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 II LIMITED PARTNERSHIP
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[_] No fee required.
[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 II Limited
Partnership
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(2) Aggregate number of securities to which transaction applies:
70,000 units of limited partnership interest in Marriott Residence Inn II
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 70,000, the sum of units of
limited partnership interest in Marriott Residence Inn II Limited
Partnership, and the merger consideration of $415.00 per unit in cash and
(2) multiplying that result ($29,250,000) by 1/50 of one percent.
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(4) Proposed maximum aggregate value of transaction:
$29,250,000
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(5) Total fee paid:
$5,850
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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 II LIMITED PARTNERSHIP
10400 Fernwood Road
Bethesda, Maryland 20817
(301) 380-9000
July 5, 2002
To the Limited Partners of Marriott Residence Inn II Limited Partnership:
Your general partner is seeking your consent to the agreement and plan of
merger, dated as of April 30, 2002, among the partnership, RIBM Two LLC, Apple
Hospitality Two, Inc. and AHT Res II 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 $415 in
cash. Thereafter, the partnership will be a wholly owned indirect subsidiary of
Apple Hospitality.
In addition to the $415 per unit of merger consideration that you will
receive from Apple Hospitality, you also 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 $300,000 of partnership cash
(approximately $4.28 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
approximately 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 Two 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
July 3, 2002 will be entitled to consent to the merger agreement.
In our capacity as general partner of the partnership, RIBM Two 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 $415 per unit to be
received by the limited partners pursuant to the merger, exclusive of any
distribution of available unrestricted partnership cash or the intended
distribution of 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.
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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
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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 2:00 p.m., New York
City time, on August 8, 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 Two LLC
General Partner
Robert E. Parsons, Jr.
President and Manager
PLEASE COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED CONSENT FORM.
This consent solicitation statement is dated July 5, 2002. This consent
solicitation statement and the related consent form are being mailed to limited
partners on or about July 8, 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 .............................................................................. 2
The Merger Agreement .................................................................................. 2
Recommendation of the General Partner ................................................................. 6
Opinion of Financial Advisor .......................................................................... 6
Interests of the General Partner and its Affiliates in the Merger ..................................... 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 II Limited Partnership ......................................................... 11
The General Partner ................................................................................... 12
Apple Hospitality and AHT Res II Acquisition .......................................................... 13
THE MERGER ................................................................................................ 14
Background of the Merger .............................................................................. 14
Reasons for the Merger ................................................................................ 20
Recommendation of the General Partner ................................................................. 22
Opinion of Financial Advisor .......................................................................... 22
Merger Financing ...................................................................................... 27
Regulatory Approvals .................................................................................. 27
Interests of the General Partner and Affiliates in the Merger ......................................... 27
Material Federal Income Tax Considerations of the Merger .............................................. 27
Material Federal Income Tax Considerations of the Receipt of Interests in the Liquidating Trust ....... 31
No Rights of Appraisal ................................................................................ 35
Failure to Approve the Merger Agreement ............................................................... 35
THE MERGER AGREEMENT ...................................................................................... 38
Structure of the Merger ............................................................................... 38
The Effective Time of the Merger ...................................................................... 38
Merger Consideration; Conversion of Partnership Interests in the Merger ............................... 38
Other Distributions to be Made in Connection with the Merger .......................................... 39
Escrow Deposit ........................................................................................ 39
Exchange of Units for Merger Consideration ............................................................ 40
Establishment of the Liquidating Trust ................................................................ 41
Representations and Warranties ........................................................................ 44
Conduct of Business by the Partnership Pending the Merger ............................................. 45
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Additional Covenants ................................................................. 47
Indemnification by the General Partner and the Liquidating Trust ..................... 51
No Solicitation by the Partnership or the General Partner ............................ 52
Conditions to Completion of the Merger ............................................... 54
Termination of the Merger Agreement .................................................. 56
Termination Fee ...................................................................... 59
Expenses ............................................................................. 60
Waiver and Amendment of the Merger Agreement ......................................... 61
Deposit Escrow Agreement ............................................................. 61
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT ........................... 64
PRICE RANGE FOR THE UNITS ................................................................ 65
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS ..................................... 66
WHERE YOU CAN FIND ADDITIONAL INFORMATION ................................................ 67
APPENDIX A AGREEMENT AND PLAN OF MERGER
APPENDIX B OPINION OF MERRILL LYNCH & CO.
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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 II Acquisition, L.P., 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 II
Acquisition, L.P. 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: You will receive $415 in cash for each unit of limited partnership
interest that you own immediately prior to the closing of the merger.
In addition to the $415 per unit of merger consideration described above,
if the merger is completed you also will receive 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.
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 $415 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 July 3, 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
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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.
Q: What is the deadline to return my consent form?
A: The consent solicitation period ends at 2:00 p.m., New York City time, on
August 8, 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 the liquidating trust distribution described in this
consent solicitation statement which is 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
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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
lender, 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 beneficial interests
in the liquidating trust promptly after the closing of the merger.
Q. Will I receive any cash in addition to the merger consideration?
A. At this time, we believe that any unrestricted partnership cash remaining
in the partnership immediately prior to the consummation of the merger
will be minimal. If the amount of unrestricted partnership cash remaining
would equal $5.00 or more per unit, we will make a distribution of that
amount to you immediately prior to the closing of the merger. If the
amount of partnership cash per unit is less than $5.00, the partnership
cash will be contributed to the assets of the liquidating trust.
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 $4.28 per unit) exceeds your basis in your units
immediately before the issuance.
v
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
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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 67. 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 II Limited Partnership
RIBM Two 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, together with its wholly owned subsidiary Bossier RIBM Two
LLC, 23 Marriott Residence Inn properties and the land on which the properties
are located. The partnership's and its subsidiary's inns have a total of 2,487
suites and are located in 16 states in the United States: four in Florida, three
in California, two in each of North Carolina and South Carolina and one in each
of Alabama, Illinois, Louisiana, Massachusetts, Michigan, Mississippi, Nevada,
New Mexico, Ohio, Pennsylvania, Tennessee and Texas. The partnership's and its
subsidiary'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 long-term management
agreements. The partnership was formed in 1988 through a public offering of
70,000 units of limited partnership interest.
RIBM Two 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 II 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. Wholly
owned indirect subsidiaries of Apple Hospitality currently own 25 extended-stay
hotels located in 11 states in the United States. Apple Hospitality leases all
of its hotels to Apple Hospitality Management Inc., its taxable real estate
investment trust subsidiary or its subsidiaries. Through Apple Hospitality
Management, Apple Hospitality engages Residence Inn by Marriott, Inc. to operate
its hotels, all of which are operated as part of the Residence Inn by Marriott
franchise system.
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AHT Res II Acquisition, L.P. is a wholly owned indirect subsidiary of Apple
Hospitality that was formed solely for the purpose of effecting the merger.
"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 July 3, 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 70,000 units issued and outstanding, held of record by 3,230 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 2:00 p.m., New York City
time, on August 8, 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 38)
The Structure of the Merger (See page 38)
In the merger, AHT Res II 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 II Acquisition will become the sole partners of the partnership.
After the merger, the partnership will be a wholly owned indirect subsidiary of
Apple Hospitality.
2
The merger agreement is included as Appendix A to this consent solicitation
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statement. It is the legal document that governs the merger.
Merger Consideration and Other Distributions in Connection with the Merger (See
pages 38 and 39)
If the merger is completed, you will receive $415 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 $415 per unit of merger consideration that you will
receive from Apple Hospitality, you also 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. 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 approximately 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.
Furthermore, although we believe that any unrestricted partnership cash
remaining in the partnership immediately prior to the consummation of the merger
will be minimal, if the amount of unrestricted partnership cash remaining would
equal $5.00 or more per unit, we will make a distribution of that amount to you
immediately prior to the closing of the merger. If the amount of partnership
cash per unit is less than $5.00, the partnership cash will be contributed to
the assets of the liquidating trust.
Apple Hospitality has deposited into escrow $3 million of the $29.25
million purchase price, $1 million of which is being held as an earnest money
deposit. 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.
Payment of Merger Consideration (See page 40)
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
issuance of beneficial interests in the liquidating trust and any cash
distribution, both of which are subject to the closing of the merger, will be
sent to you directly from the partnership.
3
Establishment of the Liquidating Trust (See page 41)
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 and its
subsidiary's inns which existed prior to the merger.
Promptly after its establishment, the partnership will contribute $300,000
of partnership cash (approximately $4.28 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 approximately
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 35)
There are no dissenters' rights of appraisal in connection with the merger.
The Effective Time of the Merger (See page 38)
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 third quarter of 2002.
What is Needed to Complete the Merger (See page 54)
The partnership and Apple Hospitality will complete the merger only if they
satisfy or, if the law permits, waive several conditions, including the
following:
. holders of a majority of the issued and outstanding units of limited
partnership interest approve the merger;
. the lender of the partnership's outstanding indebtedness consents to
the transactions contemplated by the merger agreement;
. the manager of the inns owned by the partnership and its subsidiary
confirms certain effects of the merger under the partnership's and its
subsidiary's management agreements;
4
. the manager of the inns owned by the partnership and its subsidiary
consents to the lease of the inns by the surviving partnership to one
or two of its affiliates and the assignment of the management
agreements to such affiliates;
. the manager of the inns owned by the partnership and its subsidiary
consents to certain changes to the management agreements pursuant to
amended and restated management agreements between manager and
surviving partnership's affiliates;
. the manager of the inns owned by the partnership and its subsidiary
waives any rights it may have under section 18.01 of the management
agreements with respect to the transactions contemplated by the merger
agreement or which are necessary to implement AHT Res II Acquisition's
proposed real estate investment trust structure;
. the cash remaining in the partnership at the closing of the merger is
at least equal to the amount required under the merger agreement;
. the operating agreement of the general partner is amended to permit
the consummation of the transactions contemplated by the merger
agreement;
. 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 operations of such party;
. each party to the merger agreement has performed and complied in all
material respects with its obligations required by the merger
agreement;
. there does not exist any material adverse change in the business,
financial condition or results of operations of the partnership and
its subsidiaries, other than adverse effects caused by general
industry and economic factors or specified in the merger agreement;
. Hospitality Properties Trust has waived any rights of first offer it
may have had with respect to the transactions contemplated by the
merger agreement; and
. other customary contractual conditions set forth in the merger
agreement are satisfied.
Regulatory Approvals (See page 27)
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 27)
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 $4.28 per unit) exceeds your basis in your units immediately
before the issuance.
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 56)
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, under certain circumstances,
the partnership may be required to pay Apple Hospitality a termination fee of
$250,000.
Failure to Approve the Merger Agreement (See page 35)
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 distribution of beneficial
interests in the liquidating trust described in this consent solicitation
statement.
Regardless of whether the merger is completed, the general partner and the
manager of the inns of the partnership and its subsidiary expect to make certain
changes to the management agreements 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
agreements. 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 22)
After careful consideration, which included obtaining an opinion from
Merrill Lynch & Co. concerning the fairness, from a financial point of view, of
the $415 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.
6
Opinion of Financial Advisor (See page 22)
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 April 29, 2002, the $415 per unit to be received by the limited
partners pursuant to the merger, exclusive of any distribution of available
unrestricted partnership cash or the intended distribution of 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. We have attached a
copy of Merrill Lynch's opinion, dated April 29, 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 27)
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 $415 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
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 July 3, 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
70,000 units issued and outstanding, held of record by 3,230 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 2:00 p.m., New York City time, on August 8,
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 also will 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
9
Shareholder Communications, Inc. to act as information agent for a fee of
$12,500, plus reasonable out-of-pocket expenses.
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 II Limited Partnership
The partnership, a Delaware limited partnership, was formed to acquire and
own, together with its wholly owned subsidiary Bossier RIBM Two LLC, 23 Marriott
Residence Inn properties and the land on which the properties are located. The
partnership's inns (which for the purposes of this presentation includes the inn
of its subsidiary) have a total of 2,487 suites and are located in 16 states in
the United States: four in Florida, three in California, two in each of North
Carolina and South Carolina, and one in each of Alabama, Illinois, Louisiana,
Massachusetts, Michigan, Mississippi, Nevada, New Mexico, Ohio, Pennsylvania,
Tennessee and Texas. 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 70,000 units of limited partnership interest.
The partnership's inns range in age between 13 and 19 years. The
partnership's inns generally have fewer guest rooms than traditional
full-service hotels, in most cases containing between 64 to 192 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 108 suites, which
are a mixture of studio, one bedroom, two bedroom and two story penthouse
suites. They are located in suburban settings throughout 16 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
--- ----------------
Alabama
Birmingham - Inverness ..................... 128
California
Irvine - Spectrum .......................... 112
Pasadena - Arcadia ......................... 120
Placentia - Fullerton ...................... 112
Florida
Boca Raton ................................. 120
Jacksonville - Baymeadows .................. 112
Pensacola - University Mall ................ 64
St. Petersburg - Clearwater ................ 88
Illinois
Chicago - Deerfield ........................ 128
Louisiana
Bossier City - Shreveport .................. 72
Massachusetts
Boston - North Shore ....................... 96
Michigan
Kalamazoo .................................. 83
11
Inn Number of Suites
--- ----------------
Mississippi
Jackson 120
Nevada
Las Vegas - Convention Center 192
New Mexico
Santa Fe 120
North Carolina
Charlotte - North/University Area 91
Greensboro 128
Ohio
Akron 112
Pennsylvania
Philadelphia - Valley Forge 88
South Carolina
Columbia 128
Spartanburg 88
Tennessee
Memphis - East 105
Texas
Lubbock 80
----------------
Total Number of Suites 2,487
================
The partnership has no employees. Host Marriott, L.P., a member 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 Two LLC, a Delaware 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,
Rockledge Hotel Properties, Inc., a Delaware corporation and a subsidiary of
Host Marriott, L.P., owns a 98% Class B non-managing economic interest in the
general partner and Rockledge RIBM Two Corporation, a Delaware corporation and
indirect subsidiary of Host Marriott, L.P., owns a 1% 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
12
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 II 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. Wholly
owned indirect subsidiaries of Apple Hospitality currently own 25 extended-stay
hotels located in 11 states in the United States: six in California, five in
Ohio, four in Georgia, two in Missouri, two in Texas and one in each of Alabama,
Colorado, Connecticut, Illinois, Massachusetts and Michigan. Apple Hospitality
leases all of its hotels to Apple Hospitality Management Inc., its taxable real
estate investment trust subsidiary or its subsidiaries. Through Apple
Hospitality Management, Apple Hospitality engages Residence Inn by Marriott,
Inc. to operate its hotels, all of which are operated as part of the Residence
Inn by Marriott franchise system.
AHT Res II 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 II Acquisition's offices are located at 10
South Third Street, Richmond, Virginia 23219, and their telephone number is
(804) 344-8121.
13
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
(which for the purposes of this presentation includes the inn of its
subsidiary). 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 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 led 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 acquirers, 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 $30 per unit to $250 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.
14
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 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 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 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 Two 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
15
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.
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.
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. Potential purchasers were instructed
by Merrill Lynch to assume that approximately $15 million of the partnership's
cash balance would be held back and distributed to the partners simultaneous
with the closing of any transaction while approximately $5 million would be
delivered to any buyer at closing. The deadline for receiving non-binding
initial indications of interest from these parties was set as June 29, 2001.
By the June 29, 2001 deadline for receiving non-binding initial indications
of interest, Merrill Lynch had received two written proposals relating to the
acquisition of the units of limited partnership interest. In addition, one new
bidder submitted an offer after the June 29, 2001 deadline for the first round
of bidding, and the general partner determined that it was in the best interests
of the partnership to consider this additional bid. The offers from the three
bidders (including the anticipated cash distributions to the partners) would
have resulted in an aggregate payment to the partners ranging from approximately
$22 million, or approximately $316 per unit, to approximately $30 million, or
approximately $433 per unit.
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
agreements 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.
16
All three bidders were asked to submit "best and final" offers by July 19,
2001. One of the first round bidders declined to participate in the second round
of bidding. Another first round bidder reduced its bid for the final round. The
third first round bidder indicated that it would not be changing its initial bid
for the final round. Apple Hospitality's final round bid provided the highest
consideration to the partnership's limited partners of all of the final bids.
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 July 25, 2001, the
parties entered into a non-binding letter of intent for the sale of the
partnership to Apple Hospitality for $14.2 million, consisting of $14.0 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. Including approximately $15 million of anticipated cash
distributions to the limited partners, this offer would have resulted in an
aggregate payment to the partners of approximately $29 million, or approximately
$419 per limited partnership 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 September 21, 2001, Madison Liquidity Investors 117, 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
7,000 units of limited partnership interest at a price equal to $275 per unit in
cash, reduced by any cash distributions made or declared by the partnership on
or after September 21, 2001. The Offer to Purchase, dated September 21, 2001,
indicated that the bidders would pay interest at the rate of 7% per annum on the
$275 tender offer consideration from the expiration date of the tender offer to
the date of payment of the tender offer consideration.
On October 9, 2001, the partnership filed with the SEC a
Solicitation/Recommendation 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. The general partner stated that as of the date of the statement, the
partnership had begun exclusive discussions with one potential acquirer.
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,
17
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 and
expressed concern over the decline in the inns' performance. 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 $9.0
million from $14.0 million to $5.0 million, which resulted in a decrease in the
limited partner consideration (including the anticipated cash distributions to
the partners) from approximately $419 per unit to approximately $290 per unit.
Representatives of the general partner discussed the revised proposal with
Merrill Lynch and Merrill Lynch contacted the other final round bidder to
determine its level of interest in proceeding with a transaction. This other
party indicated that it was no longer interested in pursuing a transaction with
the partnership. Merrill Lynch and the general partner had several phone
conversations with representatives from Apple Hospitality between the week of
September 24, 2001 and mid-October 2001 in an effort to negotiate the terms of a
mutually acceptable transaction. In mid-October 2001, Merrill Lynch and the
general partner contacted Apple Hospitality and indicated that the partnership
was not willing to proceed with a transaction at the level indicated in Apple
Hospitality's revised proposal. The parties agreed to continue to monitor the
performance of the partnership's inns but to suspend active negotiations to
allow the parties to determine the effect of the terrorist attacks of September
11, 2001 on the business and operations of the partnership, as well as the
current economic conditions generally.
On October 22, 2001, the partnership filed with the SEC Amendment No. 1 to
the Solicitation/Recommendation Statement on Schedule 14D-9 filed with the SEC
on October 9, 2001, in which the general partner noted that at that time the
exclusive discussions with a potential acquirer had been suspended to allow the
parties to determine the effect on the business and operations of the
partnership of the terrorist attacks of September 11, 2001, as well as the then
current economic conditions generally.
On October 26, 2001, Madison Liquidity Investors filed with the SEC an
amendment to its Tender Offer Statement on Schedule TO extending the expiration
date of its tender offer for 7,000 units at $275 per unit to November 20, 2001.
On November 16, 2001, Madison Liquidity Investors filed with the SEC an
amendment to its Tender Offer Statement on Schedule TO reporting a previous
tender offer by Sutter for the partnership's units. Madison Liquidity Investors
reported that Sutter agreed that it would tender to Madison any partnership
units it acquired prior to the termination of Madison Liquidity Investors'
tender offer.
After the expiration of its tender offer on November 20, 2001, Madison
Liquidity Investors issued a press release on December 3, 2001 indicating that
it had accepted for purchase all of the approximately 5,399.75 units that had
been tendered in the offer.
By February 2002, the inns were showing a consistent trend of improvement.
Merrill Lynch approached Apple Hospitality regarding reopening active
discussions on the sale of the partnership. Over the next two months, Merrill
Lynch prepared several analyses on the partnership which were given to Apple
Hospitality.
On February 19, 2002, Madison Liquidity Investors filed with the SEC a
second Tender Offer Statement on Schedule TO offering to purchase up to 8,341
units for $300 per unit in cash, reduced by any cash distributions made or
declared on or after February 15, 2002. As it did in its initial tender offer,
18
Madison Liquidity Investors 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 Solicitation/Recommendation Statement
on Schedule 14D-9 on March 6, 2002 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 also noted that the partnership
had begun exclusive discussions with one potential acquirer, however shortly
after the events of September 11, 2001, these discussions were suspended to
allow the parties to determine the effect on the business and operations of the
partnership of the terrorist attacks of September 11, 2001, as well as the
current economic conditions generally. The general partner also noted that since
it did not believe cash from operations and the partnership's remaining cash
reserves would be sufficient to fund the partnership's required debt service
payments and all of the proposed capital improvements to the partnership's inns,
it appeared unlikely that cash distributions to the limited partners will be
possible for the next several years. Additionally, the general partner noted
that based on the partnership's then current results of operations, its
debt-service obligations, its capital expenditure requirements for the next
several years and the purchase price range discussed with the potential acquirer
prior to September 11, 2001, the general partner did not believe that, at that
time, the aggregate consideration, including any potential cash distribution
made in connection with any such transaction, that a limited partner would
receive in any acquisition transaction would significantly exceed the tender
offer price of $300 per unit.
On March 19, 2002, Madison Liquidity Investors filed with the SEC an
amendment to its Tender Offer Statement on Schedule TO dated February 15, 2002,
amending its offer to acquire 8,341 units by reducing the price at which Madison
Liquidity Investors was willing to purchase units from $300 per unit to the
amended tender offer purchase price of $200 per unit, reduced by any cash
distributions made or declared on or after February 15, 2002, with interest at
the rate of 7% per annum from the expiration date of the tender offer to the
date of payment.
During the week of April 8, 2002, based upon Apple Hospitality's review of
the recent performance of the partnership's inns and the then-current outlook
for the partnership, representatives of the partnership and Apple Hospitality
recommenced active negotiations.
On April 11, 2002, the partnership filed with the SEC an amendment to its
Statement on Schedule 14D-9 stating that the general partner would not express
an opinion or make a recommendation on the tender offer, as amended. In the
Statement on Schedule 14D-9, the general partner noted the previous report to
limited partners that following the terrorist attacks on September 11, 2001, the
exclusive discussions being held with one potential acquirer of the partnership
were suspended to allow the parties to determine the effect of the terrorist
attacks, as well as economic conditions generally, on the business and
operations of the partnership. However, based on the potential acquirer's review
of the recent performance of the partnership's inns and the current outlook for
the partnership, the general partner and the potential acquirer had recommenced
negotiations. The general partner stated that although the discussions were in
the preliminary stage, based upon the proposed per unit purchase price range
then being discussed with the potential acquirer, the general partner believed
that the aggregate consideration that a limited partner would receive on a per
unit basis in any such transaction was likely to exceed significantly the
amended tender offer purchase price of $200 per unit.
On April 12, 2002, the general partner and Apple Hospitality reached an
oral agreement for Apple Hospitality to acquire the partnership for $29.25
million, consisting of $29.05 million for the units
19
and $200,000 for the general partner interest, subject to negotiation of the
definitive terms of an agreement. This purchase price equaled $415 per limited
partner unit, and did not anticipate any additional cash distribution to the
limited partners upon closing. As part of the transaction, Apple Hospitality
would assume the partnership's obligation to fund the $9.7 million capital
expenditure plan for the 2002 fiscal year, and Apple Hospitality would receive
$24.45 million dollars of partnership cash (which amount includes the $9.7
million allocated for capital expenditures for fiscal 2002) less any amounts
spent on 2002 capital expenditures prior to the merger. Over the following two
weeks, 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.
On April 29, 2002, 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 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 $415 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 considered the terms of the merger agreement.
After 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 April 30, 2002, the partnership and Apple Hospitality finalized and
executed the merger agreement. Also on April 30, 2002, 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:
. 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;
. 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 three interested purchasers
is a reliable indicator of fair market value;
20
. the presentation by Merrill Lynch and the written opinion of Merrill
Lynch concerning the fairness, from a financial point of view, of the
$415 per unit to be received by the limited partners pursuant to the
merger;
. 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 $250,000 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);
. the terms and conditions of the merger agreement, including the fact
that the terms were determined through arm's length negotiations;
. the terms and conditions of the merger agreement allow the limited
partners to obtain full value for the partnership cash, and Apple
Hospitality would assume the partnership's obligation to fund the
current year's required capital expenditures of $9.7 million;
. 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;
. 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
. the fact that although there is no established trading market for the
units and except for one recent trade, 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:
. 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
. 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
21
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.
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 April 29, 2002, Merrill Lynch delivered its oral opinion to the board of
managers of the general partner, subsequently confirmed in writing, that, as of
that date and based upon the assumptions made, matters considered and
limitations on Merrill Lynch's review, the proposed $415 per unit to be received
pursuant to the merger by the holders of units of limited partnership interest
who are limited partners immediately prior to the effective time of the merger,
exclusive of any distributions of available unrestricted partnership cash or
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. 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, 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 $415 per unit to be received pursuant to the merger by the holders of
units of limited partnership interest who are limited partners immediately
22
prior to the effective time of the merger, exclusive of any distributions of
available unrestricted partnership cash or 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 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:
. reviewed certain publicly available business and financial information
relating to the partnership that it deemed to be relevant;
. reviewed certain information, including financial forecasts, relating
to the business, earnings, cash flow, assets, liabilities, capital
requirements and prospects of the partnership furnished to it by the
general partner;
. conducted discussions with members of senior management of the general
partner concerning the matters described above;
. 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;
. reviewed the results of the partnership's operations and compared them
with those of certain publicly traded companies that it deemed to be
relevant;
. participated in discussions and negotiations among representatives of
the general partner and Apple Hospitality and their legal advisors;
. reviewed the draft version of the merger agreement, dated as of April
28, 2002;
. conducted a "market test" regarding the sale of the partnership to
other potential acquirers, including public and private hotel
companies, real estate opportunity funds and other financial buyers;
and
. 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
23
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 assumed the effectiveness of the
proposed amendments to the management agreement pursuant to which the
partnership's inns are managed, and as described in this consent solicitation
statement. Merrill Lynch also has assumed that the final form of the merger
agreement will be substantially similar to the last draft reviewed by Merrill
Lynch.
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 the 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 analyses utilized by Merrill Lynch in
connection with providing its opinion.
Valuation of the Company
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 two 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 significantly reducing its offering price. Merrill Lynch
subsequently re-contacted the other final round bidder, who expressed no
interest in pursuing a transaction at that time. In mid-October 2001, Merrill
Lynch and the general partner contacted Apple Hospitality and indicated that the
partnership was not willing to proceed with a transaction at the level indicated
by Apple Hospitality's revised proposal. The parties agreed to continue to
monitor the performance of the partnership's inns but to suspend active
negotiations to allow the parties to determine the effect of the terrorist
attacks of September 11, 2001 on the business and operations of the partnership
as well as the current economic conditions generally. In February 2002, the
parties reopened negotiations on the partnership, and in April 2002, the general
partner and Apple Hospitality agreed on a new price of $415 per unit.
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 March 23, 2002, which represents the most recent
data available, as the units only transfer through the general partner at the
beginning of each quarter. Apple Hospitality's offer represents a discount of 2%
to the high of the units' secondary market transfer prices during this period
and a premium of 822% 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 65.
24
Third-Party Tender Offer Prices. Merrill Lynch reviewed the price offered
for the units of limited partnership interest pursuant to third-party tender
offers made during the period from January 2, 2001 through April 25, 2002 based
upon information provided by the general partner. Apple Hospitality's offer
represents a premium of 51% to the offered high during this period and a premium
of 177% to the offered low during this period. The most recent of these tender
offers, made at a price of $200 per unit, expired on April 16, 2002.
Going-in Cap Rate Analysis. Merrill Lynch performed a "going-in cap rate"
analysis (i.e., an analysis of the capitalized value of actual 2001 net
operating income) based upon information provided by the general partner.
Assuming no current deduction for incentive management fees, commonly referred
to as "IMF," in accordance with the actual payment 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 7.0% 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 actual 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 $32.2 million in
combined partnership and restricted 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 $0 to $244 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
25
number of the partnership's outstanding units of limited partnership interest to
determine a reference range for an implied value of $141 to $307 per unit.
The summary set forth above does not purport to be a complete description
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 summary set
forth above, without considering the analyses 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.
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 summary does not purport to be a complete description of the analyses
performed by Merrill Lynch and is qualified by reference to the written opinion
dated as of April 29, 2002 of Merrill Lynch which is attached to this consent
solicitation statement as Appendix B.
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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 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.
Merrill Lynch currently provides, and has in the past provided, financial
advisory and financing services to the partnership, Host Marriott, L.P. and Host
Marriott Corporation and entities that may be
26
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, acted as financial advisor to Marriott Residence Inn Limited
Partnership in connection with its merger with Apple Hospitality, 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 and 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. 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 approximately $7.5
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 $29.25
million. Apple Hospitality has deposited into escrow $3 million of the purchase
price, $1 million of which is being held as an earnest money deposit. 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.
27
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 $1,879 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," if the unrestricted partnership cash remaining in
the partnership is at least $5.00 per unit, the partnership intends to declare a
distribution to the limited partners, payable upon the closing of the merger, of
such partnership cash. Any such distribution received by a limited partner, as
well as the distribution of the interests in the liquidating trust (as described
below in "--Material Federal Income Tax Consequences of the Receipt of Interests
in the Liquidating Trust"), 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.
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 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.
29
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 $2,383. This amount includes approximately
$1,879 attributable to his share of the partnership's nonrecourse liabilities
and approximately $112 attributable to his share of syndication costs, but does
not take into account the reductions in basis the limited partner will incur as
a result of the issuance of beneficial interests in the liquidating trust prior
to the merger or may incur 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, Section 751 of the Code provides that 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 under Section 1245 of the Code)
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 of the Code 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 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.
30
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.
31
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 statutory
business 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 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:
. 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;
32
. 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;
. 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;
. 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;
. 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;
. 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;
. 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
. 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 more 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 though 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.
33
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 $4.28. 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 $4.28 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 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.
34
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 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.
35
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 distribution of beneficial
interests in the liquidating trust that is described in this consent
solicitation statement.
Proposed Additional Capital Improvements. Regardless of whether the merger
is completed, the manager of the partnership's inns (which includes the inn of
its subsidiary) has proposed additional improvements that are intended to
enhance the overall value and competitiveness of the partnership's inns. In this
regard, the manager has proposed additional improvements to the inns totaling
approximately $59 million over the next five years. These improvements include
total suite refurbishments at a majority of the inns as part of the
partnership's ongoing routine capital replacement.
The general partner has reviewed the manager's proposed inn renovations and
improvements with respect to fiscal year 2002 and has agreed to undertake
certain of these capital improvements. The improvements that the general partner
has agreed to undertake involve inns that were built between 1983 and 1989 and
that have not been renovated in four to nine years. The general partner does not
believe that cash flows from the operations of the inns will be sufficient to
fund these improvements. As a result, the general partner expects to fund these
improvements with approximately $9.7 million (approximately $138 per unit) of
the partnership's existing cash reserves. Actual funding of these improvements
is not expected to occur until the end of this fiscal year.
The manager of the inns also has proposed additional improvements to the
inns that are intended to be implemented in fiscal years subsequent to 2002. The
general partner will review and assess these additional proposed improvements
annually at the end of each fiscal year.
If the merger does not occur, the general partner does not believe that
cash from inn operations and the partnership's remaining cash reserves will be
sufficient to fund the partnership's required debt service payments and all of
the proposed additional capital expenditures requested by the manger of the
inns. As a result, at the present time, it appears unlikely that cash
distributions will be possible for the next several years.
Changes to Management Agreements. Host Marriott Corporation, the indirect
owner of the general partner, currently is in the process of negotiating changes
to its management and other agreements with Marriott International and its
affiliates. As part of those negotiations, the general partner initiated
discussions with Residence Inn by Marriott, Inc., the manager of the inns,
concerning changes to the
36
partnership's and its subsidiary's management agreements. These discussions took
into account each partner's release of the manager in conjunction with the
settlement of litigation in Texas in 2000, the specific aspects of the
partnership's and its subsidiary's management agreements and the fact that the
inns are limited service hotels rather than full service hotels.
The general partner and the manager propose to revise the management
agreements as follows:
. FF&E Reserve -- The partnership or its subsidiary, as applicable,
would be given the right to approve the annual budget for furniture,
fixtures and equipment expenditures under the management agreements
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.
. Adjustments to First Priority Return -- The First Priority Return
payable to the partnership or its subsidiary under the management
agreements would be increased by $75,000. In addition, Additional Inn
Investments (as that term is defined in the management agreements)
made after the date of the amendment would be included in the
calculation of the partnership's or its subsidiary's First Priority
Return rather than in the calculation of the partnership's or its
subsidiary's Second Priority Return (as those terms are defined in the
management agreements).
. Design Specifications -- With regard to capital-expenditure programs
proposed by the manager, the partnership or its subsidiary, as
applicable, 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, or its subsidiary, as
applicable, and the manager would mutually agree on any custom design
packages not contemplated by then-current brand design standards and
prototype design packages.
. Chain Services and Marketing Fund -- Commencing in fiscal year 2002,
required contributions by the partnership and its subsidiary 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.
. Renewal -- The manager would be required, if it wishes to renew the
partnership's 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.
. Performance Termination -- Commencing in 2004, the partnership's or
its subsidiary's ability to terminate the management agreements 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.
37
. Accounting -- The manager would be required to provide the partnership
and its subsidiary 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 its subsidiary and
consider in good faith the suggestions of such representatives
regarding the partnership's and its subsidiary's annual operating
projections.
The general partner believes that the value of the proposed revised
management agreements is reflected in the purchase price to be paid by Apple
Hospitality. In addition, Apple Hospitality has entered into discussions with
the manager regarding certain changes to the management agreements. If the
merger closes, it is anticipated that the changes to the management agreements
negotiated between the general partner and the manager would be entered into at
the same time as the changes agreed to by Apple Hospitality 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 agreements
discussed above. 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 anticipated
benefits of the proposed changes. However, because the negotiations are ongoing
and no definitive agreement has been reached, there can be no assurance that
such changes will be made or that such changes will be made in substantially the
form described above. The partnership, or its subsidiary, as applicable, 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 agreements agreed to by the general partner and the manager.
38
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:
. AHT Res II 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 II Acquisition will
become the sole partners of the partnership;
. 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
. 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:
. the issued and outstanding units of limited partnership interest will
be converted into the right to receive cash in an amount equal to $415
per unit; and
. 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 distribute 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 approximately 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."
In addition, although we believe that any unrestricted partnership cash
remaining in the partnership immediately prior to the consummation of the merger
will be minimal, if the amount of unrestricted partnership cash remaining would
equal $5.00 or more per unit, we will make a distribution of that amount to you
immediately prior to the closing of the merger. If the amount of unrestricted
partnership cash per unit is less than $5.00, the partnership cash will be
contributed to the assets of the liquidating trust.
Escrow Deposit
Pursuant to the terms of the merger agreement, on May 3, 2002, Apple
Hospitality and the partnership entered into a deposit escrow agreement with
Wachovia Bank, N.A. 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 $3 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 $3 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 $3 million deposit and any
interest earned thereon which was delivered to the paying agent.
In the event that the merger agreement is terminated other than for a
breach of any representation, warranty, covenant, obligation or agreement on the
part of Apple Hospitality or AHT Res II Acquisition contained in the merger
agreement, Apple Hospitality will be entitled to the immediate return of the $3
million deposit and any interest earned thereon. However, $1 million of the
deposit will become the property of and be delivered to the partnership and the
remaining $2 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 II Acquisition contained in the merger
agreement.
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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. Because units are held by the partnership in book entry form, limited
partners do not have to return any certificates that they may have with the
letter of transmittal. 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:
. a letter of transmittal is properly completed; and
. the person requesting such payment of cash merger consideration
pays any transfer or other taxes required by reason of the 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 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.
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Establishment of the Liquidating Trust
Prior to consummation of the merger, the partnership will establish the
liquidating trust which will be a statutory business 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:
. paying or reimbursing the surviving partnership for certain
expenses, including outstanding costs related to the merger that
are attributable to the period prior to the closing of the merger;
. 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;
. pursuing the contingent assets;
. satisfying the partnership's obligations to the general partner
under the partnership agreement; and
. 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 distribute 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 distribution, 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
$300,000 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 approximately 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:
. the "final net profit payment," which is the aggregate amount of
operating profit, less any applicable debt service deducted under the
terms of the outstanding loan agreement, delivered or paid by the
manager or the servicer, as applicable, to the surviving partnership
with respect to the last full accounting period (and any portion of
the subsequent accounting period) occurring prior to the closing of
the merger;
. 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;
. the "other manager payments," which are any other payments received by
the surviving partnership or any of its subsidiaries from the manager
or servicer, as applicable, that represent refunds or returns of money
to the partnership or any of its subsidiaries as a result of
overpayment by the partnership or any of its subsidiaries or
underpayment by the manager of such amount during the period prior to
the closing of the merger;
. the "prorated tax adjustment," which is any positive difference
between the prorated taxes paid or accrued by the partnership at or
prior to the closing of the merger for 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;
. 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; and
. if unrestricted partnership cash remaining in the partnership
immediately prior to the consummation of the merger is less than $5.00
per unit, the partnership cash will be contributed to the assets of
the liquidating trust.
Promptly after the surviving partnership receives the final net profit
payment, the refunded litigation reserves or the other manager payments from the
manager or servicer, as applicable, the surviving partnership will deliver or
pay such amounts to the liquidating trust.
Promptly after the surviving partnership's tax liability for 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.
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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.
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 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.
Other Obligations of the Liquidating Trust
If the surviving partnership or any of its subsidiaries is required to
make any payments to the manager as a result of an underpayment by the
partnership or any of its subsidiaries to the manager or an overpayment by the
manager to the partnership or any of its subsidiaries 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.
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In addition, the liquidating trust is obligated to pay and satisfy those
obligations to be paid and satisfied by the partnership for the benefit of the
limited partners, as determined by the general partner, which arise prior to or
in connection with the merger but which by their nature cannot be performed
until the merger is completed, including, without limitation, preparing and
distributing to the limited partners Schedule K-1 for the period(s) prior to the
merger pursuant to the requirements of the Code.
Distributions by the Liquidating Trust
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
approximately 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 II Acquisition relating to, among other things:
. due organization, good standing and qualification to conduct business;
. authorization, execution, delivery, performance and enforceability of
the merger agreement and related matters;
. 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
. 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:
. subsidiaries;
. capital structure;
. outstanding and pending litigation;
. compliance with SEC reporting requirements, accuracy of information
contained in the documents filed with the SEC and absence of
undisclosed liabilities;
. absence of events that would constitute a material adverse change
since December 31, 2001, except as specified in the merger agreement;
. indebtedness;
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. absence of defaults under certain contracts;
. tax matters;
. employee matters;
. compliance with applicable laws;
. environmental matters;
. payment of fees of brokers, finders and investment bankers;
. disclosure of potential conflicts of interest;
. receipt of fairness opinion from its financial advisor;
. required vote of the holders of a majority of units of limited
partnership interest to approve the merger; and
. real property owned by the partnership or its subsidiaries.
The merger agreement also contains additional representations and
warranties made by Apple Hospitality and AHT Res II Acquisition, jointly and
severally, relating to, among other things:
. financial statements;
. outstanding and pending litigation;
. absence of events that would constitute a material adverse change
since December 31, 2001; and
. 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 II 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 until the effective time of
the merger, it will, and will cause each of its subsidiaries to, among other
things:
. carry on its business as conducted at the time of the merger
agreement and only in the usual and ordinary course;
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. make no amendments to the material contracts of the partnership or
its subsidiaries or any charter or similar organizational document
adopted by any subsidiary;
. use its commercially reasonable efforts to preserve its business
organization intact and cause the manager of the partnership's
inns and its subsidiary's inn to continue to (1) operate the
partnership's and its subsidiary's inns in a good and businesslike
fashion consistent with past practices and in accordance with the
terms of the partnership's and its subsidiary's management
agreement, (2) maintain the partnership's and its subsidiary'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 and its subsidiary's management agreement and (3)
maintain the level of insurance with respect to the partnership's
and its subsidiary's inns that is required under the partnership's
and its subsidiary's management agreement;
. 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;
. 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;
. 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;
. not enter into, modify, amend or terminate any material agreement
with respect to any of the partnership's inns and its subsidiary's
inn, 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 and its
subsidiary's inn from and after the effective time of the merger;
. not make any distributions to the partners except for distributions
of unrestricted partnership cash made after receipt of the 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 an
amount equal to (1) $24,450,000 less (2) the sum of (A) any amount
spent in accordance with the 2002 capital expenditure plan, (B) any
capital expenditures required by reason of any law, ordinance,
regulation or order of competent governmental authority or are
otherwise required by the manager for the continued safe or orderly
operation of the partnership's or its subsidiary's inns and (C) any
other owner funded capital expenditures made prior to the closing
date of the merger with the prior approval of Apple Hospitality;
. not make or change any material tax election or settle or
compromise any material tax liability or refund;
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. 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;
. 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;
. 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;
. 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, 1999
through the effective time of the merger or incurred since the
date of such financial statements in the ordinary course of
business; and
. 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 or its subsidiary's inn under the partnership's or its
subsidiary's management agreement to enter into, terminate, amend or otherwise
modify any contracts or agreements related to the partnership's inns or its
subsidiary's inn or to take any other actions related to the partnership's inns
or its subsidiary's inn permitted by the applicable management agreement.
Similarly, the foregoing covenants will not restrict the partnership or its
subsidiary from entering into, terminating, amending or otherwise modifying any
such contracts or agreements where required by the manager as permitted under
the applicable management agreement. The partnership or its subsidiary, however,
is not permitted to consent to, approve of or execute the same to the extent
that the partnership or its subsidiary has the right under the applicable
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:
. preparing and filing the consent solicitation statement with the
SEC;
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. using commercially reasonable efforts to respond as promptly as
practicable to any comments from the SEC with respect to the consent
solicitation statement;
. 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;
. using commercially reasonable efforts to include Apple Hospitality
in any discussions with the manager with respect to the renovation
approval process, and to the extent approval of the partnership is
required to undertake such renovation projects, the partnership
will obtain the concurrence of Apple Hospitality;
. using commercially reasonable efforts to assist Apple Hospitality
in obtaining a comfort letter from the Environmental Protection
Agency relating to Bossier City Residence Inn;
. providing reasonable access to the partnership's properties, books,
agreements, commitments, personnel and records;
. using commercially reasonable efforts to cooperate with Apple
Hospitality during the 30 day period following the closing of the
merger with respect to certain Apple Hospitality filings at the
SEC and providing the surviving partnership with a representation
letter to enable an independent public accountant to render an
opinion on the financial statements of the partnership and its
subsidiary;
. 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);
. preparing and filing all tax returns of the partnership for or with
respect to all taxable periods, or portions thereof,ending on or
prior to the effective date of the merger;
. 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 and its subsidiary's inns that:
- no net sales proceeds (as defined in the partnership's or its
subsidiary's management agreement) will result from the merger
and related transactions;
- no contingent management fees (IMF) (as defined in the
partnership's or its subsidiary's 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 partnership's or its subsidiary's management agreement)
will not decrease as a result of the merger and
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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
partnership's or its subsidiary's management agreement, as
applicable) 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
. forwarding to Apple Hospitality, promptly following their preparation
or receipt, as applicable, all 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 and its
subsidiary's inn relating to the partnership's inns and its
subsidiary's inn, (3) the inn-level income statements prepared by the
manager with respect to the partnership's inns and its subsidiary's
inn and (4) any other financial or capital expenditure reports
prepared by the manager and delivered to the partnership or its
subsidiary.
The general partner also has agreed to additional covenants relating to,
among other things:
. 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
. (1) using commercially reasonable efforts to obtain, as soon as
practicable following the date of the merger agreement, all consents
of the partnership's lender, 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:
. providing the partnership in writing with all information relating to
Apple Hospitality and AHT Res II Acquisition that is required to be
included in the consent solicitation statement with respect to the
Securities Exchange Act of 1934;
. paying all taxes of the partnership for or with respect to the period
commencing on the date following the effective date of the merger;
. 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);
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. using commercially reasonable efforts to obtain all consents of
the partnership's lender required to be obtained in connection
with the transactions contemplated by the merger agreement; and
. 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 and its
subsidiary's inns to the lease of the inns by the surviving
partnership to one or two of its affiliates and the assignment
of the management agreement to such affiliates;
- the consent of the manager of the partnership's and its
subsidiary's inns to the changes to the partnership's and its
subsidiary's management agreements, pursuant to amended and
restated management agreements between manager and the
affiliates of the surviving partnership, which changes are
identical to the changes made to the Management Agreement,
dated March 29, 1988, between Marriott Residence Inn Limited
Partnership and Residence Inn by Marriott, Inc. (except for
the changes with respect to the parties to the agreement and
transaction specific information) as reflected in the
Amendment and Restatement of Management Agreement by and
between Residence Inn by Marriott, Inc., as Manager, and AHM
Res I Limited Partnership, dated as of March 29, 2002; and
- the waiver by the manager of the partnership's and its
subsidiary's inns of any rights it may have under section
18.01 of the management agreements with respect to the
transactions contemplated by the merger agreement or which are
necessary to implement AHT Res II Acquisition's proposed real
estate investment trust structure.
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:
. 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;
. cooperating with each party regarding all filings with the SEC;
. 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;
. 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;
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. 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;
. providing prompt written notification to the other parties of any
applicable update to the schedules to the merger agreement;
. consulting with each other prior to issuing public announcements which
address in any manner the transactions contemplated by the merger
agreement;
. coordinating in the preparation, execution and filing of documents
related to transfer and gains taxes; and
. 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 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 following notice to the general partner, 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.
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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 or its subsidiary's inn 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 its subsidiary's inn 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:
. invite, initiate, solicit or encourage, directly or indirectly, any
"acquisition proposal" (as defined below); or
. engage in any discussions or negotiations concerning an acquisition
proposal 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.
The partnership and the general partner have agreed that they will:
. immediately cease and cause to be terminated any existing activities,
discussions or negotiations with any parties concerning any
acquisition proposal;
. 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 acquisition proposal; and
. notify Apple Hospitality immediately if the partnership or the
general partner receives an acquisition proposal, or any request for
information, or to initiate or continue any negotiations or
discussions related to any acquisition proposal.
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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 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:
. the general partner determines in good faith, after consultation with
its independent financial advisors, that such acquisition proposal is
likely to result in a "superior acquisition proposal" (as defined
below);
. 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;
. the partnership and the general partner comply with all of their
obligations under the merger agreement;
. 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;
. the partnership or the general partner provides Apple Hospitality with
a copy of such acquisition proposal and any subsequent written
amendments thereto; and
. 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 acquisition proposal, than those
contained in the confidentiality agreement entered into with Apple
Hospitality.
If an 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:
. 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;
. 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 Apple Hospitality's counter proposal is not as
favorable to the partners as the superior acquisition proposal from a
financial point of view; and
. 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."
54
Under the merger agreement:
. the term "acquisition proposal" means any inquiry, proposal,
discussion, negotiation 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;
. the term "superior acquisition proposal" means a bona fide written
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 general partner
and limited 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.
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 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:
. the limited partner approvals of the merger have been obtained;
. 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;
. all consents, authorizations, orders and approvals of any governmental
entity required in connection with the completion of the merger have
been obtained;
55
. all required third-party consents to the merger and the other
transactions contemplated in the merger agreement have been
received, including, without limitation, certain consents of the
manager of the partnership's and its subsidiary's inns, the
consent of the partnership's lender (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
. 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:
. the representations and warranties of Apple Hospitality and AHT
Res II 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
. each of Apple Hospitality and AHT Res II 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.
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 II Acquisition.
The obligations of Apple Hospitality and AHT Res II 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:
. 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
56
below) and Apple Hospitality and AHT Res II Acquisition
receive a certificate to that effect from the general partner
signed on behalf of the partnership;
. 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;
. 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 or changes in the economy
generally;
. 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 an amount equal
to (1) $24,450,000 less (2) the sum of (A) any amount spent in
accordance with the 2002 capital expenditure plan, (B) any capital
expenditures required by reason of any law, ordinance, regulation
or order of competent governmental authority or are otherwise
required by the manager for the continued safe and orderly
operation of the partnership's or its subsidiary's inns and (C)
any other owner funded capital expenditures made prior to the
closing date of the merger with the prior written approval of
Apple Hospitality;
. 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;
. 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
. 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, Bossier RIBM Two LLC, or their respective properties,
except where the failure to correct such title deficiencies (other
than tax and judgment liens) would not reasonably be expected to
have 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.
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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:
. by mutual written consent of the parties to the merger agreement;
. 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 September 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 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
. 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
58
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 of the partnership's and its
subsidiary's inns to the lease of the inns by the
surviving partnership to one or two of its affiliates and
the assignment of the management agreement to such
affiliates;
. the consent of the manager of the partnership's and its
subsidiary's inns to the changes to the partnership's and
its subsidiary's management agreements, pursuant to
amended and restated management agreements between manager
and the affiliates of the surviving partnership, which
changes are identical to the changes made to the
Management Agreement, dated March 29, 1988, between
Marriott Residence Inn Limited Partnership and Residence
Inn by Marriott, Inc. (except for the changes with respect
to the parties to the agreement and transaction specific
information) as reflected in the Amendment and Restatement
of Management Agreement by and between Residence Inn by
Marriott, Inc., as Manager, and AHM Res I Limited
Partnership, dated as of March 29, 2002; and
. the waiver by the manager of the partnership's and its
subsidiary's inns of any rights it may have under section
18.01 of the management agreements with respect to the
transactions contemplated by the merger agreement or which
are necessary to implement AHT Res II 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 $3 million into
escrow with the deposit escrow agent in accordance with the
terms and conditions of the deposit escrow agreement; or
. 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 resolved to do any of
the foregoing;
- the weekly occupancy rate of the partnership's inns, as
reported by the manager, is less than 55% for four
consecutive weeks at any time prior to the closing of the
merger;
- 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
partnership's management agreement; provided, however, Apple
Hospitality, in its sole
59
discretion, may extend the period of time during which the
partnership consents may be obtained for up to 30 days;
- 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; or
- the merger is not completed by August 28, 2002 (or any later
date to which Apple Hospitality may have extended the closing
deadline); however, Apple Hospitality may not terminate the
merger agreement for the foregoing reason if the partnership
is not the cause of the failure to close the merger by August
28, 2002.
Termination Fee
The partnership will pay to Apple Hospitality a termination fee of
$250,000 if the merger agreement is terminated:
. 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.
. 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 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 $250,000 concurrently with the completion
of an acquisition proposal. This fee applies if the merger agreement is
terminated by Apple Hospitality or AHT Res II Acquisition:
. 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
60
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 II 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 cured, has not been
cured within 30 days following written notice to Apple Hospitality
from the partnership or general partner of such breach;
. prior to such termination an acquisition proposal has been
publicly announced, disclosed or communicated;
. on the date of such termination, neither Apple Hospitality nor AHT
Res II Acquisition is in material breach of the merger agreement;
and
. within nine months after such termination, the partnership
completes or enters 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.
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:
. 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 or its subsidiary's management agreement and (3) the
solicitation of any third-party consents (other than consent of
the partnership's lender 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
. Apple Hospitality will pay all fees and expenses associated with:
- the solicitation of any consents of the partnership's lender
required to be obtained in connection with the transactions
contemplated by the merger agreement;
- the solicitation of:
. the consent of the manager of the partnership's and its
subsidiary's inns to the lease of the inns by the
surviving partnership to one or two of its affiliates and
the assignment of the management agreement to such
affiliates;
. the consent of the manager of the partnership's and its
subsidiary's inns to the changes to the partnership's and
its subsidiary's management agreements, pursuant to
amended and restated management agreements between manager
and the affiliates of the surviving partnership, which
changes are identical to the changes made to the
Management Agreement, dated March 29, 1988, between
Marriott Residence Inn
61
Limited Partnership and Residence Inn by Marriott, Inc.
(except for the changes with respect to the parties to the
agreement and transaction specific information) as
reflected in the Amendment and Restatement of Management
Agreement by and between Residence Inn by Marriott, Inc.,
as Manager, and AHM Res I Limited Partnership, dated as of
March 29, 2002; and
. the waiver by the manager of the partnership's and its
subsidiary's inns of any rights it may have under section
18.01 of the management agreements with respect to the
transactions contemplated by the merger agreement or which
are necessary to implement AHT Res II Acquisition's
proposed real estate investment trust structure;
- Apple Hospitality's due diligence investigation of the
partnership; and
- 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 $230,000 of its reasonable third-party due
diligence expenses, including legal fees, incurred in connection with Apple
Hospitality's due diligence review of the partnership, the partnership's and its
subsidiary's inns.
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.
Waiver and Amendment of the Merger Agreement
At any time prior to the effective time of the merger, any party may:
. extend the time for the performance of any of the obligations or
other acts of the other parties;
. waive any inaccuracies in the representations and warranties
contained in the merger agreement or in any document delivered
pursuant to the merger agreement; or
. 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.
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Deposit Escrow Agreement
The merger agreement required Apple Hospitality to deposit into escrow
$3 million in cash. In connection with this requirement, the partnership, Apple
Hospitality and Wachovia Bank, N.A., as deposit escrow agent, entered into a
deposit escrow agreement as of May 3, 2002. Simultaneously with the execution
and delivery of the deposit escrow agreement, Apple Hospitality deposited $3
million in cash into an escrow account established with Wachovia Bank, with $1
million of such amount and any interest earned thereon to be held as an earnest
money deposit and $2 million of such amount and any interest earned thereon to
be held as a financial deposit.
Pursuant to the deposit escrow agreement, the deposit escrow agent has
agreed to perform the following functions:
. 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
. 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 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
63
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 $250 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.
64
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 July 3, 2002.
Number of Units of Percent of Total
Limited Partnership Units of Limited
Name and Address of Beneficial Owner Interest Partnership Interest
- -------------------------------------------------------------- --------------------- --------------------
Madison Investment group/(1)/ 7,321.75/(1)/ 10.47%
Prescott Associates LLC/(2)/ 4,560.00 6.51%
- -----------------
(1) Based upon information provided by the Madison Investment group in
Amendment No. 2 (Final) to Schedule TO filed with the SEC on April 25,
2002, a Schedule 13G and Amendment No. 1 to Schedule 13G filed with the
SEC on February 15, 2002 and June 28, 2002, respectively, the Madison
Investment group includes Madison Avenue Investment Partners, LLC, a
Delaware limited liability company ("MAIP"); 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; Bryan E. Gordon; Madison Liquidity Investors 117, LLC, a
Delaware limited liability company ("MLI 117"); MRI Partners, LLC
("MRI"); Madison Capital Management, LLC ("Madison"); Haberhill LLC
("Haberhill") and Douglas H.S. Greene. MLI 117 is owned by MRI, a joint
venture between MAIP and Haberhill. Mr. Gordon and Mr. Dickerman are
the Managing Directors of Madison. Mr. Greene is the Managing Director
of Haberhill.
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 business address of each of these persons
except First Equity, Mr. Dickerman, Haberhill and Mr. Greene is P.O.
Box 7533, Incline Village, Nevada 89452. The business address of First
Equity and Mr. Dickerman is 410 Park Avenue, Suite 540, New York,
New York 10022. The business address of Haberhill and Mr. Greene is
11790 Glen Road, Potomac, Maryland 20854.
Based upon information provided by Madison Investment Group in
Amendment No. 1 to Schedule 13G filed with the SEC on June 28, 2002,
MAIP, Madison, Mr. Gordon and Mr. Dickerman beneficially own 20 units
of limited partnership interests in addition to those listed in the
table above.
(2) The business address of Prescott Associates LLC is 301 S. Center
Street, Suite 120, Arlington, TX 76010.
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
July 3, 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.
65
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 July 3, 2002, there were 3,230 holders
(including holders of fractional units) of record of the 70,000 units.
During 2000, 325 units were transferred at prices ranging from $362 to
$540 per unit, with an average price of $485 per unit. On January 1, 2000, 225
units were transferred at prices ranging from $445 to $530 per unit, with an
average price of $498 per unit. These transfers reflect units that were traded
in the fourth quarter of 1999. On March 25, 2000, 100 units were transferred at
prices ranging from $362 to $540 per unit, with an average price of $457 per
unit. On each of June 17, 2000 and September 9, 2000, no sales of units were
recorded.
During 2001, 3,767.25 units were transferred at prices ranging from $50
to $531 per unit, with an average price of $206 per unit. On January 1, 2001,
1,126 units were transferred at prices ranging from $50 to $531 per unit, with
an average price of $268 per unit. These transfers reflect units that were
traded in the fourth quarter of 2000. On March 24, 2001, 356 units were
transferred at prices ranging from $105 to $237, with an average price of $211
per unit. On June 16, 2001, 1,067.5 units were transferred at prices ranging
from $145 to $205, with an average price of $160 per unit. On September 8, 2001,
1,217.75 units were transferred at prices ranging from $125 to $260 per unit,
with an average price of $188 per unit.
To date, during 2002, 8,936.75 units were transferred at prices ranging
from $45 to $425 per unit, with an average price of $290.60 per unit. On January
1, 2002, 5,568.75 units were transferred at prices ranging from $45 to $295 per
unit, with an average price of $265 per unit. These transfers reflect units that
were traded in the fourth quarter of 2001. Included in the units transferred are
4,950.75 units that were purchased at $275 per unit pursuant to a tender offer.
On March 23, 2002, 759 units were transferred at prices ranging from $200 to
$425, with an average price of $312 per unit. On June 15, 2002, 2,609 units were
transferred at prices ranging from $200 to $425, with an average price of $339
per unit.
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.
66
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:
. economic outlook
. capital needs and expenditures
. cost reductions
. cash flow
. operating performance
. financing activities
. possible inability to comply with debt agreements and maintain
brand standards or
. 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 II
Acquisition, their business, affiliates, beliefs and intentions is based solely
upon information provided by Apple Hospitality and AHT Res II Acquisition.
67
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. 33-24935)
. Annual Report on Form 10-K for its fiscal year ended December
31, 2001, filed March 28, 2002
. Quarterly Report on Form 10-Q for the quarterly period ended March
22, 2002, filed on May 6, 2002
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
68
partnership, without charge, by requesting them in writing or by telephone from
the partnership at the following address:
Marriott Residence Inn II 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
July 5, 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 II 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: July 5, 2002 RIBM TWO LLC
GENERAL PARTNER
69
APPENDIX A
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER
by and among
APPLE HOSPITALITY TWO, INC.
AHT RES II ACQUISITION, L.P.
RIBM TWO LLC
AND
MARRIOTT RESIDENCE INN II LIMITED PARTNERSHIP
DATE: April 30, 2002
TABLE OF CONTENTS
Page
----
1. DEFINITIONS ......................................................................... 1
2. PLAN OF MERGER ...................................................................... 2
2.1. The Merger .................................................................... 2
2.2. Certificate of Merger; Effective Time ......................................... 2
2.3. Effects of Merger ............................................................. 2
2.4. Escrow Deposit ................................................................ 3
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 ................................... 6
3.1. Organization, Good Standing and Qualification ................................. 6
3.2. Subsidiaries .................................................................. 6
3.3. Power, Authority and Enforceability ........................................... 7
3.4. Capitalization ................................................................ 7
3.5. Noncontravention .............................................................. 8
3.6. Litigation .................................................................... 9
3.7. SEC Documents; Financial Statements; Liabilities .............................. 9
3.8. No Material Adverse Changes ................................................... 10
3.9. Indebtedness .................................................................. 11
3.10. Default; Material Contracts ................................................... 11
3.11. Tax Matters ................................................................... 12
3.12. Employee Matters .............................................................. 13
3.13. Compliance with Laws .......................................................... 13
3.14. Environmental Compliance ...................................................... 14
3.15. Brokers Fees .................................................................. 15
3.16. Potential Conflicts of Interest ............................................... 15
3.17. Opinion of Financial Advisor .................................................. 15
3.18. Vote Required ................................................................. 15
3.19. Properties .................................................................... 15
4. REPRESENTATIONS AND WARRANTIES OF THE GENERAL PARTNER ............................... 16
4.1. Organization, Good Standing and Qualification ................................. 16
4.2. Power, Authority and Enforceability ........................................... 16
4.3. Noncontravention .............................................................. 17
5. REPRESENTATIONS AND WARRANTIES OF BUYER AND MERGER SUB .............................. 17
5.1. Organization, Good Standing and Qualification ................................. 17
i
5.2. Power, Authority and Enforceability ........................................ 18
5.3. Financial Statements ....................................................... 18
5.4. Noncontravention ........................................................... 19
5.5. Litigation ................................................................. 19
5.6. No Material Adverse Changes ................................................ 20
5.7. Brokers Fees ............................................................... 20
6. COVENANTS ......................................................................... 20
6.1. Conduct of Business by the Partnership ..................................... 20
6.2. Reasonable Efforts; Further Assurances; Cooperation; Notification .......... 22
6.3. No Solicitation ............................................................ 25
6.4. Recommendation to the Limited Partners ..................................... 28
6.5. Access to Information; Cooperation ......................................... 28
6.6. Public Announcements ....................................................... 28
6.7. Transfer and Gains Taxes ................................................... 29
6.8. Tax Matters ................................................................ 29
6.9. [Intentionally Deleted] .................................................... 30
6.10. Lender Consent ............................................................. 30
6.11. Manager Consents ........................................................... 30
6.12. Financial and Operational Reports .......................................... 31
6.13. Indemnification by the General Partner ..................................... 31
6.14. Indemnification by the New Entity .......................................... 34
6.15. Adjustment Account ......................................................... 34
7. CONDITIONS TO CLOSING ............................................................. 36
7.1. Conditions to Each Party's Obligations ..................................... 36
7.2. Conditions to Obligations of the Partnership and the General Partner ....... 37
7.3. Conditions to Obligations of Buyer and Merger Sub .......................... 37
8. TERMINATION, EXPENSES, AMENDMENT AND WAIVER ....................................... 39
8.1. Termination ................................................................ 39
8.2. Break-Up Fee ............................................................... 41
9. DEFINITIONS ....................................................................... 42
10. GENERAL PROVISIONS ................................................................ 49
10.1. No Survival ................................................................ 49
10.2. Expenses ................................................................... 49
10.3. Amendment .................................................................. 50
10.4. Extension; Waiver .......................................................... 50
10.5. Notices .................................................................... 50
10.6. Assignment and Binding Effect .............................................. 51
10.7. Entire Agreement ........................................................... 52
10.8. Governing Law .............................................................. 52
10.9. Severability ............................................................... 52
10.10. Further Assurances ......................................................... 52
10.11. Counterparts ............................................................... 52
ii
Exhibit A Certificate of Merger
Exhibit B Deposit Escrow Agreement
Exhibit C Buyer's Financial Statements
Exhibit D Capital Expenditure Spreadsheet
Exhibit E Renovation Letter dated February 1, 2002
iii
AGREEMENT AND PLAN OF MERGER
----------------------------
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") is entered into
as of April 30, 2002, by and among Apple Hospitality Two, Inc., a Virginia
corporation ("Buyer"), AHT Res II Acquisition, L.P., a Delaware limited
partnership and a wholly owned indirect subsidiary of Buyer ("Merger Sub"),
Marriott Residence Inn II Limited Partnership, a Delaware limited partnership
(the "Partnership"), and RIBM Two 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 II 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 shall 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,
shall, by operation of law, succeed to all assets and liabilities of the
Partnership, including all escrowed funds, reserves or other deposits and its
name shall continue to be "Marriott Residence Inn II 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
2
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
$3,000,000 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.
(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), $1,000,000 of the Deposit shall become the property of and be
delivered to the Partnership and the remaining $2,000,000 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 as 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 $415 per Unit (the "Merger Consideration").
3
(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 the Partnership Units
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 and (ii) instructions
for use in effecting the surrender of Partnership Units in exchange for the
Merger Consideration. Upon surrender of Partnership Units 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 Partnership
Units shall be entitled to receive the Merger Consideration into which such
Partnership Units shall have been converted pursuant to this Section 2.6. Until
so surrendered, each Partnership Unit 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 registered in the transfer books of the Partnership if the
letter of transmittal is properly completed 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 Partnership Units 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 Partnership Unit.
(d) All Merger Consideration delivered upon the surrender of
Partnership Units 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 such
Partnership Units. 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, a Partnership Unit is presented to the Surviving Partnership or the Paying
Agent for any reason, it 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 letters of transmittal 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
4
(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) 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.
(g) 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.
(h) 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).
(i) 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
5
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.
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
6
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 and the amendment of the Operating
Agreement as contemplated by the Operating Agreement Consent. 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 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, 70,000 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
7
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 prior to the
8
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, 1999 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
9
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 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, 2001, 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 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
10
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 3 of the Manager's 2002 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 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,
11
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 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
12
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 any 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.
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.
13
(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
properties and assets of the Partnership and its Subsidiaries 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 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
14
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 or any Subsidiary.
15
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.
16
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 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
17
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.
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 December 31, 2001 (collectively the "Buyer's Financial Statements").
Buyer's Financial Statements 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
18
applicable requirements of GAAP, the consolidated financial position of Buyer
and its consolidated subsidiaries, if any, 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 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(a).
---------------
(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
19
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 December 31, 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 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:
20
(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 level of insurance with respect to the Hotels that is required under the
Management Agreement;
(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;
(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;
21
(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 (a) 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 or a Subsidiary entering into, terminating, amending or otherwise
modifying any such contracts or agreements where required by the Manager based
on 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 or a Subsidiary shall not consent to,
approve of or execute the same (to the extent that the Partnership or a
Subsidiary has the right under the Management Agreement to withhold such consent
or approval) except in accordance with the requirements of this Section 6.1 or
(b) the funding of any expenses for the Capital Expenditure Plan.
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
22
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 opportunity to review and comment thereon. Subject to
the provisions of Section 6.2(a), the Partnership shall use its commercially
reasonable efforts to
23
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
24
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 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.
(i) The Partnership agrees to use commercially reasonable efforts to
include the Buyer in any discussions with the Manager with respect to the
renovation approval process as referred to in the Renovation Letter attached
hereto as Exhibit E, and to the extent approval of the Partnership is required
---------
to undertake such renovation projects, the Partnership will obtain the
concurrence of the Buyer.
(j) The Partnership agrees to use commercially reasonable efforts to
assist Buyer in obtaining a letter from the Environmental Protection Agency,
addressed to both the Partnership and the Buyer, relating to Bossier City
Residence Inn, that the owner of Bossier City Residence Inn is not a potentially
responsible party to environmental issues at that hotel, and the Environmental
Protection Agency does not intend to pursue the owner of Bossier City Residence
Inn in the matter at this time.
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
25
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 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
26
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 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.
27
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; Cooperation
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.
The Partnership agrees to use commercially reasonable efforts to cooperate with
Buyer during the 30 day period following the Closing Date with respect to the
filing with the SEC (a) of a Current Report on Form 8-K reporting the
acquisition of the Partnership and (b) if a filing of a supplement to a
prospectus of Buyer is required, the filing of such prospectus supplement. The
General Partner also shall provide to the Surviving Partnership's
representatives a signed representation letter, in form and substance reasonably
acceptable to General Partner, to enable an independent public accountant to
render an opinion on the financial statements related to the Partnership and its
Subsidiaries in connection with the filing of such Current Report on Form 8-K
and prospectus supplement.
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.
28
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").
6.8. Tax Matters
The following provisions shall govern the allocation of responsibility
as between Buyer, the Partnership and the New Entity 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 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.
29
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 lender 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 Partnership's lender, 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 lease of the Hotels by the
Surviving Partnership to one or two affiliates of the Surviving Partnership
("Lessees"), and the assignment of the Management Agreement to such Lessees,
(ii) the consent of the Manager to changes to the Management Agreement, pursuant
to amended and restated management agreements between Manager and the Lessees,
which changes are identical to the changes made to the Management Agreement,
dated March 29, 1988, between Marriott Residence Inn Limited Partnership and
Residence Inn by Marriott, Inc. (except for changes with respect to the parties
to the agreement and transaction specific information) as reflected in the
Amendment and Restatement of Management Agreement by and between Residence Inn
by Marriott, Inc., as Manager, and AHM Res I Limited Partnership, dated as of
March 29, 2002, 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
30
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 addressed to each of the
Partnership and the Buyer 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
addressed to each of the Partnership and the Buyer 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 addressed to each of the Partnership and
the Buyer 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.
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 or
its Subsidiaries.
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
31
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 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 (i) shall not be liable for any settlement
effected
32
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 (ii) 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 following notice to the General Partner, 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 Parties 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.
33
(h) If the General Partner Consideration retained by Buyer is not
sufficient to satisfy the Indemnifying Party's obligation 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 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 a statutory
business trust under the Delaware Business Trust Act which will be managed by
the General Partner as its trust 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 the beneficial interests 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 $300,000 of Partnership Cash to
the New Entity to enable the New Entity to pursue certain Contingent Assets and
to satisfy certain obligations of the
34
Partnership. As the trust 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 beneficiaries once such obligations are satisfied.
(c) For purposes of this Section 6.15, "Contingent Assets" shall
include (i) the Final Net Profit Payment, (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 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 or Servicer, as
applicable, the Surviving Partnership shall deliver or pay to the New Entity (i)
the Final Net Profit Payment, (ii) the Refunded Litigation Reserves and (iii)
any other payments received by the Surviving Partnership or any of its
subsidiaries from the Manager or the Servicer, as applicable, ("Other Manager
Payments") that represent refunds or returns of money to the Partnership or any
of its Subsidiaries as a result of overpayment by the Partnership or any of its
Subsidiaries or underpayment by the Manager, of such amount during the period
prior to the Closing (if the Surviving Partnership or any of its subsidiaries is
required to make any payments to the Manager as a result of an underpayment by
the Partnership or any of its Subsidiaries 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 to Buyer 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 to Buyer).
(e) Promptly after the Surviving Partnership's tax liability for 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 to Buyer and the New Entity
shall, after receipt of such documentation from Buyer that the New Entity
reasonably believes is necessary to
35
support such request, promptly pay such amount to Buyer) (the "Prorated Tax
Adjustment").
(f) In addition to any other obligations or commitments described
herein to be performed or satisfied by the New Entity, the New Entity shall pay,
discharge, perform and satisfy those obligations to be paid, discharged,
performed and satisfied by the Partnership for the benefit of the Limited
Partners, as determined by the General Partner, which arise prior to or in
connection with the Merger but which by their nature cannot be performed until
the Merger has been completed, including, without limitation, preparing and
distributing to the Limited Partners Schedules K-1 for the period(s) prior to
the Merger pursuant to the requirements of the Code and payment of any
outstanding costs related to the Closing.
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:
(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
36
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.
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
37
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 an amount equal to (i) $24,450,000 less (ii) the sum of (A) any amount
spent in accordance with the Capital Expenditure Plan, (B) any capital
expenditures required by reason of any law, ordinance, regulation or order of
competent governmental authority or are otherwise required by the Manager for
the continued safe or orderly operation of a Hotel and (C) any other owner
funded capital expenditures made prior to the Closing Date with the prior
approval of Buyer.
(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 and all tax and judgment
liens affecting the Partnership, Bossier RIBM Two LLC, or their respective
properties, except where the failure to correct such title deficiencies (other
than tax and judgment liens) would not reasonably be expected to have a
Partnership Material Adverse Effect.
38
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;
(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
39
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, as
reported by Manager, is less than 55% for four consecutive weeks at any time
prior to the Closing;
(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;
40
(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;
(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; or
(o) by the Buyer if the Merger shall not have been consummated
within 120 days after the date hereof (or such later date to which Buyer may
have extended the Closing deadline); provided however, that the Buyer may not
terminate pursuant to this clause (o) if the Partnership is not the cause of the
failure to consummate the Merger within such time period.
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 $250,000.
(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
41
in competition with such Acquisition Proposal, the Partnership shall pay to
Buyer 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.
"Break-Up Fee" shall be an amount equal to $250,000.
"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.
"Capital Expenditure Plan" shall mean (a) the Partnership's
plan, which has been approved by the Manager, to fund $3,244,064 for repairs,
alterations, improvements, renewals and replacements at the Hotels as set forth
in Exhibit D attached hereto and (b) the renovation plan for the Hotels set
---------
forth in the Renovation Letter to the Manager dated February 1, 2002 which is
attached hereto as Exhibit E to the extent funded by the Partnership.
---------
"CERCLA" shall have the meaning set forth in Section 3.14 of
this Agreement.
42
"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.
"Closing 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.
"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.
43
"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, less any applicable debt service deducted pursuant to the
terms of the Loan Agreement, delivered or paid by the Manager or the Servicer,
as applicable, to 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. For
purposes of this definition, the amount of Operating Profit attributable to the
partial Accounting Period occurring prior to the Closing Date shall equal (x)
the amount of Operating Profit transferred or paid by the Manager or the
Servicer, as applicable, to the Partnership and its Subsidiaries for such
Accounting Period multiplied by (y) the quotient of (A) the number of days in
the partial Accounting Period divided by (B) twenty-eight.
"Fiscal Year" shall have the meaning set forth in the Management
Agreements.
"GAAP" shall mean generally accepted accounting principles.
"General Partner" shall mean RIBM Two 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.
"Indemnifying Party" shall have the meaning set forth in Section
6.13(a) of this Agreement.
44
"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" with respect to Buyer, 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. With respect to the
Partnership, Knowledge shall mean information which is actually known by an
executive officer of the Partnership, the General Partner or any of the
Subsidiaries 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.
"Loan Agreement" shall mean that certain Loan Agreement between the
Partnership and Nomura Asset Capital Corporation (now Capital Company of
America), dated March 22, 1996, for an aggregate original principal amount of
$140 million, as amended by that certain Letter Agreement, dated December 10,
1998, between the Partnership and AMRESCO Services, L.P., as assigned to LaSalle
National Bank, trustee, under that certain Pooling and Servicing Agreement,
dated as of April 1, 1996, among Nomura Asset Securities Corporation, AMRESCO
Management, Inc., LaSalle National Bank and ABN AMRO Bank N.A., pursuant to that
certain General Assignment, executed as of April 1, 1996, from Nomura Asset
Capital Corporation to LaSalle National Bank.
"Loans" shall have the meaning set forth in Section 3.9 of this
Agreement.
45
"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 Amended and Restated
Management Agreement, dated March 22, 1996, between the Partnership and
Residence Inn by Marriott, Inc., the manager of the Hotels, as amended by that
certain Letter Agreement, dated October 9, 1998, by and between the Partnership
and Residence Inn by Marriott, Inc., regarding modifications to the Management
Agreement, or, with respect to the Hotel owned by Bossier RIBM Two LLC, a wholly
owned subsidiary of the Partnership, the Management Agreement, dated March 22,
1996, between Bossier RIBM Two LLC, as owner, and Residence Inn by Marriott,
Inc., as manager.
"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 II Acquisition, L.P., a Delaware
limited partnership and a wholly owned indirect subsidiary of Buyer.
"Merger Sub GP" shall mean AHT Res II 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.
"New Entity" shall have the meaning set forth in Section 6.15 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.
46
"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 II Limited
Partnership, a Delaware limited partnership.
"Partnership Agreement" shall mean the Amended and Restated Agreement
of Limited Partnership of the Partnership, as amended by the First Amendment to
Amended and Restated Agreement of Limited Partnership of the Partnership, dated
April 1, 1989, First Amendment to Amended and Restated Agreement of Limited
Partnership of the Partnership, dated December 28, 1998 and Amended and Restated
Second Amendment to Amended and Restated Agreement of Limited Partnership of the
Partnership, effective as of December 28, 1998.
"Partnership Cash" shall mean all cash of the Partnership except for
(a) amounts available in the Partnership's FF&E reserve accounts at Closing, (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 the Partnership's
lender and/or the Manager at Closing 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.
"Partnership SEC Documents" shall have the meaning set forth in
Section 3.7(a) of the Agreement.
"Partnership Units" shall mean the outstanding units of limited
partnership interest in the Partnership.
47
"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 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.
"Servicer" shall mean CapMark Services, LP, the servicer under the
Loan Agreement.
"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.
"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.
48
"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.
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 lender 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 $230,000 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) 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.
49
(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):
50
(a) if to the Partnership
or the General Partner to:
Marriott Residence Inn II 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, VA 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
51
each of the other Parties. This 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
52
counterparts containing the respective signatures of, or on
behalf of, all of the Parties. Facsimile signatures shall be deemed as effective
as inked originals.
[Signatures on Next Page]
53
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 M. Knight
-------------------------------------------
Name: Glade M. Knight
---------------------------------------
Title: President
----------------------------------------
AHT RES II ACQUISITION, L.P.
By: AHT Res II GP, its general partner
By: /s/ Glade M. Knight
--------- ---------------------------------
Name: Glade M. Knight
---------------------------------------
Title: President
----------------------------------------
MARRIOTT RESIDENCE INN II LIMITED PARTNERSHIP
By: RIBM TWO LLC, its sole general partner
By: /s/ Robert E. Parsons
-------------------------------------------
Name: Robert E. Parsons, Jr.
Title: President and Manager
RIBM TWO LLC
By: /s/ Robert E. Parsons
-------------------------------------------
Name: Robert E. Parsons, Jr.
---------------------------------------
Title: President
----------------------------------------
54
APPENDIX B
OPINION OF MERRILL LYNCH & CO.
[MERRILL LYNCH LETTERHEAD]
April 29, 2002
Board of Managers of RIBM Two LLC,
as sole General Partner of:
Marriott Residence Inn II Limited Partnership
10400 Fernwood Road
Bethesda, Maryland 20817
Board of Managers:
Marriott Residence Inn II Limited Partnership (the "Partnership"), RIBM Two
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 II Acquisition, L.P., a wholly owned indirect
subsidiary of Acquiror (the "Acquisition Sub"), propose to enter into an
Agreement and Plan of Merger (the "Agreement") pursuant to which Acquisition Sub
would be merged with and into the Partnership in a merger (the "Merger") in
which the general partner interest in the Partnership would 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") would be
converted into the right to receive $415 in cash (the "Limited Partnership
Consideration"). Pursuant to the Agreement, the Partnership would establish,
and, prior to consummation of the Merger, contribute $300,000 and certain
contingent assets to, a new entity (the "New Entity"). Following such
contribution, and prior to consummation of the merger, the Partnership would
distribute to the holders of the Limited Partnership Units all of the
Partnership's interest in the New Entity (the "New Entity Interest") on a pro
rata basis based upon each limited partner's ownership of the Limited
Partnership Units. The activities of the New Entity would be limited to pursuing
certain contingent assets, satisfying certain Partnership obligations and
satisfying the obligations of the New Entity pursuant to the Agreement;
provided, however, that once such obligations are satisfied, the New Entity
would be entitled to make a distribution to its members. Pursuant to the
Agreement, the New Entity would 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 would make certain payments to the New Entity representing refunded
and returned tax and manager payments, litigation reserves and debt service
payments due to the Partnership and (ii) the New Entity would make payment 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, it is our understanding that the Partnership intends
to make a certain distribution to the holders of Limited Partnership Units of
certain unrestricted Partnership cash after the payment of closing costs, which
excess cash is not expected to be significant.
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 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 New Entity Interest, and any distributions of available
unrestricted Partnership cash, 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, capital
requirements 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 drafts of the Agreement, including the draft dated as of April
28, 2002;
(8) 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
(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. In
addition, we have 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. We have also
assumed that the final form of the Agreement will be substantially similar to
the last draft reviewed by us.
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 this 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."). Merrill Lynch acted as financial advisor to
Marriott Residence Inn Limited Partnership ("Residence Inn Partnership") and
RIBM One LLC in connection with the merger of AHT Res Acquisition, L.P., a
wholly owned indirect subsidiary of the Acquiror, with and into Residence Inn
Partnership, for which services Merrill Lynch received compensation. In
addition, we are currently providing, 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. Furthermore, 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 or 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 to be filed with the Securities and Exchange
Commission and mailed to the limited partners of the Partnership to solicit
their consent to the Merger 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 New Entity Interest, and any distributions of available unrestricted
Partnership cash, is fair from a financial point of view to such Limited
Partners.
Very truly yours,
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
CONSENT FORM
THIS WRITTEN CONSENT IS SOLICITED BY THE GENERAL PARTNER OF MARRIOTT
RESIDENCE INN II 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 April 30,
2002, among the Partnership, RIBM Two LLC, Apple Hospitality Two, Inc. and AHT
Res II 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 2:00 p.m., New York City time, on Thursday, August 8, 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.
CONSENT
The undersigned, with respect to each Unit in Marriott Residence Inn II Limited
Partnership held of record by the undersigned on July 3, 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
April 30, 2002, among Marriott Residence Inn II Limited
Partnership, RIBM Two LLC, Apple Hospitality Two, Inc. and
AHT Res II Acquisition, L.P.
[_] FOR [_] AGAINST [_] ABSTAIN
The undersigned hereby acknowledges receipt of the Consent Solicitation
Statement, dated July 5, 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.