requisite
partnership power and authority to own, lease and operate its properties,
conduct the business in which it is engaged and perform its obligations under
this Agreement. The Partnership is duly qualified to transact business and is in
good standing under the laws of each jurisdiction in which it owns or leases
properties, or conducts any business, so as to require such qualification,
except where the failure to so qualify or be in good standing would not
reasonably be expected to have a material adverse effect on the business,
financial condition or results of operations of the Partnership and its
Subsidiaries (as defined below) taken as a whole (a "Partnership Material
Adverse Effect"). The Partnership has furnished or made available to Buyer and
Merger Sub correct and complete copies of its Certificate of Limited Partnership
and its Partnership Agreement, as amended or supplemented to the date of this
Agreement.
5
3.2. Subsidiaries
(a) Schedule 3.2 sets forth each corporation, partnership, limited
liability company, joint venture or other legal entity of which the Partnership
owns (either directly or through or together with another Subsidiary of the
Partnership) either (i) a general partner, managing member or other similar
interest, or (ii) voting capital stock or other voting equity interests of such
corporation, partnership, limited liability company, joint venture or other
legal entity (each such entity, a "Subsidiary," collectively, "Subsidiaries").
(b) Except as set forth in Schedule 3.2, (i) all of the outstanding
shares of capital stock of each Subsidiary that is a corporation have been duly
authorized, validly issued and are (A) fully paid and nonassessable and not
subject to preemptive rights, (B) owned by the Partnership or by another
Subsidiary and (C) owned free and clear of all pledges, claims, liens, charges,
encumbrances and security interests of any kind or nature whatsoever
(collectively, "Liens") and (ii) all equity interests in each Subsidiary that is
a partnership, joint venture, limited liability company or trust are owned by
the Partnership or by another Subsidiary and are owned free and clear of all
Liens. Each Subsidiary is duly organized, validly existing and in good standing
under the laws of its jurisdiction of organization and has the requisite power
and authority to own, operate, lease and encumber its properties and carry on
its business as now being conducted. Each Subsidiary is duly qualified or
licensed to do business and is in good standing in each jurisdiction in which
the nature of its business or the ownership or leasing of its properties makes
such qualification or licensing necessary, other than in such jurisdictions
where the failure to be so qualified or licensed, individually or in the
aggregate, would not reasonably be expected to have a Partnership Material
Adverse Effect. Complete and correct copies of the articles of incorporation,
bylaws, organization documents and partnership, joint venture and operating
agreements of each Subsidiary, as amended to the date of this Agreement, have
been previously delivered to Buyer and are listed on Schedule 3.2.
3.3. Power, Authority and Enforceability
The Partnership has the requisite partnership power and authority to
enter into this Agreement and, subject to the requisite Limited Partner
Approvals, to consummate the Merger and the other transactions contemplated by
this Agreement (including, without limitation, each other agreement in
connection therewith to which the Partnership is or will be a party). The
execution and delivery of this Agreement by the Partnership and the consummation
by the Partnership of the Merger and the other transactions contemplated by this
Agreement (including, without limitation, each other agreement in connection
therewith to which the Partnership is or will be a party) have been duly
authorized by all necessary action on the part of the Partnership, except for
and subject to the Limited Partner Approvals. This Agreement has been, and each
other agreement in connection therewith to which the Partnership is or will be a
party has been or will be, duly executed and delivered by the Partnership and
constitutes or will constitute the legal, valid and binding agreement of the
Partnership enforceable against the Partnership in accordance with its terms,
except as may be limited by (a) applicable bankruptcy, insolvency,
reorganization, moratorium and other laws of general application affecting
enforcement of
6
creditors' rights generally, and (b) equitable principles of general
applicability relating to the availability of specific performance, injunctive
relief or other equitable remedies.
3.4. Capitalization
As of the date hereof, 65,600 Partnership Units are currently issued
and outstanding. Except as set forth in Schedule 3.4, all outstanding
Partnership Units are, and all such units that may be issued prior to the
Effective Time will be when issued, duly authorized, validly issued, fully paid
and nonassessable and not subject to or issued in violation of any purchase
option, call option, right of first refusal, preemptive right, subscription
right or any similar right under any provision of the DRULPA, the Partnership
Agreement or any contract, lease, license, indenture, note, bond or other
agreement (a "Contract") to which the Partnership is a party. There are not any
options, warrants, calls, rights, convertible or exchangeable securities, units,
commitments, Contracts, arrangements or undertakings to which the Partnership is
a party (x) obligating the Partnership to issue, deliver or sell, or cause to be
issued, delivered or sold, additional Partnership Units or other equity
interests in, or any security convertible or exercisable for or exchangeable
into any Partnership Unit or other equity interest in, the Partnership or (y)
obligating the Partnership to issue, grant, extend or enter into any such
option, warrant, call, right, security, unit, commitment, Contract, arrangement
or undertaking. As of the date of this Agreement, there are no outstanding
contractual obligations of the Partnership to repurchase, redeem or otherwise
acquire any Partnership Units. There are no agreements among Limited Partners,
voting trusts or other agreements or understandings to which the Partnership is
a party or to which it is bound relating to the holding, voting or disposition
of the Partnership Units.
3.5. Noncontravention
(a) The execution, delivery and performance of this Agreement by the
Partnership and the consummation by the Partnership of the Merger will not (i)
violate the Partnership Agreement or any charter or similar organizational
document adopted by any Subsidiary as in effect on the date hereof or
immediately prior to the Effective Time or (ii) conflict with, or constitute a
violation of or a default (or an event which with notice or lapse of time or
both would become a violation of or a default) under, or grant to others any
rights of termination, amendment, acceleration or cancellation of, any other
material agreement, indenture or instrument to which the Partnership or any of
its Subsidiaries is a party, or result in the creation of any Lien upon any of
the properties or assets of the Partnership or any Subsidiary, or result in a
violation of any statute, law, ordinance, regulation, rule, judgment, decree or
order (collectively "Laws") of any federal, state or local government or any
court, administrative or regulatory agency or commission or other governmental
authority or agency having jurisdiction (a "Governmental Entity") applicable to
the Partnership or any of its Subsidiaries or by which any of its property or
assets is bound or affected, which conflict, default, grant or violation (A)
except in the case of clause (i) above, would reasonably be expected to have a
Partnership Material Adverse Effect, (B) would impair the ability of the
Partnership to perform its obligations under this Agreement or to consummate the
Merger and the other transactions contemplated by this Agreement or (C) will not
be avoided by the Partnership obtaining at or
7
prior to the Effective Time the consent of a third party (including, without
limitation, the Limited Partner Approvals) as set forth on Schedule 3.5.
(b) No consent, approval, license, permit, order or authorization of,
or registration, declaration or filing with, or notice to, or permit from, any
Governmental Entity is required to be obtained or made by or with respect to the
Partnership or any Subsidiary in connection with the execution, delivery and
performance of this Agreement or consummation of the Merger, other than (i) the
filing with the SEC of a consent solicitation statement relating to the Limited
Partner Approvals, (ii) the filing of the Certificate of Merger with the
Secretary of State of the State of Delaware and appropriate documents with the
relevant authorities of the other jurisdictions in which the Partnership is
qualified to do business, (iii) such filings as may be required in connection
with the Taxes described in Section 3.11 and (iv) filings under state securities
laws.
3.6. Litigation
Except as set forth in Schedule 3.6, there is no suit, action or
proceeding pending against or, to the Knowledge of the Partnership, threatened
against the Partnership or any Subsidiary or any of their respective properties
before any arbitrator, court or other Governmental Entity that, individually or
in the aggregate, if determined adversely to such party, would reasonably be
expected to have a Partnership Material Adverse Effect. As of the date hereof,
there are no suits, actions or proceedings pending or, to the Knowledge of the
Partnership, threatened against the Partnership or any Subsidiary that seek to
prevent, hinder, modify or challenge the transactions contemplated by this
Agreement. Neither the Partnership nor any Subsidiary is subject to any
outstanding judgment against them or naming them as a party that, individually
or in the aggregate, would reasonably be expected to have a Partnership Material
Adverse Effect.
3.7. SEC Documents; Financial Statements; Liabilities
(a) The Partnership has filed all reports, schedules, forms,
statements and other documents required to be filed with the Securities and
Exchange Commission (the "SEC") since January 1, 1998 through the date hereof
and will file all reports, schedules, forms, statements and other documents
required to be filed with the SEC prior to the Effective Date, including,
without limitation, the Consent Solicitation (as defined below) (the
"Partnership SEC Documents"). The Partnership SEC Documents, as of their
respective filing dates, complied or will comply in all material respects with
the applicable requirements of the Securities Act of 1933, as amended (the
"Securities Act") and the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and, in each case, the rules and regulations promulgated
thereunder applicable to such Partnership SEC Documents. None of the Partnership
SEC Documents at the time of filing contained or will contain any untrue
statement of a material fact or omitted to state any material fact required to
be stated therein or necessary in order to make the statements therein, in light
of the circumstances under which they were made, not misleading, except to the
extent such statements have been modified or superseded by later Partnership SEC
Documents filed and publicly available prior to the date hereof and with respect
8
to which any such statement or omission would not reasonably be expected to have
a Partnership Material Adverse Effect. The consolidated financial statements of
the Partnership and its consolidated Subsidiaries, if any, included in the
Partnership SEC Documents complied or will comply as to form in all material
respects with applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto, have been prepared in accordance
with generally accepted accounting principles ("GAAP") (except, in the case of
unaudited statements, as permitted by the applicable rules and regulations of
the SEC) applied on consistent basis during the periods involved (except as may
be indicated in the notes thereto) and fairly presented, in accordance with the
applicable requirements of GAAP and the applicable rules and regulations of the
SEC, the consolidated financial position of the Partnership and its consolidated
Subsidiaries, if any, in each case taken as a whole, as of the dates thereof and
the consolidated results of operations and cash flow for the periods then ended
(subject, in the case of unaudited statements, to normal year-end audit
adjustments).
(b) Except as set forth in the most recent financial statements
included in the Partnership SEC Documents or as incurred in the ordinary course
of business since the respective dates thereof, neither the Partnership nor any
Subsidiary has any liabilities or obligations of any nature (whether accrued,
absolute, contingent or otherwise) that would be required by GAAP to be
reflected in the Partnership's financial statements.
3.8. No Material Adverse Changes
Except as disclosed in the Partnership SEC Documents that were filed
and publicly available prior to the date of this Agreement or in the financial
and other reports of the Partnership set forth on Schedule 3.8, since December
31, 2000, the Partnership and the Subsidiaries have conducted their respective
businesses only in the ordinary course of business, and there has not been (a)
any material adverse change in the business, financial condition or results of
operations of the Partnership and its Subsidiaries taken as a whole, other than
adverse effects caused by increased competition in the limited service hotel
industry or in specific Hotel markets, changes in the limited service hotel
industry not specifically relating to the Partnership and its Subsidiaries
(including adverse effects or changes resulting from the terrorist acts
committed in the United States on September 11, 2001) or changes in the economy
generally (a "Partnership Material Adverse Change"), nor has there been any
occurrence or circumstance affecting the Partnership or any of its Subsidiaries
that with the passage of time or giving of notice would reasonably be expected
to result in a Partnership Material Adverse Change or would impair the ability
of the Partnership to perform its obligations under this Agreement or to
consummate the Merger and the other transactions contemplated by this Agreement,
(b) any damage, destruction or loss, whether or not covered by insurance that
has had or would reasonably be expected to have a Partnership Material Adverse
Effect, or (c) any change in accounting methods, principles or practices by the
Partnership materially affecting its assets, liabilities or business, except
insofar as may have been disclosed in the Partnership SEC Documents or required
by a change in GAAP. The Partnership has provided Buyer with certain financial
information regarding the Hotels through Period 11 of the Manager's 2001 Fiscal
Year. Buyer acknowledges that such information indicates a decline in the
operating results of the Hotels over such period as compared to the operating
results for the comparable period for the
9
prior fiscal year, and that any continued decline in the operating results of
the Hotels prior to the Closing shall not constitute a Partnership Material
Adverse Change for purposes of this Agreement.
3.9. Indebtedness
Schedule 3.9 sets forth a complete and correct list of all
indebtedness of the Partnership and its Subsidiaries evidenced by a note
(collectively, "Loans"), including, without limitation, all indebtedness secured
by a mortgage, deed of trust or similar instrument encumbering any of the Hotels
(collectively, "Mortgage Loans"), and sets forth (a) the date on which each Loan
was executed and any amendments or modifications thereto, (b) the original
principal amount, rate of interest, and outstanding principal amount of each
such Loan and (c) if applicable, the Hotel(s) to which each Mortgage Loan
relates.
3.10. Default; Material Contracts
Except for defaults, events or occurrences, the consequences of which,
individually or in the aggregate, would not reasonably be expected to have a
Partnership Material Adverse Effect, (a) neither the Partnership nor any of its
Subsidiaries is in default or, to the Knowledge of the Partnership, alleged to
be in default with respect to any judgment, order, writ, injunction or decree of
any court or any Governmental Entity; (b) neither the Partnership nor any of its
Subsidiaries is in breach or default or, to the Knowledge of the Partnership,
alleged to be in breach or default under any agreement to which the Partnership
or its Subsidiaries is a party, including the material contracts of the
Partnership and its Subsidiaries set forth on Schedule 3.10 (the "Material
Contracts"), correct and complete copies of which have been furnished or made
available to Buyer and Merger Sub, and (c) to the Knowledge of the Partnership,
no condition or state of facts exists which reasonably would be expected to
cause or create a default or defaults by the Partnership or any of its
Subsidiaries under any such judgment, order, writ, injunction or decree or
agreement (other than as set forth on Schedule 3.10). All of the Material
Contracts have been filed as exhibits to the Partnership's SEC Documents and are
in full force and effect.
3.11. Tax Matters
Except as otherwise set forth in Schedule 3.11:
(a) Except where any failure to do so would not reasonably be expected
to have a Partnership Material Adverse Effect, the Partnership and its
Subsidiaries have filed when due (including extensions) with the appropriate
Governmental Entity, all tax returns, estimates, information and reports ("Tax
Returns") required to be filed by the Partnership or any of its Subsidiaries
with respect to all federal, state, local or foreign taxes, levies, imposts,
duties, licenses and registration fees, and similar charges, including, without
limitation, income taxes, unemployment and social security withholding taxes,
sales and use taxes, real estate transfer taxes, real estate and personal
property taxes, franchise taxes, and interest, penalties and additions to tax
with respect thereto ("Taxes"). Except where any failure to do so would not
reasonably be expected to have a Partnership Material Adverse Effect, the
Partnership and its
10
Subsidiaries have paid all Taxes that have become due and payable and, to the
extent of Taxes not yet due and payable, the Partnership and its Subsidiaries
have made required estimated payments of or accrued or otherwise adequately
reserved in accordance with GAAP for the payment of all Taxes. All such filed
Tax Returns are correct and complete in all material respects. Neither the
Partnership nor any of its Subsidiaries has received written notice from any
Governmental Entity in a jurisdiction in which it does not file a Tax Return
stating that it is or may be subject to taxation by that jurisdiction. Neither
the Partnership nor any of its Subsidiaries is a party to or bound by any
agreement providing for the allocation or sharing of Taxes.
(b) No Taxes have been assessed or asserted in writing in respect of
any Tax Returns filed by the Partnership or any of its Subsidiaries or claimed
in writing to be due by any taxing authority or otherwise that are not accrued
or adequately reserved for in accordance with GAAP. No Tax Return of the
Partnership nor any of its Subsidiaries has been or, to the Knowledge of the
Partnership, is currently being examined or audited by the IRS or other taxing
authority (whether foreign or domestic). Neither the Partnership nor any of its
Subsidiaries has executed or filed with the IRS or any other taxing authority
any agreement, waiver, or other document extending, or having the effect of
extending, the period for assessment or collection of any Taxes, which extension
or waiver is still in effect. The Partnership has delivered to Buyer correct and
complete copies of all examination reports, statements of deficiencies and
similar documents prepared by the IRS or any other taxing authority with respect
to the Partnership or any of its Subsidiaries that have been received by either
the Partnership or any of its Subsidiaries (if any). All final adjustments made
by the IRS with respect to any Tax Return of the Partnership or any of its
Subsidiaries have been reported to the relevant state, local, or foreign taxing
authorities to the extent required by law, except where the failure to do so
would not reasonably be expected to have a Partnership Material Adverse Effect.
No requests for ruling or determination letters filed by the Partnership or any
of its Subsidiaries are pending with any taxing authority.
(c) Neither the Partnership nor any of its Subsidiaries (i) has a
permanent establishment in any foreign country or operates or conducts a
business through any branch in any foreign country, (ii) has agreed to or is
required to make any adjustment pursuant to Section 481(a) of the Code or any
similar provision of state, local or foreign law by reason of a change in the
accounting method initiated by either the Partnership or any of its
Subsidiaries, (iii) has any Knowledge that the IRS or other Governmental Entity
has proposed any such adjustment or change in accounting method, or (iv) has
executed or entered into a closing agreement pursuant to Section 7121 of the
Code or any predecessor provision thereof or any similar provision of state,
local or foreign law.
(d) The performance of the transactions contemplated by this Agreement
will not (either alone or upon the occurrence of any additional or subsequent
event) result in any payment that would constitute an "excess parachute payment"
within the meaning of Section 280G of the Code.
(e) Copies of all Tax Returns required to be filed by the Partnership
or any of its Subsidiaries (including any predecessors) for each of the last two
(2) years, together with all schedules and attachments thereto, have been
delivered to Buyer.
11
3.12. Employee Matters
Neither the Partnership nor any of its Subsidiaries has or ever has
had any employees.
3.13. Compliance with Laws
(a) Except as disclosed in any Partnership SEC Documents and except
for violations, noncompliances and defaults which would not reasonably be
expected to have a Partnership Material Adverse Effect or that are expected to
be remedied pursuant to the implementation of the Residence Inn Asset Protection
Plan, a copy of which has been provided to Buyer, neither the Partnership nor
any of its Subsidiaries has Knowledge that it has violated or failed to comply
with any applicable Law or Permit (as defined below) of any Governmental Entity.
(b) To the Knowledge of the Partnership, the Partnership and each
Subsidiary has in effect all approvals, authorizations, certificates, filings,
franchises, licenses (including, without limitation, liquor licenses), notices,
permits and rights of or with all Governmental Entities ("Permits") necessary
for it to own, lease or otherwise hold and to operate its properties and assets
and to carry on its business and operations as now conducted, except for the
failure to have such Permits that, individually or in the aggregate, has not had
and would not reasonably be expected to have a Partnership Material Adverse
Effect. To the Knowledge of the Partnership, there have occurred no defaults
under, or violations of, any such Permits, except for such defaults and
violations that, individually or in the aggregate, have not had and would not
reasonably be expected to have a Partnership Material Adverse Effect. To the
Knowledge of the Partnership, neither this Agreement nor the Merger, in and of
itself, would cause the revocation or cancellation of any such Permit that,
individually or in the aggregate, would reasonably be expected to have a
Partnership Material Adverse Effect. Buyer acknowledges that the Manager is
responsible for obtaining and maintaining Permits necessary to operate the
Partnership's properties and assets and to carry on the business and operations
of the Hotels as currently conducted, and that the Partnership's Knowledge of
the matters referred to in this Section 3.13(b) is not deemed to include the
Manager's Knowledge of such matters for purposes of this Agreement.
3.14. Environmental Compliance
Except as disclosed in the reports listed on Schedule 3.14, to the
Knowledge of the Partnership, (a) there has been no Release (as defined below)
of Hazardous Materials at, on, under, or from the Hotel properties and (b) none
of the Hotels, the Partnership or any of its Subsidiaries have failed to comply
with Environmental Laws (as defined below), which Release or failure would
reasonably be expected to have a Partnership Material Adverse Effect.
For the purposes of this Agreement, "Hazardous Materials" means any of
the following: asbestos-containing materials, polychlorinated biphenyls,
flammable materials, explosives, radioactive materials, petroleum products and
any materials, wastes, substances, or
12
chemicals that are deemed hazardous, toxic, or defined as a "hazardous
substance" under the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended (42 U.S.C. Section 9601, et seq.) ("CERCLA"),
the Hazardous Materials Transportation Act, as amended (49 U.S.C. Section 1801,
et seq.), the Resource Conservation and Recovery Act of 1976, as amended (42
U.S.C. Section 6901, et seq.), in the regulations adopted or publications
promulgated pursuant thereto, or in any other applicable Laws of any
Governmental Entity in effect on the date hereof relating to protection of
public health, safety or the environment (each such law, ordinance, rule or
regulation, an "Environmental Law"). For purposes of this Agreement, "Release"
shall have the meaning set forth in CERCLA.
3.15. Brokers Fees
Except for fees payable to Merrill Lynch & Co. by the Partnership
prior to the Closing in connection with the transactions contemplated by this
Agreement, no Person acting on behalf of the Partnership is, or will be,
entitled to any commission, broker's, finder's or investment banking fees from
any of the Parties or from any Person controlling, controlled by or under common
control with any Party, in connection with the transactions contemplated by this
Agreement. A true, correct and complete copy of the agreement with Merrill Lynch
& Co. pursuant to which such fees are payable has been provided to Buyer prior
to the date of this Agreement.
3.16. Potential Conflicts of Interest
Except as disclosed in the Partnership SEC Documents, there have been
no transactions, agreements, arrangements or understandings between the
Partnership or General Partner, on the one hand, and its affiliates, on the
other hand, that would be required to be disclosed under Item 404 of Regulation
S-K under the Securities Act.
3.17. Opinion of Financial Advisor
The General Partner has received the opinion of Merrill Lynch & Co.,
the Partnership's financial advisor, on or prior to the date of this Agreement,
to the effect that, as of the date of such opinion, the proposed Merger
Consideration to be received by the Limited Partners pursuant to the Merger is
fair to the Limited Partners from a financial point of view.
3.18. Vote Required
The affirmative vote of the holders of a majority of the outstanding
Partnership Units is the only vote of the holders of Partnership Interests
required to approve the Merger.
3.19. Properties
The real property listed on Schedule 3.19 is the only real property
currently or previously owned by the Partnership.
13
4. REPRESENTATIONS AND WARRANTIES OF THE GENERAL PARTNER
The General Partner represents and warrants to Buyer as of the date of
this Agreement:
4.1. Organization, Good Standing and Qualification
The General Partner has been duly formed and is validly existing as a
limited liability company in good standing under the applicable laws of its
jurisdiction of formation with the requisite limited liability company power and
authority to own, lease and operate its properties, conduct the business in
which it is engaged and perform its obligations under this Agreement. The
General Partner is duly qualified to transact business and is in good standing
under the laws of each jurisdiction in which it owns or leases properties, or
conducts any business, so as to require such qualification, except where the
failure to so qualify or be in good standing would not reasonably be expected to
have a material adverse effect on the business, financial condition or results
of operations of the General Partner. The General Partner has furnished or made
available to Buyer correct and complete copies of its certificate of formation
and operating agreement, as amended or supplemented to the date of this
Agreement (the "Operating Agreement").
4.2. Power, Authority and Enforceability
The General Partner has the requisite limited liability company power
and authority to enter into this Agreement and, subject to amendment of the
Operating Agreement as contemplated by the Operating Agreement Consent, to
approve and consummate the Merger and the other transactions contemplated by
this Agreement and each other agreement in connection therewith to which the
General Partner is or will be a party. The execution and delivery of this
Agreement by the General Partner and the consummation by the General Partner of
the transactions contemplated by this Agreement and each other agreement in
connection therewith to which the General Partner is or will be a party have
been duly authorized by all necessary action on the part of the General Partner.
This Agreement has been, and each other agreement in connection therewith to
which the General Partner is or will be a party has been or will be, duly
executed and delivered by the General Partner and constitutes or will constitute
the legal, valid and binding agreement of the General Partner, enforceable
against the General Partner in accordance with its terms, except as may be
limited by (a) applicable bankruptcy, insolvency, reorganization, moratorium and
other laws of general application affecting enforcement of creditors' rights
generally, and (b) equitable principles of general applicability relating to the
availability of specific performance, injunctive relief, or other equitable
remedies.
4.3. Noncontravention
(a) Except as set forth in Schedule 4.3, the execution, delivery and
performance of this Agreement by the General Partner will not (i) violate the
certificate of formation and operating agreement of the General Partner, as in
effect on the date hereof or as in effect as of the Effective Time, or (ii)
conflict with, or constitute a violation of or a default (or an
14
event which with notice or lapse of time or both would become a violation of or
a default) under, or grant to others any rights of termination, amendment,
acceleration or cancellation of, any other material agreement, indenture or
instrument to which the General Partner is a party or by which any of its
property or assets is bound or affected, or result in the creation of any Lien
upon any of the properties or assets of the General Partner, or result in a
violation of any Law of any Governmental Entity applicable to the General
Partner or by which any of its property or assets is bound or affected, which
conflict, default, grant or violation (A) except in the case of clause (i)
above, would reasonably be expected to have a material adverse effect on the
business, financial condition or results of operations of the General Partner,
(B) would impair the ability of the General Partner to perform its obligations
under this Agreement or to consummate the Merger and the other transactions
contemplated by this Agreement or (C) will not be avoided by the General Partner
obtaining at or prior to the Effective Time the consent of a third party as set
forth in Schedule 4.3.
(b) No consent, approval, license, permit, order or authorization of,
or registration, declaration or filing with, or notice to, or permit from, any
Governmental Entity is required to be obtained or made by or with respect to the
General Partner in connection with the execution, delivery and performance of
this Agreement or consummation of the Merger, other than (i) the filing with the
SEC of a consent solicitation statement relating to the Limited Partner
Approvals, (ii) the filing of the Certificate of Merger with the Secretary of
State of the State of Delaware, (iii) such filings as may be required in
connection with the Taxes described in Section 3.11 and (iv) filings under state
securities law.
5. REPRESENTATIONS AND WARRANTIES OF BUYER AND MERGER SUB
Buyer and Merger Sub, jointly and severally, represent and warrant to
the Partnership as of the date of this Agreement:
5.1. Organization, Good Standing and Qualification
Each of Buyer and Merger Sub has been duly formed and is validly
existing as a corporation or partnership in good standing under the applicable
laws of its respective jurisdiction of formation with the requisite corporate or
partnership power and authority to own, lease and operate its respective
properties, conduct the business in which it is engaged and perform its
obligations under this Agreement. Each of Buyer and Merger Sub is duly qualified
to transact business and is in good standing under the laws of each jurisdiction
in which it owns or leases properties, or conducts any business, so as to
require such qualification, except where the failure to so qualify or be in good
standing would not reasonably be expected to have a material adverse effect on
the business, financial condition or results of operations of Buyer or Merger
Sub (a "Buyer Material Adverse Effect"). Each of Buyer and Merger Sub has
furnished or made available to the Partnership correct and complete copies of
its articles of incorporation and bylaws or certificate of limited partnership
and partnership agreement, as the case may be, as amended or supplemented to the
date of this Agreement.
15
5.2. Power, Authority and Enforceability
Each of Buyer and Merger Sub has the requisite corporate or
partnership power and authority to enter into this Agreement and to consummate
the Merger and the other transactions contemplated by this Agreement (including,
without limitation, each other agreement in connection therewith to which Buyer
or Merger Sub, as the case may be, is or will be a party). The execution and
delivery of this Agreement by each of Buyer and Merger Sub and the consummation
by each of Buyer and Merger Sub of the Merger and the other transactions
contemplated by this Agreement (including, without limitation, each other
agreement in connection therewith to which Buyer or Merger Sub, as the case may
be, is or will be a party) have been duly authorized by all necessary action on
the part of Buyer and Merger Sub, as the case may be. This Agreement has been,
and each other agreement in connection therewith to which Buyer or Merger Sub is
or will be a party has been or will be, duly executed and delivered by Buyer and
Merger Sub, as the case may be, and constitutes or will constitute the legal,
valid and binding agreement of Buyer and Merger Sub, as the case may be,
enforceable against each of Buyer and Merger Sub in accordance with its terms,
except as may be limited by (a) applicable bankruptcy, insolvency,
reorganization, moratorium and other laws of general application affecting
enforcement of creditors' rights generally, and (b) equitable principles of
general applicability relating to the availability of specific performance,
injunctive relief, or other equitable remedies.
5.3. Financial Statements
Attached hereto as Exhibit C are the financial statements of Buyer and
its consolidated subsidiaries, if any, for the period of January 17, 2001
through June 30, 2001 and for the period of January 17, 2001 through September
30, 2001 (collectively the "Buyer's Financial Statements"). Buyer's Financial
Statements comply or will comply as to form in all material respects with
applicable accounting requirements, have been prepared in accordance with GAAP
applied on consistent basis during the periods involved (except as may be
indicated in the notes thereto), are correct and complete and fairly present, in
accordance with the applicable requirements of GAAP, the consolidated financial
position of Buyer and its consolidated subsidiaries, if any, in each case taken
as a whole, as of the dates thereof, and are consistent with the books and
records of Buyer (which books and records are materially correct and complete),
and the consolidated results of operations and cash flow for the periods then
ended (subject, in the case of unaudited statements, to normal year-end audit
adjustments).
5.4. Noncontravention
(a) Except as set forth in Schedule 5.4, the execution, delivery and
performance of this Agreement by each of Buyer and Merger Sub and the
consummation by each of Buyer and Merger Sub of the Merger will not (i) violate
the articles of incorporation, bylaws or the partnership agreement, as the case
may be, of Buyer or Merger Sub, as in effect on the date hereof or immediately
prior to the Effective Time, or (ii) conflict with, or constitute a violation of
or a default (or an event which with notice or lapse of time or both would
become a violation of or a default) under, or grant to others any rights of
termination, amendment, acceleration or
16
cancellation of, any other material agreement, indenture or instrument to which
any of Buyer or Merger Sub is a party or by which any of their property or
assets is bound or affected, or result in the creation of any Lien upon any of
the properties or assets of Buyer or Merger Sub or result in a violation of any
Law of any Governmental Entity applicable to any of Buyer or Merger Sub or by
which any of their property or assets is bound or affected, which conflict,
default, grant or violation (A) except in the case of clause (i) above, would
reasonably be expected to have a Buyer Material Adverse Effect, (B) would impair
the ability of either Buyer or Merger Sub to perform its obligations under this
Agreement or to consummate the Merger and the other transactions contemplated by
this Agreement or (C) will not be avoided by Buyer or Merger Sub obtaining at or
prior to the Effective Time the consent of a third party as set forth in
Schedule 5.4.
(b) No consent, approval, license, permit, order or authorization of,
or registration, declaration or filing with, or notice to, or permit from, any
Governmental Entity is required to be obtained or made by or with respect to
Buyer or Merger Sub in connection with the execution, delivery and performance
of this Agreement or consummation of the Merger, other than (i) the filing of
the Certificate of Merger with the Secretary of State of the State of Delaware
and (ii) such filings as may be required in connection with the Taxes described
in Section 3.11.
5.5. Litigation
Except as set forth in Schedule 5.5, there is no suit, action or
proceeding pending against or, to the Knowledge of Buyer or Merger Sub,
threatened against Buyer or Merger Sub or any of their respective properties
before any arbitrator, court or other Governmental Entity that, individually or
in the aggregate, if determined adversely to such party, would reasonably be
expected to impair the ability of either Buyer or Merger Sub to perform its
obligations under this Agreement or to consummate the Merger and the other
transactions contemplated by this Agreement. As of the date hereof, there are no
suits, actions or proceedings pending against Buyer or Merger Sub that seek to
prevent, hinder, modify or challenge the transactions contemplated by this
Agreement. Neither Buyer nor Merger Sub is subject to any outstanding judgment
against them or naming them as a party that, individually or in the aggregate,
would reasonably be expected to impair the ability of either Buyer or Merger Sub
to perform its obligations under this Agreement or to consummate the Merger and
the other transactions contemplated by this Agreement.
5.6. No Material Adverse Changes
Since June 30, 2001, Buyer has conducted its business only in the
ordinary course of business and there has not been any material adverse change
in the business, financial condition or results of operations of Buyer and its
consolidated subsidiaries (if any) taken as a whole (a "Buyer Material Adverse
Change"), nor has there been any occurrence or circumstance affecting Buyer or
its subsidiaries that with the passage of time or giving of notice would
reasonably be expected to result in a Buyer Material Adverse Change or would
impair the
17
ability of either Buyer or Merger Sub to perform its obligations under this
Agreement or to consummate the Merger and the other transactions contemplated by
this Agreement.
5.7. Brokers Fees
Except as disclosed to the Partnership in writing prior to the date
hereof, no Person acting on behalf of Buyer or Merger Sub is, or will be,
entitled to any commission, broker's, finder's or investment banking fees from
any of the Parties or from any Person controlling, controlled by or under common
control with any Party, in connection with the transactions contemplated by this
Agreement.
6. COVENANTS
6.1. Conduct of Business by the Partnership
From the date of this Agreement to the Effective Time, except as
required in connection with the Merger and the other transactions contemplated
by this Agreement or unless the Partnership obtains the prior written consent of
Buyer, the Partnership shall and shall cause each of its Subsidiaries to:
(a) carry on its business as currently conducted and only in the usual
and ordinary course;
(b) make no amendment to the Material Contracts or any charter or
similar organizational document adopted by any Subsidiary;
(c) use its commercially reasonable efforts to preserve its business
organization intact and cause the Manager to continue to (i) operate the Hotels
in a good and businesslike fashion consistent with past practices and in
accordance with the terms of the Management Agreement, (ii) maintain the Hotels
in good working order and condition in a manner consistent with past practices
and in accordance with the terms of the Management Agreement and (iii) maintain
the present level of insurance with respect to the Hotels in full force and
effect;
(d) not incur any material liability or make any material commitment
(including, without limitation, making or entering into any new Loan) or enter
into any other material transaction except in the ordinary and usual course of
business or pursuant to agreements existing on the date hereof;
(e) not issue, deliver, sell, grant, pledge, transfer (other than a
transfer in the transfer books of the Partnership to reflect a transfer of
ownership of Partnership Units by a Limited Partner in accordance with the
Partnership Agreement) or otherwise encumber or dispose of or subject to any
Lien, (i) any Partnership Interests or (ii) any options or rights to purchase
Partnership Interests or securities convertible into or exchangeable for
Partnership Interests and not redeem, purchase or otherwise acquire any of its
Partnership Interests;
18
(f) not organize any subsidiary and not acquire or enter into an
agreement to acquire, by merger, consolidation or purchase of stock, interests
in or assets of, any business or entity;
(g) not enter into, modify, amend or terminate any material agreement
with respect to any of the Hotels, other than in the ordinary course of business
or pursuant to agreements existing on the date hereof, which would encumber or
be binding upon the Hotels from and after the Effective Time;
(h) not make any distributions to the Partners except for
distributions of Partnership Cash made after receipt of the Limited Partner
Approvals, provided the condition set forth in Section 7.3(d) can continue to be
satisfied following any such distribution of Partnership Cash;
(i) not make or change any material Tax election or settle or
compromise any material Tax liability or refund;
(j) not adopt a plan or agreement of, or resolutions providing for or
authorizing, complete or partial liquidation, dissolution, merger,
consolidation, restructuring, recapitalization or other reorganization;
(k) not make any change in accounting methods, principles or practices
affecting the reported assets, liabilities or results of operations of the
Partnership or any Subsidiary, except as required by a change in GAAP;
(l) not (i) incur, assume or prepay any indebtedness for borrowed
money or guarantee, endorse or otherwise become liable or responsible (whether
directly, contingently or otherwise) for any indebtedness or obligation of
another person or issue or sell any debt securities or warrants or other rights
to acquire any debt securities of the Partnership or any Subsidiary, or (ii)
make or forgive any loans, advances or capital contributions to, or investments
in, any other person;
(m) not pay, discharge, settle or satisfy any claims, liabilities,
obligations or litigation of or against the Partnership, other than the payment,
discharge, settlement or satisfaction, in the ordinary course of business or in
accordance with their terms, of liabilities reflected or reserved against in the
most recent financial statements (or the notes thereto) of the Partnership
included in the Partnership SEC Documents or incurred since the date of such
financial statements in the ordinary course of business; and
(n) not authorize, or commit or agree to take, any of the foregoing
actions or take any action that would make any representation or warranty in
Article III hereof untrue or incorrect in any material respect.
Nothing set forth in this Section 6.1 shall restrict the right of the
Manager under the Management Agreement to enter into, terminate, amend or
otherwise modify any contracts or agreements related to the Hotels (or the
Partnership entering into, terminating, amending or otherwise modifying any such
contracts or agreements where required by the Manager based on
19
the Manager's right under the Management Agreement to effect the same), or take
any other actions related to the Hotels permitted by the Management Agreement,
except that the Partnership shall not consent to, approve of or execute the same
(to the extent that the Partnership has the right under the Management Agreement
to withhold such consent or approval) except in accordance with the requirements
of this Section 6.1.
6.2. Reasonable Efforts; Further Assurances; Cooperation; Notification
Subject to the terms and conditions hereof, each of the Parties shall
use its commercially reasonable efforts to take, or cause to be taken or do, or
cause to be done, all things necessary, proper or advisable under applicable Law
to obtain all required regulatory approvals and shall cooperate fully with each
other and their respective managers, directors, officers, general partners,
employees, agents, counsel, accountants and other designees in connection with
any steps required to be taken as a part of its obligations under this
Agreement. Each Party shall do such things as may be reasonably requested by the
other Parties in order to more effectively consummate the Merger and the other
transactions contemplated by this Agreement, including, without limitation:
(a) As promptly as practicable after the date of this Agreement, the
Partnership shall prepare and file with the SEC under the Exchange Act a consent
solicitation statement relating to the consent of the Limited Partners with
respect to the Limited Partner Approvals (the "Consent Solicitation"); provided,
however, the Partnership shall not be required to mail the Consent Solicitation
to the Limited Partners prior to receipt by the Partnership of (i) evidence of
the Buyer Consents from the Manager and (ii) evidence of the Partnership
Consents from the Manager. The Partnership will cause the Consent Solicitation
to comply as to form in all material respects with the applicable provisions of
the Exchange Act and the rules and regulations thereunder. The information
supplied by the Partnership and its Subsidiaries for inclusion in the Consent
Solicitation shall not, at the date the Consent Solicitation (or any amendment
thereof or supplement thereto) is first mailed to the Limited Partners or at the
termination of the consent solicitation period, contain any untrue statement of
a material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading.
(b) The Partnership and General Partner shall use their commercially
reasonable efforts to respond as promptly as practicable to any comments of the
SEC with respect to the Consent Solicitation as filed in preliminary form. The
Partnership shall notify the Buyer promptly of the receipt of any comments from
the SEC or its staff and of any request by the SEC or its staff for amendments
or supplements to the Consent Solicitation or for additional information and
shall supply Buyer with copies of all correspondence between the Partnership or
any of its representatives, on the one hand, and the SEC or its staff, on the
other hand, with respect to the Consent Solicitation. If at any time prior to
the termination of the consent solicitation period, there shall occur any event
that should be set forth in an amendment or supplement to the Consent
Solicitation, the Partnership shall promptly prepare and mail to the Limited
Partners such an amendment or supplement. No filing of, or amendment to, the
Consent Solicitation will be made by the Partnership or General Partner without
providing the Buyer the
20
opportunity to review and comment thereon. Subject to the provisions of Section
6.2(a), the Partnership shall use its commercially reasonable efforts to cause
the Consent Solicitation to be mailed to the Limited Partners as promptly as
practicable after the SEC has completed its review of the Consent Solicitation.
(c) In connection with the preparation of the Consent Solicitation,
Buyer will provide the Partnership in writing with all information relating to
Buyer and Merger Sub that is required to be included in the Consent Solicitation
pursuant to the Exchange Act and the rules and regulations thereunder and any
other applicable Law. The written information supplied by Buyer and Merger Sub
for inclusion in the Consent Solicitation shall not, at the date the Consent
Solicitation (or any amendment thereof or supplement thereto) is first mailed to
the Limited Partners or at the termination of the consent solicitation period,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading. If at any time prior to the termination of the consent solicitation
period any event or circumstance relating to Buyer or Merger Sub should be
discovered by Buyer or Merger Sub which should be set forth in an amendment or a
supplement to the Consent Solicitation, Buyer shall promptly inform the
Partnership.
(d) The Partnership and Buyer shall promptly make their respective
required material filings and submissions with Governmental Entities and shall
take, or cause to be taken, all actions and do, or cause to be done, all things
necessary, proper or advisable under applicable material Laws to obtain any
required material consent or approval of any third party or any Governmental
Entity necessary to perform their respective obligations under this Agreement.
(e) The Partnership and Buyer shall cooperate and keep each other
informed regarding all filings with the SEC.
(f) If any claim, action, suit, investigation or other proceeding by
any Governmental Entity or other Person is commenced which questions the
validity or legality of the Merger or any of the other transactions contemplated
by this Agreement or seeks damages in connection therewith, the Parties shall
cooperate and use commercially reasonable efforts to defend against such claim,
action, suit, investigation or other proceeding and, if an injunction or other
order is issued in any such action, suit or other proceeding, to use
commercially reasonable efforts to have such injunction or other order lifted,
and to cooperate reasonably regarding any other impediment to the consummation
of the Merger or any of the other transactions contemplated by this Agreement.
(g) Each Party shall give prompt written notice to the others of (i)
the occurrence, or failure to occur, of any event which occurrence or failure
causes or would reasonably be expected to cause any representation or warranty
of such Party contained in this Agreement to be untrue or inaccurate in any
material respect at any time from the date of this Agreement to the Effective
Time or that will or is reasonably expected to result in the failure to satisfy
any of the conditions specified in Article 7 of this Agreement, (ii) any failure
of such Party to perform or comply, in any material respect with any covenant or
other agreement required to be performed or compiled with under this Agreement
and (iii) any applicable update
21
to the schedules to this Agreement; provided, however, that no such notification
or update shall affect the representations, warranties, covenants, agreements or
schedules of the Parties or the conditions to the obligations of the Parties
under this Agreement.
(h) The Partnership shall use commercially reasonable efforts to
obtain from its accountants access to all work papers relating to audits of the
Partnership performed by its accountants, and the continued cooperation of its
accountants with regard to the preparation of consolidated financial statements
for the Surviving Partnership.
6.3. No Solicitation
(a) Prior to the Effective Time, except as otherwise permitted hereby:
(i) neither the Partnership nor the General Partner shall invite,
initiate, solicit or encourage, directly or indirectly, any inquiries,
proposals, discussions or negotiations or the making or implementation of any
proposal or offer (including, without limitation, any proposal or offer to the
partners of the Partnership) with respect to a merger, acquisition, tender
offer, exchange offer, transaction resulting in the issuance of equity
securities of the Partnership, consolidation, share exchange, business
combination, sale, lease, exchange, mortgage, pledge, transfer or other
disposition of the assets (other than in the ordinary course of business) or
equity securities (including, without limitation, Partnership Interests) of the
Partnership, other than the transactions contemplated by this Agreement (any
such proposal or offer being hereinafter referred to as an "Acquisition
Proposal"), or engage in any discussions or negotiations concerning or provide
any confidential or non-public information or data to any Person relating to an
Acquisition Proposal, or otherwise facilitate any effort or attempt to make or
implement an Acquisition Proposal;
(ii) neither the Partnership nor the General Partner shall permit
any of its managers, directors, officers, affiliates, agents, investment
bankers, financial advisors, attorneys, accountants, brokers, finders or other
representatives retained by the Partnership to engage in any of the activities
described in Section 6.3(a)(i);
(iii) the Partnership and the General Partner shall immediately
cease and cause to be terminated any existing activities, discussions or
negotiations with any parties conducted heretofore with respect to any of the
foregoing and will use their commercially reasonable efforts to cause the
individuals or entities referred to in Section 6.3(a)(ii) to immediately cease
and cause to be terminated any existing activities, discussions or negotiations
with any parties conducted heretofore with respect to any of the foregoing; and
(iv) the Partnership or the General Partner shall notify Buyer
immediately if the Partnership or the General Partner receives any such inquiry
or proposal, or any request for such information, or if any such negotiations or
discussions are sought to be initiated or continued with the Partnership.
(b) Notwithstanding Section 6.3(a), the Partnership and the General
Partner shall not be prohibited from furnishing information to or entering into
discussions or negotiations
22
with any Person that makes a bona fide written Acquisition Proposal to the
Partnership or the General Partner after the date hereof which was not invited,
initiated, solicited or encouraged, directly or indirectly, by the Partnership,
the General Partner or any individual or entity referred to in Section
6.3(a)(ii) if (i) the General Partner determines in good faith, after
consultation with its independent financial advisors of nationally recognized
reputation, that such Acquisition Proposal is reasonably likely to result in a
Superior Acquisition Proposal (as defined herein), (ii) the General Partner
determines in good faith, after consultation with its outside legal counsel,
that such action is appropriate for the General Partner to comply with its
fiduciary duty to the Limited Partners imposed by Delaware law; (iii) the
Partnership and the General Partner comply with all of their obligations under
this Agreement, (iv) prior to furnishing such information to, or entering into
discussions or negotiations with, such Person, the Partnership or the General
Partner provides written notice to Buyer to the effect that it is furnishing
information to, or entering into discussions with such Person, (v) the
Partnership or the General Partner provides Buyer with a copy of such
Acquisition Proposal and any subsequent written amendments thereto, and (vi) the
Partnership enters into a confidentiality agreement with such Person the
material terms of which are (without regard to the terms of such Acquisition
Proposal) in all material respects no less favorable to the Partnership, and no
less restrictive to the Person making such Acquisition Proposal, than those
contained in the Confidentiality Agreement, dated April 6, 2001, between the
Partnership and Buyer (the "Confidentiality Agreement").
(c) Notwithstanding anything to the contrary set forth in Section
6.3(a) or 6.3(b), in the event that an Acquisition Proposal constitutes a
Superior Acquisition Proposal, nothing contained in this Section 6.3 shall
prohibit the General Partner from withdrawing, modifying, amending or qualifying
its recommendation of this Agreement and the Merger as required under Section
6.4 hereof and recommending such Superior Acquisition Proposal to the Partners:
(i) if but only if, (A) the General Partner and the Partnership comply fully
with this Section 6.3 and (B) the General Partner provides Buyer with at least
three (3) business days' prior written notice of its intent to withdraw, modify,
amend or qualify its recommendation of this Agreement or the Merger, (ii) if, in
the event that during such three (3) business days Buyer makes a counter
proposal to such Superior Acquisition Proposal (any such counter proposal being
referred to in this Agreement as the "Buyer Counter Proposal"), the General
Partner in good faith, taking into account the advice of its outside financial
advisors of nationally recognized reputation, determines that the Buyer Counter
Proposal is not at least as favorable to the Partners as the Superior
Acquisition Proposal, from a financial point of view, and (iii) the General
Partner and the Partnership shall have terminated this Agreement in accordance
with Section 8.1(g).
(d) For all purposes of this Agreement, "Superior Acquisition
Proposal" means a bona fide written proposal made by a third party to acquire,
directly or indirectly, the Partnership pursuant to a tender or exchange offer,
merger, share exchange, consolidation or sale of all or substantially all of the
assets of the Partnership or otherwise (i) on terms which the General Partner
determines in good faith, after consultation with its independent financial
advisors of nationally recognized reputation, are superior, from a financial
point of view, to the Partners to those provided for in the Merger, (ii) for
which financing, to the extent required, in the reasonable judgment of the
General Partner is capable of being obtained and (iii) which the
23
General Partner determines in good faith is reasonably capable of being
consummated without undue delay.
(e) Any disclosure that the Partnership or the General Partner may be
compelled to make with respect to the receipt of an Acquisition Proposal in
order to comply with its duties imposed by applicable Law or Rule 14d-9 or 14e-2
of the Exchange Act will not constitute a violation of this Section 6.3.
6.4. Recommendation to the Limited Partners
The General Partner shall, as soon as practicable following the date
of this Agreement (but in no event sooner than 20 business days following the
date the Consent Solicitation is mailed to the Limited Partners), seek to obtain
the Limited Partner Approvals. The General Partner shall recommend to the
Limited Partners approval of this Agreement, the Merger and the transactions
contemplated by this Agreement and include such recommendation in the Consent
Solicitation; provided, however, that prior to the expiration of the
solicitation period for the Limited Partner Approvals (as the same may be
extended by the Partnership in its sole discretion), such recommendation may be
withdrawn, modified or amended in accordance with Section 6.3.
6.5. Access to Information
The Partnership shall afford to the other Parties and to the officers,
employees, accountants, counsel, financial advisors and other representatives of
such other Parties, reasonable access during normal business hours prior to the
Effective Time to all of its respective properties, books, agreements,
commitments, personnel and records; provided, Buyer shall give the Partnership
reasonable prior notice of its intent to visit and inspect any of the Hotels.
6.6. Public Announcements
Each Party will consult with each other Party before issuing, and
provide each other the opportunity to review and comment upon, any press release
or other written public statements which address in any manner the transactions
contemplated by this Agreement, and shall not issue any such press release or
make any such written public statement prior to such consultation, except as may
be required by applicable law, court process or by obligations pursuant to any
listing agreement with any national securities exchange.
6.7. Transfer and Gains Taxes
Each Party shall cooperate in the preparation, execution and filing of
all returns, questionnaires, applications or other documents regarding any real
property transfer or gains, sales, use, transfer, value added, stock transfer
and stamp taxes, any transfer, recording, registration and other fees and any
similar taxes which become payable in connection with the transactions
contemplated by this Agreement (together with any related interests, penalties
or additions to tax, "Transfer and Gains Taxes").
24
6.8. Tax Matters
The following provisions shall govern the allocation of responsibility
as between Buyer, the Partnership and the New Entity (as defined below) with
respect to the payment of Taxes and the filing of Tax Returns from and after the
Closing Date:
(a) The Partnership shall be responsible for the payment of all Taxes
of the Partnership for or with respect to the period ending on or before the
Effective Date, and Buyer shall be responsible for the payment of all Taxes of
the Partnership for or with respect to the period commencing on the date
following the Effective Date. Taxes owed by the Partnership with respect to
periods ending on or before the Effective Date that are not paid by the
Partnership at or prior to Closing or pursuant to Section 6.8(b) shall be paid
by the New Entity in accordance with Section 6.15(e).
(b) The Partnership on or prior to the Effective Date, and the New
Entity, on behalf of the Partnership, after the Effective Date, shall prepare or
cause to be prepared and file or cause to be filed all Tax Returns for the
Partnership for or with respect to all taxable periods (or portions thereof)
ending on or before the Effective Date. The Partnership on or prior to the
Effective Date, and the New Entity, on behalf of the Partnership, after the
Effective Date, shall pay all Taxes, if any, at the time that any related Tax
Return is filed, and, in any event, on or prior to the date such Taxes are due,
including extensions; provided, however, that income Tax Returns for fiscal year
2001 shall be filed by the Partnership or the New Entity, as applicable, on or
before April 15, 2002, and income Tax Returns for the taxable period in 2002, if
any, ending on the Effective Date shall be filed by the Partnership or the New
Entity, as applicable, within 105 days after the Effective Date.
(c) Buyer shall prepare or cause to be prepared and file or cause to
be filed all Tax Returns of the Partnership for Tax periods which end on or
after the date following the Effective Date (including for Tax periods which
begin before the Effective Date and end on or after the date following the
Effective Date). All determinations of tax items and the timing thereof shall be
made in a manner consistent with prior tax practices of the Partnership.
6.9. [Intentionally Deleted]
6.10. Lender Consent
(a) Buyer shall use its commercially reasonable efforts to take, or
cause to be taken, or do, or cause to be done, all things necessary, proper or
advisable, including permitting Merrill Lynch & Co. and/or the General Partner
to assist Buyer in its efforts, to obtain, as soon as practicable following the
date of this Agreement, all consents of the Partnership's lenders set forth on
Schedule 6.10, which consents are required to be obtained in connection with the
transactions contemplated by this Agreement.
(b) The General Partner shall use its commercially reasonable efforts
to take, or cause to be taken, or do, or cause to be done, all things necessary,
proper or advisable to obtain, as soon as practicable following the date of this
Agreement, all consents of the
25
Partnership's lenders, including, without limitation, consent to amend the
Operating Agreement, necessary to permit the General Partner under the Operating
Agreement to approve and consummate the Merger and the other transactions
contemplated by this Agreement and each other agreement in connection therewith
to which the General Partner is or will be a party (the "Operating Agreement
Consent"). Upon receipt of the Operating Agreement Consent, the General
Partnership shall promptly amend the Operating Agreement as contemplated by the
Operating Agreement Consent.
6.11. Manager Consents
(a) Buyer shall use its commercially reasonable efforts to take, or
cause to be taken, or do, or cause to be done, all things necessary, proper or
advisable, to obtain, as soon as practicable following the date of this
Agreement, (i) the consent of the Manager to the changes to the Management
Agreement listed on Schedule 6.11(a), which changes are deemed necessary by
Buyer to permit or facilitate Merger Sub's proposed real estate investment trust
structure, (ii) the consent of the Manager under Section 17.01 of the Management
Agreement to the assignment of the Management Agreement by the Surviving
Partnership to an affiliate of the Surviving Partnership and (iii) the waiver by
the Manager of any rights it may have under Section 18.01 of the Management
Agreement with respect to the transactions (the "Proposed Transactions")
contemplated by this Agreement or which are necessary to implement Merger Sub's
proposed real estate investment trust structure (collectively, the "Buyer
Consents"). Notwithstanding anything to the contrary in this Section 6.11(a),
Buyer shall not be obligated to make any payment to the Manager in consideration
for the Manager's agreement to grant the Buyer Consents.
(b) The Partnership shall use its commercially reasonable efforts to
take, or cause to be taken, or do, or cause to be done, all things necessary,
proper or advisable, to obtain, as soon as practicable following the date of
this Agreement, (i) confirmation by the Manager that no Net Sales Proceeds (as
that term is defined in the Management Agreement) will result from the Proposed
Transactions, and no Contingent Management Fees (IMF) (as that term is defined
in the Management Agreement) will become payable under the Management Agreement
as a result of the Proposed Transactions or as a condition to the Manager's
agreement to grant the Buyer Consents or the Partnership Consents, (ii)
confirmation by the Manager that the amount of Adjusted Capital Contributions
(as that term is defined in the Management Agreement) shall not decrease as a
result of the Proposed Transactions or as a condition to the Manager's agreement
to grant the Buyer Consents or the Partnership Consents and (iii) confirmation
by the Manager of the amount of each item set forth on Schedule 6.11(b) as of
the date set forth therein with respect to such item (collectively, the
"Partnership Consents"). Notwithstanding anything to the contrary in this
Section 6.11(b), the Partnership shall not be obligated to make any payment to
the Manager in consideration for the Manager's agreement to grant the
Partnership Consents.
(c) Buyer and the Partnership shall cooperate with each other and
provide such assistance as may be necessary or appropriate or reasonably
requested by the other Party to obtain the Buyer Consents and the Partnership
Consents.
26
6.12. Financial and Operational Reports
Promptly following their preparation or receipt, as applicable, the
Partnership will forward to Buyer copies of (i) the Partnership's quarterly and
annual financial reports, (ii) the periodic rent letters prepared by the Manager
relating to the Hotels, (iii) the Hotel level income statements prepared by the
Manager with respect to the Hotels and (iv) any other financial or capital
expenditure reports prepared by the Manager and delivered to the Partnership.
6.13. Indemnification by the General Partner
(a) The General Partner (the "Indemnifying Party") shall indemnify and
hold harmless Buyer, Merger Sub, the Surviving Partnership, the general partners
of Merger Sub and the Surviving Partnership and any of their assignees and all
of their respective officers, directors, employees and representatives and all
of their respective heirs, legal representatives and successors (each, an
"Indemnified Party," collectively, the "Indemnified Parties") from and against
any and all Losses (as defined below) which any of the Indemnified Parties may
sustain. "Losses" means all damages, liabilities, losses, costs and expenses,
including all reasonable attorneys' fees and expenses, resulting from
complaints, actions, suits, proceedings, hearings, investigations, claims,
demands, judgments, orders, decrees, stipulations or injunctions asserted
against or imposed upon any Indemnified Party arising out of any claims,
disputes, proceedings, litigation or similar actions by a Limited Partner
against the Partnership or the General Partner with respect to any matter or
event occurring prior to the Closing Date other than any claims, disputes,
proceedings, litigation or similar actions by a Limited Partner with respect to
the transactions contemplated by this Agreement.
(b) Any Indemnified Party proposing to assert the right to
indemnification under this Section 6.13 shall, promptly after receipt of notice
of commencement of any action against such Indemnified Party in respect of which
a claim is to be made under this Section 6.13, notify the Indemnifying Party of
the commencement of such action, enclosing a copy of all papers served;
provided, however, that the failure to provide such notice shall not affect the
obligations of the Indemnifying Party except to the extent such failure to
notify materially prejudices the Indemnifying Party. Thereafter, the Indemnified
Party shall deliver to the Indemnifying Party, promptly (and in any event within
10 days thereof) after the Indemnified Party's receipt, delivery or filing
thereof, copies of all notices and documents (including court papers) received,
delivered or filed by the Indemnified Party relating to such action.
(c) If any such action is brought against any Indemnified Party, the
Indemnified Party shall assume the defense or settlement of such action, and the
Indemnifying Party may participate therein at its sole cost and expense. If the
Indemnified Party does not proceed diligently to defend such action, the
Indemnifying Party shall have the right, but not the obligation, to undertake
the defense of such action.
(d) The Indemnified Party and the Indemnifying Party shall cooperate
in defending any action for which indemnification is sought pursuant to this
Section 6.13, and the Indemnifying Party shall provide to the Indemnified Party
reasonable access to the books, records
27
and personnel in the possession or control of the Indemnifying Party that are
pertinent to such defense.
(e) Notwithstanding anything to the contrary set forth in this
Agreement, the Indemnifying Party (A) shall not be liable for any settlement
effected without its prior written consent, which consent shall not be
unreasonably withheld; provided, however, that if the Indemnified Party is
Buyer, the Surviving Partnership or the general partner of the Surviving
Partnership, such action may be settled without the consent of the Indemnifying
Party on 10 days' prior written notice to the Indemnifying Party if such action
is then materially interfering with the business or operations of the Surviving
Partnership and the settlement is commercially reasonable under the
circumstances, and (B) shall not have any obligation hereunder to any
Indemnified Party to the extent that a court of competent jurisdiction shall
determine in a final and non-appealable order that such indemnification is not
required under this Agreement or is prohibited by applicable law.
(f) Notwithstanding the foregoing provisions of this Section 6.13, the
Indemnifying Party shall have no obligation to provide indemnification under
this Section 6.13 for any Losses which result from any claims, disputes,
proceedings, litigation or similar actions by a Limited Partner for which the
Indemnifying Party has not received notice pursuant to Section 6.13(b) prior to
the second anniversary of the Effective Date (the "Termination Date").
(g) Notwithstanding the foregoing provisions of this Section 6.13, the
Indemnifying Party's liability under this Section 6.13 shall not exceed, in the
aggregate, $500,000. Buyer shall withhold the General Partner Consideration
until the Termination Date in order to satisfy the Indemnifying Party's
obligations under this Section 6.13. Buyer shall deduct from the General Partner
Consideration, and pay to an Indemnified Party, the amount of any Losses for
which such Indemnified Party shall be indemnified pursuant to this Section 6.13.
On the Termination Date, Buyer shall deliver to the General Partner (i) the
General Partner Consideration, less any deductions provided for in the previous
sentence, by cashier's or certified check payable to the order of, or by wire
transfer to an account specified by, the General Partner and (ii) a statement
indicating the amounts deducted from the General Partner Consideration and a
description of the Losses for which the Indemnified Party's were indemnified. If
a claim with respect to which an Indemnified Party has asserted its right to
indemnification pursuant to Section 6.13(b) has not been definitively resolved
prior to the Termination Date, Buyer may continue to withhold after the
Termination Date that amount of the General Partner Consideration that it
reasonably believes in good faith to be equal to the value of such claim.
Promptly after the definitive resolution of such claim, Buyer shall pay to the
General Partner that amount of the General Partner Consideration withheld after
the Termination Date that is not needed to satisfy the Indemnifying Party's
obligations with respect to such claim. Any Losses for which the Indemnified
Parties shall be indemnified pursuant to this Section 6.13 that exceed the
General Partner Consideration in the aggregate shall be paid directly by the
Indemnifying Party.
(h) If the General Partner Consideration retained by Buyer is not
sufficient to satisfy the Indemnifying Party's obligations under this Section
6.13, an Indemnified Party shall request payment from the Indemnifying Party
pursuant to this Section 6.13 by delivering to the Indemnifying Party written
notification of the need for indemnification. Such notification shall
28
indicate (i) the amount of the Losses for which the Indemnified Party shall be
indemnified and (ii) a description of the Losses for which indemnification is
being requested.
6.14. Indemnification by the New Entity
(a) The New Entity shall indemnify and hold harmless the Indemnified
Parties from and against any and all damages, liabilities, losses, costs and
expenses, including all reasonable attorneys' fees and expenses, which any of
the Indemnified Parties may sustain and which result from complaints, actions,
suits, proceedings, hearings, investigations, claims, demands, judgments,
orders, decrees, stipulations or injunctions asserted against or imposed upon
any Indemnified Party in any of the litigation set forth on Schedule 3.6 hereof,
as may be subsequently amended pursuant to Section 6.2(g); provided, however,
the New Entity shall have no obligation to provide indemnification under this
Section 6.14(a) for any damages, liabilities, losses, costs and expenses which
have been reserved for by the Manager or which shall be reimbursed or otherwise
covered by the Partnership's insurance.
(b) Notwithstanding the foregoing provisions of this Section 6.14, the
New Entity's obligations under this Section 6.14 shall terminate on the
Termination Date.
6.15. Adjustment Account
(a) Prior to the Closing, the Partnership shall establish an entity of
which the Partnership is the sole member and which will be managed by the
General Partner as its sole manager (the "New Entity"), the purpose of which is
to hold certain contingent assets of the Partnership and to facilitate certain
post-Closing actions of the Parties.
(b) Promptly after the establishment of the New Entity and prior to
the Closing, the Partnership shall assign all of the Partnership's right, title
and interest in the Contingent Assets (as defined below) to the New Entity.
Following such assignment and prior to the Closing, the Partnership shall
distribute to the Limited Partners all of its interest in the New Entity on a
pro rata basis based upon each Limited Partner's ownership of Partnership Units
as of the time of such distribution. Immediately prior to such distribution, the
Partnership shall contribute $1,500,000 of Partnership Cash to the New Entity to
enable the New Entity to pursue certain Contingent Assets and to satisfy certain
obligations of the Partnership. As the sole manager of the New Entity, the
General Partner shall not permit the New Entity to take any actions that would
cause this amount to be used for any purpose other than to (i) pursue certain
Contingent Assets, (ii) satisfy the Partnership's obligations to the General
Partner under the Partnership Agreement and (iii) satisfy the obligations of the
New Entity under this Agreement; provided, however, the New Entity may
distribute such amount to its members once such obligations are satisfied.
(c) For purposes of this Section 6.15, "Contingent Assets" shall
include (i) one-half of the Refunded Incentive Management Fee, (ii) the Prorated
Tax Adjustment (as defined below), if positive, (iii) the Refunded Litigation
Reserves, (iv) any Other Manager Payments (as defined below) and (v) all claims
or demands of any nature whatsoever, known or
29
unknown, anticipated or unanticipated, accrued or unaccrued, which have been or
may be asserted by or on behalf of the Partnership, and which arise out of
events occurring prior to the Closing with respect to the Material Contracts.
(d) Promptly after receipt from the Manager, the Surviving Partnership
shall deliver or pay to the New Entity (i) one-half of the Refunded Incentive
Management Fee, (ii) the Refunded Litigation Reserves and (iii) any other
payments received by the Surviving Partnership from the Manager ("Other Manager
Payments") that represent refunds or returns of money to the Partnership as a
result of overpayment by the Partnership or underpayment by the Manager of such
amount during the period prior to the Closing (if the Surviving Partnership is
required to make any payments to the Manager as a result of an underpayment by
the Partnership or overpayment by the Manager with respect to the period prior
to the Closing, Buyer shall request in writing that the New Entity pay such
amount and the New Entity shall, after receipt of such documentation from Buyer
that the New Entity reasonably believes is necessary to support such request,
promptly pay such amount). The parties acknowledge that the Final Net Profit
Payment shall be the property of the Surviving Partnership and not subject to
the provisions of this Section 6.15(d).
(e) Promptly after the Surviving Partnership's tax liability for the
2001 tax year and the period in 2002 ending on the Effective Date, if any, is
determined, the Surviving Partnership shall deliver or pay to the New Entity the
difference, if positive, between the prorated Taxes paid or accrued by the
Partnership at or prior to the Closing for the respective period and the actual
amount of such Taxes due and payable by the Partnership for such period (if the
prorated Taxes paid or accrued at or prior to the Closing are less than the
actual amount of such Taxes due and payable for the relevant period, Buyer shall
request in writing that the New Entity pay the difference and the New Entity
shall, after receipt of such documentation from Buyer that the New Entity
reasonably believes is necessary to support such request, promptly pay such
amount) (the "Prorated Tax Adjustment").
(f) Within 3 business days after the Closing, the Surviving
Partnership shall deliver or pay to the New Entity the amount, if any, of the
scheduled debt service with respect to the indebtedness of the Partnership and
its Subsidiaries set forth on Schedule 3.9 that has been paid by the Partnership
prior to Closing with respect to the Final Net Profit Payment Period.
(g) Until all payments are made pursuant to Section 6.15(d), the
Surviving Partnership shall not agree to any modification to the Management
Agreement that would reduce the amount of the Refunded Incentive Management Fee.
7. CONDITIONS TO CLOSING
7.1. Conditions to Each Party's Obligations
The obligations of each Party to effect the Merger and to consummate
the other transactions contemplated by this Agreement to occur at the Effective
Time shall be subject to satisfaction at or prior to the Effective Time of the
following conditions:
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(a) The Limited Partner Approvals shall have been obtained.
(b) No Law shall have been enacted by any Governmental Entity that
makes the consummation of the Merger or any other material transaction
contemplated by this Agreement illegal.
(c) At the Effective Time, no temporary restraining order, preliminary
or permanent injunction or other order, legal restraint or prohibition issued by
any Governmental Entity preventing the consummation of the Merger or any of the
other material transactions contemplated by this Agreement shall be in effect.
(d) All consents, authorizations, orders and approvals of (or filing
or registration with) any Governmental Entity required in connection with the
consummation of the Merger and the other transactions contemplated by this
Agreement shall have been obtained.
(e) All required third-party consents to the Merger and the other
transactions contemplated by this Agreement shall have been received, including,
without limitation, (i) the Buyer Consents, (ii) the Partnership Consents, (iii)
the Operating Agreement Consent and (iv) those required consents set forth on
Schedule 7.1.
(f) The Operating Agreement shall have been amended as contemplated by
the Operating Agreement Consent.
7.2. Conditions to Obligations of the Partnership and the General Partner
The obligations of the Partnership and the General Partner to effect
the Merger and to consummate the other transactions contemplated by this
Agreement to occur at the Effective Time shall be subject to satisfaction at or
prior to the Effective Time of each of the following further conditions:
(a) Each of the representations and warranties of Buyer and Merger Sub
set forth in this Agreement, disregarding all qualifications and exceptions
contained therein relating to materiality or a Buyer Material Adverse Effect,
shall be true and correct as of the date of this Agreement and as of the Closing
Date as though made on and as of the Closing Date (except to the extent that
such representations and warranties are expressly limited by their terms to
another date, in which case such representations and warranties shall be true
and correct as of such other date), except where the failure of such
representations and warranties to be true and correct would not, individually or
in the aggregate, reasonably be expected to have a Buyer Material Adverse
Effect, and the Partnership shall have received a certificate (which certificate
may be qualified by Knowledge to the same extent as such representations and
warranties of Buyer and Merger Sub contained herein are so qualified) signed on
behalf of Buyer by the chief executive officer or the chief financial officer of
Buyer, in such capacity, to such effect.
(b) Buyer and Merger Sub shall have performed in all material respects
all obligations required to be performed by them under this Agreement at or
prior to the Effective Time.
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7.3. Conditions to Obligations of Buyer and Merger Sub
The obligations of Buyer and Merger Sub to effect the Merger and to
consummate the other transactions contemplated by this Agreement to occur at the
Effective Time shall be subject to satisfaction at or prior to the Effective
Time of each of the following further conditions:
(a) Each of the representations and warranties of the Partnership and
the General Partner set forth in this Agreement, disregarding all qualifications
and exceptions contained therein relating to materiality or a Partnership
Material Adverse Effect, shall be true and correct as of the date of this
Agreement and as of the Closing Date as though made on and as of the Closing
Date (except to the extent that such representations and warranties are
expressly limited by their terms to another date, in which case such
representations and warranties shall be true and correct as of such other date),
except where the failure of such representations and warranties to be true and
correct would not, individually or in the aggregate, reasonably be expected to
have a Partnership Material Adverse Effect, and Buyer and Merger Sub shall have
received a certificate (which certificate may be qualified by Knowledge to the
same extent as such representations and warranties of the Partnership or the
General Partner contained herein are so qualified) signed on behalf of the
Partnership by the General Partner, in such capacity, to such effect.
(b) The Partnership and General Partner shall have performed in all
material respects all obligations required to be performed by them under this
Agreement at or prior to the Effective Time.
(c) Since the date of this Agreement, there shall have been no
Partnership Material Adverse Change.
(d) Buyer shall have received a certificate signed by the General
Partner on behalf of the Partnership stating that, as of the Closing Date, the
aggregate amount of Partnership Cash remaining in the Partnership is not less
than the sum of (i) $5,000,000 and (ii) any amount delivered or paid by the
Manager to the Partnership prior to the Closing with respect to the Final Net
Profit Payment.
(e) Hospitality Properties Trust shall have waived in writing any
rights of first offer it may have under the Purchase-Sale and Option Agreement,
dated February 3, 1995, by and among HMH Courtyard Properties, Inc., HMH
Properties, Inc. and Hospitality Properties, Inc., as amended through the date
hereof, with respect to the transactions contemplated by this Agreement.
(f) Buyer shall have received, to its reasonable satisfaction,
evidence that the actions contemplated by Section 6.15(b) with respect to the
New Entity shall have occurred.
(g) The Partnership shall have, to the reasonable satisfaction of
Buyer, corrected, settled, discharged, satisfied or provided a bond with respect
to, as the case may be, all material title deficiencies (including those title
deficiencies set forth on Schedule 7.3(g)(i)) and
32
all tax and judgment liens affecting the Partnership or its properties, except,
in the case of title deficiencies other than the title deficiencies set forth on
Schedule 7.3(g)(i), where the failure to so correct such deficiencies would not
reasonably be expected to have a Partnership Material Adverse Effect. For the
purposes of this Section 7.3(g), the failure to correct, settle, discharge,
satisfy or provide a bond with respect to the title deficiencies set forth on
Schedule 7.3(g)(ii) shall not constitute a Partnership Material Adverse Effect.
8. TERMINATION, EXPENSES, AMENDMENT AND WAIVER
8.1. Termination
This Agreement may be terminated at any time prior to the Effective
Time, whether before or after the Limited Partner Approvals are obtained or the
Certificate of Merger has been filed with the Delaware Secretary of State
(provided the Effective Time has not yet occurred):
(a) by mutual written consent of the Parties;
(b) by the Partnership, upon a breach of any representation, warranty,
covenant, obligation or agreement on the part of Buyer or Merger Sub set forth
in this Agreement, or if any representation or warranty of Buyer or Merger Sub
shall become untrue, in either case such that the conditions set forth in
Section 7.2(a) or Section 7.2(b), as the case may be, would be incapable of
being satisfied as of the date of such breach, which breach or failure to be
true either is not capable of being cured or, if it is capable of being cured,
has not been cured within 30 days following written notice to the Partnership
from Buyer or Merger Sub of such breach; provided that the Partnership may not
terminate this Agreement pursuant to this Section 8.1(b) if the Partnership or
the General Partner is then in material breach of its obligations under this
Agreement;
(c) by Buyer, upon a breach of any representation, warranty, covenant,
obligation or agreement on the part of the Partnership or the General Partner
set forth in this Agreement, or if any representation or warranty of the
Partnership or the General Partner shall become untrue, in either case such that
the conditions set forth in Section 7.3(a) or Section 7.3(b), as the case may
be, would be incapable of being satisfied as of the date of such breach, which
breach or failure to be true either is not capable of being cured or, if it is
capable of being cured, has not been cured within 30 days following written
notice to the Buyer from the Partnership or General Partner of such breach;
provided that Buyer may not terminate this Agreement pursuant to this Section
8.1(c) if Buyer or Merger Sub is then in material breach of its obligations
under this Agreement;
(d) by either Buyer or the Partnership, if any judgment, injunction,
order, decree or action by any Governmental Entity of competent authority
preventing the consummation of the Merger shall have become final and
non-appealable;
33
(e) by either Buyer or the Partnership, if the Merger shall not have
been consummated within 150 days after the date hereof (or such later date to
which Buyer and the Partnership may have extended the Closing deadline);
provided, however, that a Party may not terminate pursuant to this clause (e) if
the terminating Party shall have breached in any material respect its
obligations under this Agreement in any manner that shall have been the primary
cause of the occurrence of the failure referred to in this clause;
(f) by either Buyer or the Partnership if the Limited Partner
Approvals shall not have been obtained prior to the expiration of the
solicitation period set forth in the Consent Solicitation (as the same may be
extended by the Partnership in its sole discretion);
(g) by the Partnership (i) if the General Partner shall have
withdrawn, modified, amended or qualified in any manner adverse to Buyer its
approval or recommendation of either of the Merger or this Agreement in
connection with, or approved or recommended, any Superior Acquisition Proposal,
or, (ii) in order to enter into a binding written agreement with respect to a
Superior Acquisition Proposal, provided that, in each case, the Partnership and
the General Partner shall have complied with the terms of Section 6.3 and, prior
to terminating pursuant to this Section 8.1(g), the Partnership has paid to
Buyer (provided the Partnership is not entitled to terminate this Agreement
pursuant to Section 8.1(b)) the Break-Up Fee (as defined below) as provided by
Section 8.2 hereof;
(h) by Buyer, if (i) prior to the Effective Time, the General Partner
shall have withdrawn, modified, amended or qualified in any manner adverse to
Buyer its approval or recommendation of either of the Merger or this Agreement
in connection with, or approved or recommended, any Superior Acquisition
Proposal, (ii) the Partnership shall have entered into any agreement for any
Superior Acquisition Proposal, or (iii) the General Partner shall have resolved
to do any of the foregoing;
(i) by Buyer, if the weekly occupancy rate of the Hotels is less than
45% for four consecutive weeks at any time prior to the Closing, provided, for
purposes of this Section 8.1(i), the weeks of November 17, 2001 through November
30, 2001 and December 22, 2001 through January 4, 2002 shall be excluded from
such calculation;
(j) by the Partnership, if Buyer has not, within 45 days after the
date hereof, obtained the Buyer Consents; provided, however, the Partnership, in
its sole discretion, may extend the period of time during which the Buyer
Consents may be obtained for up to 30 days;
(k) by Buyer, if the Partnership has not, within 45 days after the
date hereof, obtained the Partnership Consents; provided, however, Buyer, in its
sole discretion, may extend the period of time during which the Partnership
Consents may be obtained for up to 30 days;
(l) by Buyer, if the amount confirmed by the Manager pursuant to
Section 6.11(b)(iii) with respect to any item set forth on Schedule 6.11(b) is
different than the amount set forth on Schedule 6.11(b) with respect to such
item;
34
(m) by either Buyer or the Partnership, if Hospitality Properties
Trust shall not have waived, prior to the expiration of the solicitation period
set forth in the Consent Solicitation (as the same may be extended by the
Partnership in its sole discretion), its rights of first offer, if any, under
the Purchase-Sale and Option Agreement, dated February 3, 1995, by and among HMH
Courtyard Properties, Inc., HMH Properties, Inc. and Hospitality Properties,
Inc., as amended through the date hereof, with respect to the transactions
contemplated by this Agreement; or
(n) by the Partnership, if Buyer has not, within 3 business days after
the date hereof, deposited the Deposit into escrow with the Deposit Escrow Agent
in accordance with the terms and conditions of the Deposit Escrow Agreement.
8.2. Break-Up Fee
(a) If this Agreement shall be terminated pursuant to Section 8.1(g)
or 8.1(h), then the Partnership thereupon shall pay to Buyer (provided that the
Partnership was not entitled to terminate this Agreement pursuant to Section
8.1(b) at the time of such termination) a fee equal to the Break-Up Fee. The
payment of the Break-Up Fee shall be compensation for the loss suffered by Buyer
as a result of the failure of the Merger to be consummated (including, without
limitation, out-of-pocket costs and expenses) and to avoid the difficulty of
determining damages under the circumstances. The Break-Up Fee shall be paid by
the Partnership to Buyer, in immediately available funds, within five (5)
business days after the date the event giving rise to the obligation to make
such payment occurred (except as otherwise provided in Section 8.1(g)). As used
in this Agreement, "Break-Up Fee" shall be an amount equal to $1,200,000.
(b) In the event that (i)(A) this Agreement is terminated by the Buyer
or Merger Sub pursuant to Section 8.1(c) (where the breach by the Partnership is
willful), (B) prior to such termination an Acquisition Proposal has been
publicly announced, disclosed or communicated and (C) on the date of such
termination, neither Buyer nor Merger Sub is in material breach of this
Agreement, and (ii) within nine months after such termination pursuant to clause
(i)(A), the Partnership shall consummate or enter into an agreement with respect
to such Acquisition Proposal or any subsequent Acquisition Proposal made in
response to or in competition with such Acquisition Proposal, the Partnership
shall pay the Break-Up Fee concurrently with the consummation of such
transaction.
9. DEFINITIONS
"Accounting Period" shall have the meaning set forth in the Management
Agreement.
"Acquisition Proposal" shall have the meaning set forth in Section
6.3(a) of this Agreement.
"Agreement" shall mean this Agreement and Plan of Merger.
35
"Break-Up Fee" shall be an amount equal to $1,200,000.
"Buyer" shall mean Apple Hospitality Two, Inc., a Virginia
corporation.
"Buyer's Financial Statements" shall have the meaning set forth in
Section 5.3 of this Agreement.
"Buyer Consents" shall have the meaning set forth in Section 6.11(a)
of this Agreement.
"Buyer Counter Proposal" shall have the meaning set forth in Section
6.3(c) of this Agreement.
"Buyer Material Adverse Change" means any material adverse change in
the business, financial condition or results of operations of Buyer and its
consolidated subsidiaries (if any) taken as a whole.
"Buyer Material Adverse Effect" shall have the meaning set forth in
Section 5.1 of this Agreement.
"CERCLA" shall have the meaning set forth in Section 3.14 of this
Agreement.
"Certificate of Limited Partnership" shall mean the Certificate of
Limited Partnership of the Partnership.
"Certificate of Merger" shall have the meaning set forth in Section
2.2 of this Agreement.
"Closing" shall have the meaning set forth in Section 2.5 of this
Agreement.
"Closiing Date" shall have the meaning set forth in Section 2.5 of
this Agreement.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Confidentiality Agreement" means the confidentiality agreement
between Buyer and the Partnership, dated April 6, 2001.
"Consent Solicitation" shall have the meaning set forth in Section
6.2(a) of this Agreement.
"Contingent Assets" shall have the meaning set forth in Section
6.15(c) of this Agreement.
"Contract" shall have the meaning set forth in Section 3.4 of this
Agreement.
"Deposit" shall have the meaning set forth in Section 2.4 of this
Agreement.
36
"Deposit Escrow Agent" means First Union National Bank or such other
escrow agent to the Deposit Escrow Agreement as shall be mutually determined by
the Parties.
"DRULPA" shall mean the Delaware Revised Uniform Limited Partnership
Act.
"Effective Date" shall have the meaning set forth in Section 2.2 of
this Agreement.
"Effective Time" shall have the meaning set forth in Section 2.2 of
this Agreement.
"Environmental Law" shall have the meaning set forth in Section 3.14
of this Agreement.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
"Exchange Fund" shall have the meaning set forth in Section 2.6(b) of
this Agreement.
"Final Net Profit Payment" shall mean the aggregate amount of
Operating Profit delivered or paid by the Manager to the Partnership or the
Surviving Partnership pursuant to the terms of the Management Agreement with
respect to the last full Accounting Period (and any portion of the subsequent
Accounting Period) occurring prior to the Closing.
"Final Net Profit Payment Period" shall mean the last full Accounting
Period and any portion of the subsequent Accounting Period occurring prior to
the Closing.
"Fiscal Year" shall have the meaning set forth in the Management
Agreements.
"GAAP" shall mean generally accepted accounting principles.
"General Partner" shall mean RIBM One LLC, a Delaware limited
liability company and the sole general partner of the Partnership.
"General Partner Consideration" shall have the meaning set forth in
Section 2.6(i) of this Agreement.
"Governmental Entity" shall mean any federal, state or local
government or any court, administrative or regulatory agency or commission or
other governmental authority or agency having jurisdiction applicable to the
Partnership or any of its Subsidiaries (if any).
"Hazardous Materials" shall have the meaning set forth in Section 3.14
of this Agreement.
"Hotels" shall mean the Residence Inn hotels owned by the Partnership
or any of its Subsidiaries and which are described on Schedule 1 to this
Agreement.
37
"Indemnifying Party" shall have the meaning set forth in Section
6.13(a) of this Agreement.
"Indemnified Party" or "Indemnified Parties" shall have the meaning
set forth in Section 6.13(a) of this Agreement.
"IRS" means the Internal Revenue Service.
"Knowledge" shall mean information which is actually known by an
executive officer of such Person with responsibility for the matters in question
or which a prudent individual in such position would reasonably be expected to
discover with due inquiry.
"Laws" shall have the meaning set forth in Section 3.5(a) of this
Agreement.
"Liens" shall have the meaning set forth in Section 3.2(b) of this
Agreement.
"Limited Partners" shall mean the holders of Partnership Units who
have been admitted as limited partners of the Partnership prior to the Effective
Time.
"Limited Partner Approvals" shall mean the approval of the holders of
a majority of the Partnership Units who have been admitted as limited partners
of the Partnership to the Merger and the related transactions to the extent
required by the Partnership Agreement to effectuate the transactions
contemplated by this Agreement.
"Loans" shall have the meaning set forth in Section 3.9 of this
Agreement.
"Losses" shall have the meaning set forth in Section 6.13(a) of this
Agreement.
"Manager" shall mean Residence Inn by Marriott, Inc., the manager of
the Hotels.
"Management Agreement" shall mean that certain Management Agreement,
dated March 29, 1988, between the Partnership and Residence Inn by Marriott,
Inc., the manager of the Hotels.
"Material Contracts" shall have the meaning set forth in Section 3.10
of this Agreement.
"Merger" shall mean the merger of Merger Sub with and into the
Partnership pursuant to the terms and conditions of this Agreement.
"Merger Consideration" shall have the meaning set forth in Section
2.6(a) of this Agreement.
"Merger Sub" shall mean AHT Res Acquisition, L.P., a Delaware limited
partnership and a wholly owned indirect subsidiary of Buyer.
38
"Merger Sub GP" shall mean AHT Res I GP, Inc., a Virginia corporation
and a wholly owned indirect subsidiary of Buyer.
"Mortgage Loans" shall have the meaning set forth in Section 3.9 of
this Agreement.
"Operating Agreement" shall have the meaning set forth in Section 4.1
of this Agreement.
"Operating Agreement Consent" shall have the meaning set forth in
Section 6.10 of this Agreement.
"Operating Profit" shall have the meaning set forth in the Management
Agreement.
"Other Manager Payments" shall have the meaning set forth in Section
6.15(d) of this Agreement.
"Parties" or "Party" shall have the meaning set forth in Section 2.2
of this Agreement.
"Partners" shall mean the General Partner and the Limited Partners of
the Partnership.
"Partnership" shall mean Marriott Residence Inn Limited Partnership, a
Delaware limited partnership.
"Partnership Agreement" shall mean the Amended and Restated Agreement
of Limited Partnership of the Partnership.
"Partnership Cash" shall mean all cash of the Partnership except for
(a) amounts available in the Partnership's FF&E reserve accounts, (b) any
escrowed funds, reserves or other deposits made by the Partnership or a
Subsidiary pursuant to any Loan or Mortgage Loan and held by any of the
Partnership's lenders and (c) all petty cash and working capital funds held in
accounts of the Hotels.
"Partnership Interests" shall mean the partnership interests in the
Partnership.
"Partnership Material Adverse Change" shall have the meaning set forth
in Section 3.8 of this Agreement.
"Partnership Consents" shall have the meaning set forth in Section
6.11(b) of this Agreement.
"Partnership Material Adverse Effect" shall have the meaning set forth
in Section 3.1 of this Agreement.
39
"Partnership SEC Documents" shall have the meaning set forth in
Section 3.7(a) of the Agreement.
"Partnership Units" shall mean the units of limited partnership
interest in the Partnership.
"Paying Agent" shall have the meaning set forth in Section 2.6(b) of
this Agreement.
"Permits" shall have the meaning set forth in Section 3.13(b) of this
Agreement.
"Person" means any individual, corporation, ___ partnership, limited
liability company, joint venture, trust, unincorporated organization or other
form of business or legal entity.
"Proposed Transactions" shall have the meaning set forth in Section
6.11(a) of this Agreement.
"Prorated Tax Adjustment" shall have the meaning set forth in Section
6.15(e) of this Agreement.
"Release" shall have the meaning set forth in Section 3.14 of this
Agreement.
"Refunded Incentive Management Fee" shall mean the cash amount, if
any, delivered or paid by the Manager to the Surviving Partnership or any
subsidiary of the Surviving Partnership after the Closing, pursuant to Sections
5.04(B) and (C) and Section 8.01 of the Management Agreement, with respect to
excess Incentive Management Fees (as that term is defined in the Management
Agreement), and any interest earned thereon, which have been retained by the
Manager for the Partnership's 2001 Fiscal Year.
"Refunded Litigation Reserves" shall mean the amount, if any, of the
cash reserves retained by the Manager with respect to any damages, liabilities,
losses, costs and expenses described in Section 6.14(a) that is returned by the
Manager to the Surviving Partnership or any subsidiary of the Surviving
Partnership after the Closing.
"SEC" shall mean the Securities and Exchange Commission.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Subsidiaries" or "Subsidiary" shall have the meaning set forth in
Section 3.2(a) of this Agreement.
"Superior Acquisition Proposal" shall have the meaning set forth in
Section 6.3(d) of this Agreement.
"Surviving Partnership" shall mean the surviving entity of the Merger.
40
"Tax Returns" shall have the meaning set forth in Section 3.11(a) of
this Agreement.
"Taxes" shall have the meaning set forth in Section 3.11(a) of this
Agreement.
"Termination Date"" shall have the meaning set forth in Section
6.13(f) of this Agreement.
"Transfer and Gains Taxes" shall have the meaning set forth in Section
6.7 of this Agreement.
"Unit Certificates" shall have the meaning set forth in Section 2.6(b)
of this Agreement.
10. GENERAL PROVISIONS
10.1. No Survival
None of the representations, warranties, covenants or agreements in
this Agreement or in any instrument delivered pursuant to this Agreement shall
survive the Effective Time; provided, however, the foregoing shall not limit any
covenant, agreement or indemnity of any Party which by its terms contemplates
performance after the Effective Time, including, without limitation, Section
6.13, Section 6.14 and Section 6.15.
10.2. Expenses
(a) All fees and expenses incurred in connection with the negotiation,
preparation and execution of this Agreement and the performance of the
transactions contemplated hereby shall be paid by the Party incurring such
expenses, including, without limitation, any finder's fees, investment banking
fees, attorneys' fees or other professional fees, provided that (i) the
Partnership shall pay all fees and expenses associated with (A) the Consent
Solicitation, (B) the solicitation of the Partnership Consents and (C) the
solicitation of any third-party consents, other than lender consents and the
Buyer Consents, required to be obtained from parties to contracts with the
Partnership in connection with the transactions contemplated by this Agreement,
and (ii) Buyer shall pay all fees and expenses associated with (A) the
solicitation of any consents of the Partnership's lenders required to be
obtained in connection with the transactions contemplated by this Agreement, (B)
the solicitation of the Buyer Consents, (C) Buyer's due diligence investigation
of the Partnership and (D) all Transfer and Gain Taxes. Notwithstanding the
foregoing, in the event that, following distribution of the Consent Solicitation
to the Limited Partners, the Partnership does not receive the Limited Partner
Approvals, the Partnership shall reimburse Buyer for up to $150,000 of its
reasonable third-party due diligence expenses (including legal fees) incurred in
connection with Buyer's due diligence review of the Partnership and the Hotels.
The Partnership and Buyer shall each pay one-half of all title insurance
premiums (including additional premiums attributable to extended coverage)
41
up to an aggregate amount of $100,000 each, and Buyer shall pay the amount of
such premiums that exceeds $200,000 in the aggregate.
(b) If any Party fails to promptly pay any amounts due pursuant to
this Agreement (including, without limitation, pursuant to Section 2.6 and
Section 8.2) and, for the purpose of obtaining payment, a Party commences a suit
which results in a judgment against another Party for any amounts owed pursuant
hereto, the losing party shall pay to the prevailing party its costs and
expenses (including reasonable attorneys' fees and expenses) in connection with
such suit.
10.3. Amendment
This Agreement may be amended by the Parties in writing at any time
before or after any Limited Partner Approvals are obtained and prior to the
Effective Time; provided, however, that, after the Limited Partner Approvals are
obtained, no such amendment shall be made which by law requires the further
approval of the Limited Partners without first obtaining such further approval.
10.4. Extension; Waiver
At any time prior to the Effective Time, the Parties may (a) extend
the time for the performance of any of the obligations or other acts of the
other Parties, (b) waive any inaccuracies in the representations and warranties
of the other Parties contained in this Agreement or in any document delivered
pursuant to this Agreement or (c) subject to the proviso of Section 10.3 and to
the extent lawful, waive compliance with any of the agreements or conditions of
any Party contained in this Agreement. Any agreement on the part of a Party to
any such extension or waiver shall be valid only if set forth in an instrument
in writing signed on behalf of such Party and then only to the extent expressly
specified therein. The delay or failure of any Party to exercise or assert any
of its rights under this Agreement or otherwise shall not constitute a waiver of
those rights.
10.5. Notices
All notices, requests, claims, demands and other communications under
this Agreement shall be in writing and shall be delivered personally, sent by
overnight courier (providing proof of delivery) to the Parties or sent by
telecopy (providing confirmation of transmission) at the following addresses or
telecopy numbers (or at such other address or telecopy number for a Party as
shall be specified by like notice):
42
(a) if to the Partnership
or the General Partner, to:
Marriott Residence Inn Limited Partnership
c/o Host Marriott Corporation
10400 Fernwood Road
Bethesda, MD 20817
Attention: Robert Parsons
Facsimile: (301) 380-5188
and
Attention: Elizabeth Abdoo
Facsimile: (301) 380-3588
with a copy (which shall not constitute notice) to:
Hogan & Hartson L.L.P.
555 13th Street, N.W.
Washington, D.C. 20004
Attention: J. Warren Gorrell, Jr.
Facsimile: (202) 637-5910
(b) if to Buyer
or Merger Sub to:
Apple Hospitality Two, Inc.
10 South Third Street
Richmond, Virginia 23219
Attention: Justin Knight
Facsimile: (804) 344-8129
with a copy (which shall not constitute notice) to:
Jenkens & Gilchrist, P.C.
1445 Ross Avenue, Suite 3200
Dallas, TX 75202
Attention: Tom Davis
Facsimile: (214) 855-4300
10.6. Assignment and Binding Effect
This Agreement and the rights and obligations of the Parties hereunder
may not be assigned by any Party without the prior written consent of each of
the other Parties. This
43
Agreement shall be binding upon and shall inure to the benefit of the Parties
and their respective successors and assigns.
10.7. Entire Agreement
This Agreement, the Confidentiality Agreement, the Deposit Escrow
Agreement and the other agreements entered into in connection with the Merger
constitute the entire agreement and supersede all prior agreements (except the
Confidentiality Agreement) and understandings, both written and oral, between
the Parties with respect to the subject matter of this Agreement.
10.8. Governing Law
This Agreement, the rights and obligations of the Parties, and any
claims or disputes relating thereto, shall be governed by and construed in
accordance with the laws of the State of Delaware (excluding the choice of law
rules thereof).
10.9. Severability
If any part of any provision of this Agreement shall be invalid or
unenforceable in any respect, such part shall be ineffective to the extent of
such invalidity or unenforceability only, without in any way affecting the
remaining parts of such provision or the remaining provisions of this Agreement.
10.10. Further Assurances
In connection with this Agreement and the transactions contemplated
hereby, each Party shall execute and deliver any additional documents and
instruments and perform any additional acts that may be necessary or appropriate
or reasonably requested by another Party to effectuate and perform the
provisions of this Agreement and such transactions.
10.11. Counterparts
To facilitate execution, this Agreement may be executed in as many
counterparts as may be required. It shall not be necessary that the signatures
of, or on behalf of, each Party, or that the signatures of all persons required
to bind any Party, appear on each counterpart; but it shall be sufficient that
the signature of, or on behalf of, each Party, or that the signatures of the
persons required to bind any Party, appear on one or more of the counterparts.
All counterparts shall collectively constitute a single agreement. It shall not
be necessary in making proof of this Agreement to produce or account for more
than a number of counterparts containing the respective signatures of, or on
behalf of, all of the Parties.
[Signatures on Next Page]
44
IN WITNESS WHEREOF, the Parties have duly executed this Agreement and
Plan of Merger, or have caused this Agreement and Plan of Merger to be duly
executed on their behalf, as of the day and year first above written.
APPLE HOSPITALITY TWO, INC.
By: /s/ Glade Knight
----------------------------
Name: Glade Knight
Title:
AHT Res Acquisition, L.P.
By: AHT Res I GP, its general partner
By: /s/ Glade Knight
-----------------------------
Name: Glade Knight
Title:
Marriott Residence Inn Limited Partnership
By: RIBM ONE LLC, its sole general partner
By: /s/ Robert E. Parsons
-----------------------------
Name: Robert E. Parsons, Jr.
Title: President
RIBM ONE LLC
By: /s/ Robert E. Parsons
-----------------------------
Name: Robert E. Parsons, Jr.
Title: President
45
APPENDIX B
OPINION OF MERRILL LYNCH & CO.
[Merrill Lynch Letterhead]
February 19, 2002
Board of Managers of RIBM One LLC,
as sole General Partner of:
Marriott Residence Inn Limited Partnership
10400 Fernwood Road
Bethesda, Maryland 20817
Board of Managers:
We understand that Marriott Residence Inn Limited Partnership (the
"Partnership"), RIBM One LLC, the sole general partner of the Partnership (the
"General Partner" and together with the Partnership, the "Company"), Apple
Hospitality Two, Inc. (the "Acquiror"), and AHT Res Acquisition, L.P., a wholly
owned indirect subsidiary of Acquiror (the "Acquisition Sub"), have entered into
an Agreement and Plan of Merger, dated as of November 28, 2001 (the
"Agreement"), pursuant to which Acquisition Sub is to be merged with and into
the Partnership in a merger (the "Merger") in which the general partner interest
in the Partnership is to be converted into the right to receive $200,000 in
cash, subject to certain indemnification obligations, and each issued and
outstanding unit of limited partnership interest in the Partnership (each, a
"Limited Partnership Unit") is to be converted into the right to receive $636.43
in cash (the "Limited Partnership Consideration"). Pursuant to the Agreement,
the Partnership is to establish and, prior to consummation of the Merger,
contribute $1,500,000 and certain contingent assets to a new liquidating trust
(the "Liquidating Trust"). Following such contribution, and prior to
consummation of the merger, the Partnership is to issue to the holders of the
Limited Partnership Units all of the beneficial interests in the Liquidating
Trust (the "Liquidating Trust Interest") on a pro rata basis based upon each
limited partner's ownership of the Limited Partnership Units. The activities of
the Liquidating Trust are to be limited to pursuing certain contingent assets,
satisfying certain Partnership obligations and satisfying the obligations of the
Liquidating Trust pursuant to the Agreement; provided, however, that once such
obligations are satisfied, the Liquidating Trust is to be liquidated and all of
its remaining assets are to be distributed to the beneficiaries of the
Liquidating Trust. Pursuant to the Agreement, the Liquidating Trust is to
indemnify Acquiror, Acquisition Sub, the limited partnership surviving the
Merger (the "Surviving Partnership") and certain of their related parties from
liabilities incurred with respect to scheduled litigation matters and, following
consummation of the Merger, (i) the Surviving Partnership is to make certain
payments to the Liquidating Trust representing refunded and returned tax and
manager payments, litigation reserves and debt service payments due to the
Partnership and (ii) the Liquidating Trust is to make certain payments to the
Surviving Partnership for certain returns and underpayments of tax and manager
payments due from the Partnership for periods prior to the closing of the
Merger. The terms and conditions of the Merger are more fully set forth in the
Agreement. In addition, we understand that the Partnership intends to make a
distribution to the holders of Limited Partnership Units of certain unrestricted
Partnership cash and, through the Liquidating Trust, certain debt service
reimbursements as described in the consent solicitation statement to be filed
with the Securities and Exchange Commission and mailed to the holders of Limited
Partnership Units to solicit their consent to the Merger (the "Consent
Solicitation Statement").
You have asked us whether, in our opinion, the Limited Partnership
Consideration to be received by the holders of the Limited Partnership Units who
are admitted as limited partners of the Partnership immediately prior to the
effective time of the Merger (the "Limited Partners") pursuant to the Merger,
exclusive of the distribution of the Liquidating Trust Interest and the intended
distributions of unrestricted partnership cash and reimbursed debt service, is
fair from a financial point of view to such Limited Partners.
In arriving at the opinion set forth below, we have, among other
things:
(1) Reviewed certain publicly available business and financial
information relating to the Partnership that we deemed to be relevant;
(2) Reviewed certain information, including financial forecasts,
relating to the business, earnings, cash flow, assets, liabilities and
prospects of the Partnership furnished to us by the General Partner;
(3) Conducted discussions with members of senior management of the
General Partner concerning the matters described in clauses 1 and 2
above;
(4) Performed various valuation analyses that we deemed relevant,
including a "cap rate" analysis, discounted cash flow analysis,
analysis of the secondary market transfer prices for the Limited
Partnership Units and analysis of recent third-party tender offer
prices for the Limited Partnership Units;
(5) Reviewed the results of operations of the Partnership and
compared them with those of certain publicly traded companies that we
deemed to be relevant;
(6) Participated in certain discussions and negotiations among
representatives of the General Partner and Acquiror and their legal
advisors;
(7) Reviewed the final version of the Agreement, dated as of
November 28, 2001;
(8) Conducted a "market test" regarding the sale of the Partnership
or, alternatively, a sale of the Partnership's assets, to other
potential acquirors, including public and private hotel companies,
real estate opportunity funds and other financial buyers; and
(9) Reviewed such other financial studies and analyses and took
into account such other matters as we deemed necessary, including our
assessment of general economic, market and monetary conditions and
specific economic and market conditions affecting the domestic lodging
industry as a result of the September 11, 2001 terrorist attacks in
the United States.
In preparing our opinion, we have assumed and relied on the accuracy
and completeness of all information supplied or otherwise made available to us,
discussed with or reviewed by or for us, or publicly available, and we have not
assumed any responsibility for independently verifying such information or
undertaken an independent evaluation or appraisal of any of the assets or
liabilities of the Partnership or been furnished with any such evaluation or
appraisal. In addition, we have not assumed any obligation to conduct any
physical inspection of the properties or facilities of the Partnership. With
respect to the financial forecast information furnished to or discussed with us
by the General Partner, we have assumed that they have been reasonably prepared
and reflect the best currently available estimates and judgment of the General
Partner as to the expected future financial performance of the Partnership.
We have also assumed the effectiveness of the proposed amendments to the
management agreement pursuant to which the Partnership's inns are managed, as
furnished to us verbally by the General Partner in February 2002 and described
in the Consent Solicitation Statement.
Our opinion is necessarily based upon market, economic and other
conditions as they exist and can be evaluated on, and on the information made
available to us as of, the date hereof.
We are acting as financial advisor to the Company in connection with
the Merger and will receive a fee from the Company for our services, a
significant portion of which is contingent upon the delivery of our opinion and
consummation of the Merger. In addition, the Partnership has agreed to indemnify
us for certain liabilities arising out of our engagement. These indemnity
obligations have been guaranteed by Host Marriott, L.P., the managing member of
the General Partner ("Host L.P."). We are currently and have, in the past,
provided financial advisory and financing services to the Partnership, Host L.P.
and Host Marriott Corporation, the general partner of Host L.P. ("Host Corp."),
and their affiliates and may continue to do so and have received, and may
receive, fees for the rendering of such services. In addition, in the ordinary
course of our business, we may engage in transactions involving the Limited
Partnership Units and the securities of Host L.P., Host Corp. and/or their
affiliates for our own account and for the accounts of customers and,
accordingly, may at any time hold a long or short position in such securities.
This opinion is for the use and benefit of the General Partner. It is
understood that this opinion will not be reproduced, summarized, described or
referred to or given to any person without our prior written consent which shall
not be unreasonably withheld, except that this opinion may be included in the
Consent Solicitation Statement provided that our opinion is reproduced in full
and any description of or reference to us or summary of our opinion therein is
in a form acceptable to us and our counsel. Our opinion does not address the
merits of the underlying decision by the Partnership to engage in the Merger and
does not constitute a recommendation to any limited partners of the Partnership
as to how such limited partners should vote on the proposed Merger or any matter
related thereto.
On the basis of and subject to the foregoing, we are of the opinion
that, as of the date hereof, the Limited Partnership Consideration to be
received by the limited partners pursuant to the Merger, exclusive of the
distribution of the Liquidating Trust Interest and the intended distributions of
unrestricted partnership cash and reimbursed debt service, is fair from a
financial point of view to such Limited Partners.
Very truly yours,
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
Appendix A CONSENT FORM
- ----------
THIS WRITTEN CONSENT IS SOLICITED BY THE GENERAL PARTNER OF MARRIOTT
RESIDENCE INN LIMITED PARTNERSHIP FOR ACTION BY WRITTEN CONSENT OF
LIMITED PARTNERS TO BE EFFECTIVE AS SET FORTH IN THE CONSENT
SOLICITATION STATEMENT ACCOMPANYING THIS CONSENT FORM.
This Consent Form ("Consent Form") must be completed and returned by every
limited partner who wishes to vote for or against the proposal (the "Proposal")
to approve the Agreement and Plan of Merger, dated as of November 28, 2001,
among the Partnership, RIBM One LLC, Apple Hospitality Two, Inc. and AHT Res
Acquisition, L.P., as described in the Consent Solicitation Statement
accompanying this Consent Form.
This Consent Form must be returned to and received by:
GEMISYS
Proxy Department
7103 South Revere Parkway
Englewood, CO 80112
By Facsimile: 1-800-387-7365
prior to 6:00 p.m., New York City time, on Thursday, March 28, 2002, or such
later date and time as may be designated in a mailing to all limited partners
(the "Expiration Date"). The Consent Form will be effective only when it is
actually received by GEMISYS. A self-addressed return envelope has been provided
for your convenience.
All Consent Forms that are properly executed and returned to GEMISYS prior
to the Expiration Date will be voted in accordance with the election set forth
therein. Abstentions or failure to return a signed Consent Form will have the
same effect as a vote AGAINST the Proposal. Properly executed Consent Forms that
are not marked will be voted FOR the Proposal.
Before completing this Consent Form, you and your advisor, if any, should
carefully review the Consent Solicitation Statement. The terms of the proposed
merger and the merger agreement, including the text of the merger agreement, are
set forth in detail in the Consent Solicitation Statement.
After careful consideration, the general partner has determined that the
merger agreement and the merger are fair to and in the best interests of the
partnership and the limited partners and the general partner recommends that you
vote "FOR" approval of the merger agreement by checking the "FOR" box on the
opposite side of this Consent Form.
If you have any questions regarding the Proposal or if you would like
assistance in completing this Consent Form, please contact Georgeson Shareholder
Communications, Inc. at (866) 761-0261.
Consent Forms may be withdrawn at any time prior to the Expiration Date. In
addition, you may change your vote subsequent to the submission of a Consent
Form, but prior to the Expiration Date. For a withdrawal or change of vote to be
effective, you must execute and deliver, prior to the Expiration Date, a
subsequently dated Consent Form or a written notice stating that the consent is
revoked to GEMISYS at the address set forth above. Consent Forms and notices of
withdrawal or change of vote dated after the Expiration Date will not be valid.
A-1
CONSENT
The undersigned, with respect to each Unit in Marriott Residence Inn Limited
Partnership held of record by the undersigned on February 28, 2002, hereby sets
forth his, her or its vote in connection with the written consent solicited by
the general partner of the Partnership as described in the Consent Solicitation
Statement accompanying this Consent Form. You may vote for, against, or abstain
from voting on the Proposal by marking the appropriate box set forth below. In
order to effect the Proposal, it must be approved by limited partners holding a
majority of the outstanding Units, excluding Units held by the general partner
and its affiliates. Accordingly, abstentions on the Proposal will have the same
effect as voting AGAINST the Proposal.
Proposal No. 1: Approval of Agreement and Plan of Merger, dated as of
November 28, 2001, among Marriott Residence Inn Limited
Partnership, RIBM One LLC, Apple Hospitality Two, Inc. and
AHT Res Acquisition, L.P.
| | FOR | | AGAINST | | ABSTAIN
The undersigned hereby acknowledges receipt of the Consent Solicitation
Statement, dated March 1, 2002. If Units are owned jointly, all joint owners
must sign below.
Date: ________________________________________
Signature of Owner: __________________________
Signature of Joint Owner: ____________________
Please date and sign here exactly as your name
or names appear on this Consent Form. Each
executor, administrator, trustee, guardian,
attorney-in-fact or other fiduciary should
sign and indicate his or her full title.
A-2