-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, F/84T1b4aQocCALtsyURo3wQqdKyghSJuT4NcBiowyx2OAFes9AAwfwfU3jfhO8H Tt9KJGf6KoXNT4kM9LtLlw== 0000950134-96-000457.txt : 19960216 0000950134-96-000457.hdr.sgml : 19960216 ACCESSION NUMBER: 0000950134-96-000457 CONFORMED SUBMISSION TYPE: SC 14D1 PUBLIC DOCUMENT COUNT: 7 FILED AS OF DATE: 19960215 SROS: NONE SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: GROWTH HOTEL INVESTORS CENTRAL INDEX KEY: 0000769129 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE [6500] IRS NUMBER: 942964750 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 14D1 SEC ACT: 1934 Act SEC FILE NUMBER: 005-45555 FILM NUMBER: 96521195 BUSINESS ADDRESS: STREET 1: 1 INSIGNIA FINANCIAL PLAZA PO BOX 1089 STREET 2: C/O INSIGNIA FINANCIAL GROUP INC CITY: GREENVILLE STATE: SC ZIP: 29602 BUSINESS PHONE: 8032391000 MAIL ADDRESS: STREET 1: 1 INSIGNIA FINANCIAL PLAZA PO BOX 1089 STREET 2: C/O INSIGNIA FINANCIAL GROUP INC CITY: GREENVILLE STATE: SC ZIP: 29602 FORMER COMPANY: FORMER CONFORMED NAME: MRI BUSINESS HOTEL INVESTORS 85 DATE OF NAME CHANGE: 19850819 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: DEVON ASSOCIATES/NY/ CENTRAL INDEX KEY: 0001007974 STANDARD INDUSTRIAL CLASSIFICATION: [] STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 14D1 BUSINESS ADDRESS: STREET 1: 100 JERICHO QUADRANGLE STREET 2: SUITE 214 CITY: JERICHO STATE: NY ZIP: 11753 BUSINESS PHONE: 5168220022 SC 14D1 1 SCHEDULE 14D-1 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ------------------------ SCHEDULE 14D-1 Tender Offer Statement Pursuant to Section 14(d)(1) of the Securities Exchange Act of 1934 ------------------------ GROWTH HOTEL INVESTORS, a California Limited Partnership (Name of Subject Company) DEVON ASSOCIATES (Bidder) LIMITED PARTNERSHIP ASSIGNEE UNITS (Title of Class of Securities) ------------------------ NONE (CUSIP Number of Class of Securities) Michael L. Ashner Copy to: Devon Associates Mark I. Fisher 100 Jericho Quadrangle Rosenman & Colin Suite 214 575 Madison Avenue Jericho, New York 11735-2717 New York, New York 10022-2585 (516) 822-0022 (212) 940-8877 (Name, Address and Telephone Number of Person Authorized to Receive Notices and Communications on Behalf of Bidder) Calculation of Filing Fee Transaction Amount of Valuation* Filing Fee ----------- ---------- $10,575,000 $2,115 *For purposes of calculating the filing fee only. This amount assumes the purchase of 15,000 Limited Partnership Assignee Units ("Units") of the subject company for $705 per Unit in cash. [ ] Check box if any part of the fee is offset as provided by Rule 0-11(a)(2) and identify the filing with which the offsetting fee was previously paid. Identify the previous filing by registration statement number, or the Form or Schedule and date of its filing. 2 - -------------------------------------------------------------------------------- 1. Name of Reporting Person S.S. or I.R.S. Identification No. of Above Person Devon Associates - -------------------------------------------------------------------------------- 2. Check the Appropriate Box if a Member of a Group (See Instructions) (a) [ ] (b) [ ] - -------------------------------------------------------------------------------- 3. SEC Use Only - -------------------------------------------------------------------------------- 4. Sources of Funds (See Instructions) WC; OO - -------------------------------------------------------------------------------- 5. Check Box if Disclosure of Legal Proceedings is Required Pursuant to Items 2(e) of 2(f) [ ] - -------------------------------------------------------------------------------- 6. Citizenship or Place of Organization New York - -------------------------------------------------------------------------------- 7. Aggregate Amount Beneficially Owned by Each Reporting Person 1 Unit - -------------------------------------------------------------------------------- 8. Check Box if the Aggregate Amount in Row (7) Excludes Certain Shares (See Instructions) [ ] - -------------------------------------------------------------------------------- 9. Percent of Class Represented by Amount in Row (7) Less than 1% - -------------------------------------------------------------------------------- 10. Type of Reporting Person (See Instructions) PN 2 3 Item 1. Security and Subject Company. (a) The name of the subject company is Growth Hotel Investors, a California limited partnership (the "Partnership"), which has its principal executive offices at One Insignia Financial Plaza, Greenville, South Carolina 29602. (b) This Schedule relates to the offer by Devon Associates, a New York general partnership (the "Purchaser"), to purchase up to 15,000 outstanding Limited Partnership Assignee Units ("Units") of the Partnership at $705 per Unit, upon the terms and subject to the conditions set forth in the Offer to Purchase dated February 15, 1996 (the "Offer to Purchase") and the related Letter of Transmittal, copies of which are attached hereto as Exhibits (a)(1) and (a)(2), respectively. The number of Units outstanding is set forth under "INTRODUCTION" in the Offer to Purchase and is incorporated herein by reference. (c) The information set forth under "THE TENDER OFFER -- Section 13. Background of the Offer" of the Offer to Purchase is incorporated herein by reference. Item 2. Identity and Background. (a)-(d) The information set forth under "INTRODUCTION", "THE TENDER OFFER -- Section 11. Certain Information Concerning the Purchaser" and Schedule 1 of the Offer to Purchase is incorporated herein by reference. (e)-(f) During the last five years, neither the Purchaser nor, to the best of its knowledge, any of the persons 3 4 listed in Schedule 1 of the Offer to Purchase (i) has been convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors) or (ii) were a party to a civil proceeding of a judicial or administrative body of competent jurisdiction and as a result of such proceeding were or are subject to a judgment, decree or final order enjoining future violations of, or prohibiting activities subject to, Federal or state securities laws or finding any violation of such laws. (g) The information set forth in Schedule 1 of the Offer to Purchase is incorporated herein by reference. Item 3. Past Contracts, Transactions or Negotiations with the Subject Company. (a) The information set forth in "THE TENDER OFFER -- Section 10. Conflicts of Interest and Transactions with Affiliates" and "THE TENDER OFFER -- Section 13. Background of the Offer" of the Offer to Purchase is incorporated herein by reference. (b) The information set forth in "THE TENDER OFFER -- Section 13. Background of the Offer" of the Offer to Purchase is incorporated herein by reference. 4 5 Item 4. Source and Amount of Funds or Other Consideration. (a)-(b) The information set forth in "THE TENDER OFFER -- Section 10. Conflicts of Interest and Transactions with Affiliates" and "THE TENDER OFFER -- Section 12. Source of Funds" of the Offer to Purchase is incorporated herein by reference. (c) Not applicable. Item 5. Purpose of the Tender Offer and Plans or Proposals of the Bidder. (a)-(b) The information set forth in "THE TENDER OFFER -- Section 8. Future Plans" and "THE TENDER OFFER -- Section 13. Background of the Offer" of the Offer to Purchase is incorporated herein by reference. (c)-(e) Not applicable. (f)-(g) The information set forth in "THE TENDER OFFER -- Section 7. Effects of the Offer" of the Offer to Purchase is incorporated herein by reference. Item 6. Interest in Securities of the Subject Company. (a)-(b) The information set forth in "INTRODUCTION" and "THE TENDER OFFER -- Section 11. Certain Information Concerning the Purchaser" of the Offer to Purchase is incorporated herein by reference. 5 6 Item 7. Contracts, Arrangements, Understandings or Relationships with Respect to the Subject Company's Securities. The information set forth in "THE TENDER OFFER -- Section 11. Certain information concerning the Purchaser" and "THE TENDER OFFER - Section 12. Source of Funds" of the Offer to Purchase is incorporated herein by reference. Item 8. Persons Retained, Employed or to be Compensated. The information set forth in "THE TENDER OFFER -- Section 16. Fees and Expenses" of the Offer to Purchase is incorporated herein by reference. Item 9. Financial Statements of Certain Bidders. The information set forth in "THE TENDER OFFER -- Section 11. Certain Information Concerning the Purchaser" and Schedule 2 of the Offer to Purchase is incorporated herein by reference. Item 10. Additional Information. (a) None. (b)-(d) The information set forth in "THE TENDER OFFER -- Section 15. Certain Legal Matters" of the Offer to Purchase is incorporated herein by reference. (e) None. (f) Reference is hereby made to the Offer to Purchase and the related Letter of Transmittal, copies of which are attached hereto as Exhibits (a)(1) and (a)(2), respectively, and which are incorporated herein in their entirety by reference. 6 7 Item 11. Material to be Filed as Exhibits. 99.(a)(1) Offer to Purchase dated February 15, 1996. 99.(a)(2) Letter of Transmittal. 99.(a)(3) Cover Letter, dated February 15, 1996, from Devon Associates to Unitholders. 99.(b)(1) Commitment Letter, dated February 13, 1996, among Paine Webber Real Estate Securities Inc. and Devon Associates. 99.(c)(1) Devon Associates Partnership Agreement, dated February 13, 1996, between Cayuga Associates L.P. and Fleetwood Corp. 99.(g)(1) Form 8-K for the Partnership dated January 19, 1996. 7 8 Signatures After due inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct. Dated: February 15, 1996 DEVON ASSOCIATES By: Cayuga Associates L.P. By: Cayuga Capital Corp., its General Partner By: /s/ Michael L. Ashner -------------------------- Name: Michael L. Ashner Title: President By: Fleetwood Corp. By: /s/ Edward E. Mattner --------------------------- Name: Edward E. Mattner Title: President 8 9 Exhibit Index
Sequentially Exhibit No. Description Numbered Page - ----------- ----------- ------------- 99.(a)(1) Offer to Purchase dated February 15, 1996 . . . . . . . . . . . . . . . . . . 99.(a)(2) Letter of Transmittal . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99.(a)(3) Cover Letter, dated February 15, 1996, from Devon Associates to Unitholders . . . . . . . . . . . . . . . . . . . . 99.(b)(1) Commitment Letter, dated February 13, 1996, among Paine Webber Real Estate Securities Inc. and Devon Associates . . . . . . . . . . . . . . . . . 99.(c)(1) Devon Associates Partnership Agreement, dated February 13, 1996, between Cayuga Associates L.P. and Fleetwood Corp. . . . 99.(g)(1) Form 8-K for the Partnership dated January 19, 1996 . . . . . . . . . . . . .
EX-99.A1 2 OFFER TO PURCHASE, DATED FEBRUARY 15, 1996 1 EXHIBIT 99.(a)(1) OFFER TO PURCHASE FOR CASH UP TO 15,000 LIMITED PARTNERSHIP ASSIGNEE UNITS OF GROWTH HOTEL INVESTORS, A CALIFORNIA LIMITED PARTNERSHIP FOR $705 NET PER UNIT BY DEVON ASSOCIATES *************************************************************************** * * * THE OFFER, WITHDRAWAL RIGHTS AND PRORATION PERIOD WILL EXPIRE AT * * 12:00 MIDNIGHT, NEW YORK CITY TIME, ON MARCH 14, 1996, UNLESS * * EXTENDED. * * * *************************************************************************** Devon Associates, a New York general partnership (the "Purchaser"), hereby offers to purchase up to 15,000 of the outstanding Limited Partnership Assignee Units (the "Units") of Growth Hotel Investors, a California limited partnership (the "Partnership"), for $705 per Unit (the "Purchase Price"), net to the seller in cash, without interest, upon the terms set forth in this Offer to Purchase (the "Offer to Purchase") and in the related Letter of Transmittal, as each may be supplemented or amended from time to time (which together constitute the "Offer"). Certain beneficial owners of the Purchaser are affiliated with Montgomery Realty Company-85, the general partner of the Partnership (the "General Partner"). The 15,000 Units sought pursuant to the Offer represent approximately 41% of the total Units outstanding as of January 1, 1996. A Unitholder must tender all Units owned by such Unitholder in order for the tender to be valid. Before tendering, Unitholders are urged to consider the following factors: o The liquidation value of the Partnership's assets as of December 31, 1995 has been estimated by the Purchaser (whose beneficial owners include affiliates of the General Partner) at $997 per Unit (the "Liquidation Value"). In addition, during the first quarter of 1994, Metric Realty, an unaffiliated third party, expressed an interest in purchasing, subject to satisfaction of numerous conditions, all of the Partnership's property interests for a purchase price which the General Partner estimated would have resulted in a distribution to Unitholders of approximately $860 per Unit (See "THE TENDER OFFER - Section 13. Background of the Offer".) o The Purchaser (whose beneficial owners include affiliates of the General Partner) is making the Offer with a view to making a profit. Accordingly, in establishing the Purchase Price, the Purchaser (whose beneficial owners include affiliates of the General Partner) was motivated to set the lowest price for the Units which might be acceptable to Unitholders consistent with the Purchaser's objectives. Such objectives and motivations may conflict with the interest of Unitholders in receiving the highest price for their Units. No independent person has been retained to evaluate or render any opinion with respect to the fairness of the Purchase Price and no representation is made by the Purchaser, any affiliate of the Purchaser or the General Partner as to such fairness. o The General Partner and certain beneficial owners of the Purchaser are affiliated and, accordingly, certain conflicts of interest with respect to the Offer may exist for the General Partner. Such conflicts include those resulting from the terms of a loan which will be used by the Purchaser to finance the Offer. Such terms may create a conflict of (continued on next page) ________________________________________________ If you have any questions or need additional information, you may contact the Information Agent for the Offer at: The Herman Group, Inc. February 15, 1996 (800) 530-4966 2 (continued from cover page) interest for the General Partner in determining whether to sell and/or refinance the Partnership's properties and whether to distribute the proceeds of any such sale or refinancing (See "THE TENDER OFFER - Section 10. Conflicts of Interest and Transactions with Affiliates" for a more detailed explanation of this conflict.) o Depending upon the number of Units tendered pursuant to the Offer, the Purchaser (whose beneficial owners include affiliates of the General Partner) could be in a position to significantly influence all Partnership decisions on which Unitholders may vote. (See "THE TENDER OFFER - Section 7. Effects of the Offer".) This means that (i) non-tendering Unitholders could be prevented from taking action they desire but that the Purchaser (whose beneficial owners include affiliates of the General Partner) opposes and (ii) the Purchaser may be able to take action desired by the Purchaser but opposed by the non- tendering Unitholders. o Consummation of the Offer may limit the ability of Unitholders to dispose of Units in the secondary market during the twelve-month period following completion of the Offer. (See "THE TENDER OFFER - Section 7. Effects of the Offer" in this Offer to Purchase.) o Unitholders who tender their Units will be giving up the opportunity to participate in any future potential benefits represented by the ownership of such Units, including potential future distributions by the Partnership. The Offer is not conditioned upon any minimum number of Units being tendered. If more than 15,000 Units are validly tendered and not withdrawn, the Purchaser will accept for purchase on a pro rata basis 15,000 Units, subject to the terms and conditions herein. The Purchaser expressly reserves the right, in its sole discretion, at any time and from time to time, (i) to extend the period of time during which the Offer is open and thereby delay acceptance for payment of, and the payment for, any Units, (ii) to terminate the Offer and not accept for payment any Units not theretofore accepted for payment or paid for, (iii) upon the occurrence of any of the conditions specified in Section 14 of this Offer to Purchase, to delay the acceptance for payment of, or payment for, any Units not theretofore accepted for payment or paid for, and (iv) to amend the Offer in any respect (including, without limitation, by increasing the consideration offered, increasing or decreasing the number of Units being sought, or both). Notice of any such extension, termination or amendment will promptly be disseminated to Unitholders in a manner reasonably designed to inform Unitholders of such change in compliance with Rule 14d-4(c) under the Securities Exchange Act of 1934 (the "Exchange Act"). In the case of an extension of the Offer, such extension will be followed by a press release or public announcement which will be issued no later than 9:00 a.m., New York City time, on the next business day after the scheduled Expiration Date, in accordance with Rule 14e-1(d) under the Exchange Act. 3 TABLE OF CONTENTS
Page ---- INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 THE TENDER OFFER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Section 1. Terms of the Offer . . . . . . . . . . . . . . . . . . . . . . 4 Section 2. Proration; Acceptance for Payment and Payment for Units . . . . 4 Section 3. Procedures for Tendering Units . . . . . . . . . . . . . . . . 4 Section 4. Withdrawal Rights . . . . . . . . . . . . . . . . . . . . . . . 6 Section 5. Extension of Tender Period; Termination; Amendment . . . . . . 6 Section 6. Certain Federal Income Tax Consequences . . . . . . . . . . . . 7 Section 7. Effects of the Offer . . . . . . . . . . . . . . . . . . . . . 8 Section 8. Future Plans . . . . . . . . . . . . . . . . . . . . . . . . . 9 Section 9. Certain Information Concerning the Partnership . . . . . . . . 9 Section 10. Conflicts of Interest and Transactions With Affiliates . . . 17 Section 11. Certain Information Concerning the Purchaser . . . . . . . . . 18 Section 12. Source of Funds. . . . . . . . . . . . . . . . . . . . . . . . 18 Section 13. Background of the Offer . . . . . . . . . . . . . . . . . . . . 20 Section 14. Conditions of the Offer . . . . . . . . . . . . . . . . . . . . 24 Section 15. Certain Legal Matters. . . . . . . . . . . . . . . . . . . . . 25 Section 16. Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . . 25 Section 17. Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . 26 Appendix A Glossary Schedule 1 Information with respect to the Purchaser's Partners and their respective Principals Schedule 2 Financial Statements of the Purchaser and its Partners
4 To the Holders of Limited Partnership Assignee Units of Growth Hotel Investors, a California Limited Partnership INTRODUCTION The Purchaser (whose beneficial owners include affiliates of the General Partner) hereby offers to purchase up to 15,000 of the outstanding Units for $705 per Unit, net to the seller in cash, without interest, upon the terms set forth in this Offer to Purchase and in the related Letter of Transmittal, as each may be supplemented or amended from time to time. Unitholders who tender their Units will not be obligated to pay any commissions or partnership transfer fees, which commissions and fees will be borne by the Purchaser (whose beneficial owners include affiliates of the General Partner). A Unitholder must tender all Units owned by such Unitholder in order for the tender to be valid. The $705 Purchase Price was determined as a result of the Purchaser's own independent analysis. No independent person has been retained to evaluate or render any opinion with respect to the fairness of the Purchase Price. Unitholders are urged to consider carefully all of the information contained herein before accepting the Offer. (See "THE TENDER OFFER - Section 13. Background of the Offer".) The partners of the Purchaser are Cayuga Associates L.P. ("Cayuga") and Fleetwood Corp. ("Fleetwood"). Cayuga Capital Corp. ("Cayuga Capital") is the general partner of Cayuga. The shareholders of Cayuga Capital are Michael L. Ashner, W. Edward Scheetz and a subsidiary of Insignia Financial Group, Inc. ("Insignia"). Insignia, which through its affiliate owns approximately 8% of the Purchaser, also controls NPI Realty Management Corp. ("NPI Realty"), the indirect managing general partner of the Partnership, having acquired all of the outstanding stock of National Property Investors, Inc. ("NPI"), the parent of NPI Realty, on January 19, 1996. Prior to such transaction, NPI was owned by Mr. Ashner, affiliates of Apollo Real Estate Advisors, L.P. ("Apollo") and certain other individual limited partners of Cayuga and their affiliates. (See "THE TENDER OFFER - Section 11. Certain Information Concerning the Purchaser"; and "Section 13. Background of the Offer".) As a result of the relationship between the General Partner and Insignia, the General Partner may have certain conflicts of interest with respect to the Offer. (See "THE TENDER OFFER - Section 10. Conflicts of Interest and Transactions with Affiliates".) Concurrently with the commencement of the Offer, the Purchaser also commenced a tender offer for limited partnership assignee units of Growth Hotel Investors II, a California limited partnership. Before tendering, Unitholders are urged to consider the following factors: o The Liquidation Value of the Partnership's assets as of December 31, 1995 has been estimated by the Purchaser (whose beneficial owners include affiliates of the General Partner) at $997 per Unit. In addition, during the first quarter of 1994, Metric Realty, an unaffiliated third party, expressed an interest in purchasing, subject to satisfaction of numerous conditions, all of the Partnership's property interests for a purchase price which the General Partner estimated would have resulted in a distribution to Unitholders of approximately $860 per Unit (See "THE TENDER OFFER - Section 13. Background of the Offer".) o The Purchaser (whose beneficial owners include affiliates of the General Partner) is making the Offer with a view to making a profit. Accordingly, in establishing the Purchase Price, the Purchaser (whose beneficial owners include affiliates of the General Partner) was motivated to set the lowest price for the Units which might be acceptable to Unitholders consistent with the Purchaser's objectives. Such objectives and motivations may conflict with the interest of Unitholders in receiving the highest price for their Units. No independent person has been retained to evaluate or render any opinion with respect to the fairness of the Purchase Price and no representation is made by the Purchaser, any affiliate of the Purchaser or the General Partner as to such fairness. o The General Partner and certain beneficial owners of the Purchaser are affiliated and, accordingly, certain conflicts of interest with respect to the Offer may exist for the General Partner. Such conflicts include those 5 resulting from the terms of a loan which will be used by the Purchaser to finance the Offer. Such terms may create a conflict of interest for the General Partner in determining whether to sell and/or refinance the Partnership's properties and whether to distribute the proceeds of any such sale or refinancing (See "THE TENDER OFFER - Section 10. Conflicts of Interest and Transactions with Affiliates" for a more detailed explanation of this conflict.) o Depending upon the number of Units tendered pursuant to the Offer, the Purchaser (whose beneficial owners include affiliates of the General Partner) could be in a position to significantly influence all Partnership decisions on which Unitholders may vote, including decisions regarding removal of the General Partner, merger, sales of assets and liquidation. (See "THE TENDER OFFER - Section 7. Effects of the Offer".) This means that (i) non-tendering Unitholders could be prevented from taking action they desire but that the Purchaser (whose beneficial owners include affiliates of the General Partner) opposes and (ii) the Purchaser may be able to take action desired by the Purchaser but opposed by the non-tendering Unitholders. o Consummation of the Offer may limit the ability of Unitholders to dispose of Units in the secondary market during the twelve-month period following completion of the Offer. (See "THE TENDER OFFER -- Section 7. Effects of the Offer" in this Offer to Purchase.) o Unitholders who tender their Units will be giving up the opportunity to participate in any future potential benefits represented by the ownership of such Units, including potential future distributions by the Partnership. o The original anticipated holding period of the Partnership's properties was five to ten years following the acquisition of a property. Currently, properties in the Partnership's portfolio have been held for approximately seven to ten years from acquisition. Unitholders could, as an alternative to tendering their Units, take a variety of possible actions including voting to liquidate the Partnership, removing and replacing the General Partner and causing the Partnership to merge with another entity or engage in a "roll-up" or similar transaction. Unitholders who desire liquidity may wish to consider the Offer. However, each Unitholder must make his or her own decision based upon such Unitholder's particular circumstances, including the Unitholder's own financial needs, other investment opportunities and tax position. Each Unitholder should consult with his or her own advisors, tax, financial or otherwise, in evaluating the terms of and whether to tender Units pursuant to the Offer. The Offer will provide Unitholders with an opportunity to liquidate their investment without the usual transaction costs associated with market sales. Unitholders may no longer wish to continue with their investment in the Partnership for a number of reasons, including: o Although not necessarily an indication of value, the Purchase Price is substantially in excess of recent secondary market trades for Units. o The absence of a formal trading market for the Units. o General disenchantment with real estate investments, particularly long-term investments in limited partnerships. o The continuing administrative costs (such as accounting, tax reporting, limited partner reporting and public company reporting requirements) and resultant indirect negative financial impact on the value of the Units of a publicly registered limited partnership. o More immediate use for the cash tied up in an investment in the Units. 2 6 o The delays and complications in preparing and filing personal income tax returns which may result from an investment in the Units. o The opportunity to transfer Units without the costs and commissions normally associated with a transfer. The Offer is not conditioned upon any minimum number of Units being tendered. If more than 15,000 Units are validly tendered and not withdrawn, the Purchaser will accept for purchase on a pro rata basis 15,000 Units, subject to the terms and conditions herein. According to information supplied by the Partnership, there are 36,932 Units issued and outstanding held by 3,280 Unitholders. The Purchaser and certain of its beneficial owners (or their affiliates) own 1,092 Units in the aggregate, constituting approximately 3% of the Units outstanding. Certain information contained in this Offer to Purchase which relates to the Partnership, or represents statements made by the General Partner, has been derived from information provided to the Purchaser by the General Partner. UNITHOLDERS ARE URGED TO READ THIS OFFER TO PURCHASE AND THE ACCOMPANYING LETTER OF TRANSMITTAL CAREFULLY BEFORE DECIDING WHETHER TO TENDER THEIR UNITS. ANY UNITHOLDER DESIRING TO TENDER UNITS SHOULD COMPLETE AND SIGN THE LETTER OF TRANSMITTAL (OR A FACSIMILE THEREOF) IN ACCORDANCE WITH THE INSTRUCTIONS TO THE LETTER OF TRANSMITTAL AND MAIL OR DELIVER THE SIGNED LETTER OF TRANSMITTAL TO THE HERMAN GROUP, INC., THE DEPOSITARY FOR THE OFFER (THE "DEPOSITARY"), AT THE FOLLOWING ADDRESS: THE HERMAN GROUP, INC. BY HAND OR OVERNIGHT DELIVERY: 2121 JACINTO STREET 26TH FLOOR DALLAS, TEXAS 75201 BY MAIL (INSURED OR REGISTERED RECOMMENDED): P.O. BOX 357 DALLAS, TEXAS 75221-9602 BY FACSIMILE: (214) 999-9348 OR (214) 999-9323 FOR ASSISTANCE IN COMPLETION OF THE LETTER OF TRANSMITTAL, YOU MAY CONTACT THE HERMAN GROUP, INC., THE INFORMATION AGENT FOR THE OFFER (THE "INFORMATION AGENT"), BY CALLING: (800) 530-4966 3 7 THE TENDER OFFER SECTION 1. TERMS OF THE OFFER. Upon the terms of the Offer, the Purchaser will pay for Units validly tendered on or prior to the Expiration Date and not withdrawn in accordance with Section 4 of this Offer to Purchase. The term "Expiration Date" shall mean 12:00 Midnight, New York City time, on March 14, 1996, unless the Purchaser extends the period of time during which the Offer is open. In the event the Offer is extended, the term "Expiration Date" shall mean the latest time and date on which the Offer, as extended by the Purchaser, shall expire. IF, PRIOR TO THE EXPIRATION DATE, THE PURCHASER SHALL INCREASE THE PURCHASE PRICE OFFERED TO UNITHOLDERS, SUCH INCREASED PURCHASE PRICE SHALL BE PAID FOR ALL UNITS ACCEPTED FOR PAYMENT PURSUANT TO THE OFFER, WHETHER OR NOT SUCH UNITS WERE TENDERED PRIOR TO SUCH INCREASE. The Offer is conditioned on satisfaction of certain conditions. See Section 14, which sets forth in full the conditions of the Offer. The Purchaser reserves the right (but shall not be obligated), in its sole discretion, to waive any or all of such conditions. If, on or prior to the Expiration Date, any or all of such conditions have not been satisfied or waived, the Purchaser may (i) decline to purchase any of the Units tendered, terminate the Offer and return all tendered Units to tendering Unitholders, (ii) waive all the unsatisfied conditions and, subject to complying with applicable rules and regulations of the Securities and Exchange Commission (the "Commission"), purchase all Units validly tendered, (iii) extend the Offer and, subject to the right of Unitholders to withdraw Units until the Expiration Date, cause the Depositary to retain the Units that have been tendered during the period or periods for which the Offer is extended, or (iv) amend the Offer, including by increasing the Purchase Price. SECTION 2. PRORATION; ACCEPTANCE FOR PAYMENT AND PAYMENT FOR UNITS. If the number of Units validly tendered on or prior to the Expiration Date and not withdrawn is 15,000 or less, the Purchaser will accept for payment, subject to the terms and conditions of the Offer, all Units so tendered. If the number of Units validly tendered on or prior to the Expiration Date and not withdrawn exceeds 15,000, the Purchaser will accept for payment, subject to the terms and conditions of the Offer, 15,000 Units so tendered on a pro rata basis (with such adjustments to avoid purchase of fractional Units). The Purchaser will pay for Units validly tendered and not withdrawn in accordance with Section 4 as promptly as practicable following the Expiration Date. In all cases, the Purchase Price will be paid only after timely receipt by the Depositary of a properly completed and duly executed Letter of Transmittal (or a facsimile thereof) and any other documents required by the Letter of Transmittal. (See "Section 3. Procedures for Tendering Units".) For purposes of the Offer, the Purchaser shall be deemed to have accepted for payment tendered Units when, as and if the Purchaser gives oral or written notice to the Depositary of the Purchaser's acceptance for payment of such Units pursuant to the Offer. Upon the terms and subject to the conditions of the Offer, payment for Units tendered and accepted for payment pursuant to the Offer will in all cases be made by deposit of the Purchase Price with the Depositary, which will act as agent for the tendering Unitholders for the purpose of receiving payment from the Purchaser and transmitting payment to tendering Unitholders. Under no circumstances will interest be paid on the Purchase Price by reason of any delay in making such payment. If any tendered Units are not purchased for any reason, the Letter of Transmittal with respect to such Units will be destroyed by the Purchaser. If for any reason acceptance for payment of, or payment for, any Units tendered pursuant to the Offer is delayed or the Purchaser is unable to accept for payment, purchase or pay for Units tendered pursuant to the Offer, then, without prejudice to the Purchaser's rights under Section 14, the Purchaser may cause the Depositary to retain tendered Units and such Units may not be withdrawn except to the extent that the tendering Unitholders are entitled to withdrawal rights as described in Section 4; provided, however, that the Purchaser is required, pursuant to Rule 14e-1(c) under the Exchange Act, to pay Unitholders the Purchase Price in respect of Units tendered or return such Units promptly after termination or withdrawal of the Offer. SECTION 3. PROCEDURES FOR TENDERING UNITS. VALID TENDER. To validly tender Units, a properly completed and duly executed Letter of Transmittal (or a facsimile thereof), and any other documents required by the Letter of Transmittal, must be received by the 4 8 Purchaser on or prior to the Expiration Date. A Unitholder must tender all Units owned by such Unitholder in order for the tender to be valid. SIGNATURE REQUIREMENTS. If the Letter of Transmittal is signed by the registered holder of the Units and payment is to be made directly to that holder, then no notarization or signature guarantee is required on the Letter of Transmittal. Similarly, if the Units are tendered for the account of a member firm of a registered national securities exchange, a member of the National Association of Securities Dealers, Inc. or a commercial bank, savings bank, credit union, savings and loan association or trust company having an office, branch or agency in the United States (each an "Eligible Institution"), no notarization or signature guarantee is required on the Letter of Transmittal. HOWEVER, IN ALL OTHER CASES, ALL SIGNATURES ON THE LETTER OF TRANSMITTAL MUST EITHER BE NOTARIZED OR GUARANTEED BY AN ELIGIBLE INSTITUTION. IN ORDER FOR A TENDERING UNITHOLDER TO PARTICIPATE IN THE OFFER, UNITS MUST BE VALIDLY TENDERED AND NOT WITHDRAWN ON OR PRIOR TO THE EXPIRATION DATE, WHICH IS 12:00 MIDNIGHT, NEW YORK CITY TIME, ON MARCH 14, 1996, UNLESS EXTENDED. THE METHOD OF DELIVERY OF THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND RISK OF THE TENDERING UNITHOLDER AND DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE DEPOSITARY. BACKUP FEDERAL INCOME TAX WITHHOLDING. To prevent the possible application of backup federal income tax withholding with respect to payment of the Purchase Price, a tendering Unitholder must provide the Purchaser with such Unitholder's correct taxpayer identification number by completing the Substitute Form W-9 included in the Letter of Transmittal. (See the Instructions to the Letter of Transmittal and "Section 6. Certain Federal Income Tax Consequences".) FIRPTA WITHHOLDING. To prevent the withholding of federal income tax in an amount equal to 10% of the sum of the Purchase Price plus the amount of Partnership liabilities allocable to each Unit purchased, each Unitholder must complete the FIRPTA Affidavit included in the Letter of Transmittal certifying such Unitholder's taxpayer identification number and address and that the Unitholder is not a foreign person. (See the Instructions to the Letter of Transmittal and "Section 6. Certain Federal Income Tax Consequences".) OTHER REQUIREMENTS. By executing a Letter of Transmittal, a tendering Unitholder irrevocably appoints the designees of the Purchaser as such Unitholder's proxies, in the manner set forth in the Letter of Transmittal, each with full power of substitution, to the full extent of such Unitholder's rights with respect to the Units tendered by such Unitholder and accepted for payment and purchased by the Purchaser. Such appointment will be effective when, and only to the extent that, the Purchaser accepts such Units for payment. Upon such acceptance for payment, all prior proxies given by such Unitholder with respect to such Units will, without further action, be revoked, and no subsequent proxies may be given (and if given will not be effective). The designees of the Purchaser will, as to such Units, be empowered to exercise all voting and other rights of such Unitholder as they in their sole discretion may deem proper at any meeting of Unitholders, by written consent or otherwise. The Purchaser reserves the right to require that, in order for Units to be deemed validly tendered, immediately upon the Purchaser's acceptance for payment of such Units, the Purchaser must be able to exercise full voting rights with respect to such Units, including voting at any meeting of Unitholders then scheduled. In addition, by executing a Letter of Transmittal, a Unitholder also assigns to the Purchaser all of the Unitholder's rights to receive distributions from the Partnership with respect to Units which are accepted for payment and purchased pursuant to the Offer. (See "Section 6. Certain Federal Income Tax Consequences" and "Section 9. Certain Information Concerning the Partnership".) DETERMINATION OF VALIDITY; REJECTION OF UNITS; WAIVER OF DEFECTS; NO OBLIGATION TO GIVE NOTICE OF DEFECTS. All questions as to the validity, form, eligibility (including time of receipt) and acceptance for payment of any tender of Units pursuant to the procedures described above will be determined by the Purchaser, in its sole discretion, which determination shall be final and binding. The Purchaser reserves the absolute right to reject any or all tenders if not in proper form or if the acceptance of, or payment for, the Units tendered may, in the opinion of the Purchaser's counsel, be unlawful. The Purchaser also reserves the right to waive any defect or irregularity in any tender with respect to any particular Units of any particular Unitholder, and the Purchaser's interpretation of the terms and conditions of the Offer (including the Letter of Transmittal and the Instructions thereto) will be final 5 9 and binding. Neither the Purchaser, the Depositary nor any other person will be under any duty to give notification of any defects or irregularities in the tender of any Units or will incur any liability for failure to give any such notification. A tender of Units pursuant to any of the procedures described above will constitute a binding agreement between the tendering Unitholder and the Purchaser on the terms set forth in the Offer. SECTION 4. WITHDRAWAL RIGHTS. Except as otherwise provided in this Section 4, all tenders of Units pursuant to the Offer are irrevocable, provided that Units tendered pursuant to the Offer may be withdrawn at any time prior to the Expiration Date and, unless already accepted for payment as provided in this Offer to Purchase, may also be withdrawn at any time after April 14, 1996. For withdrawal to be effective, a written or facsimile transmission notice of withdrawal must be timely received by the Depositary at the address set forth on the back cover of this Offer to Purchase. Any such notice of withdrawal must specify the name of the person who tendered the Units to be withdrawn and must be signed by the person(s) who signed the Letter of Transmittal in the same manner as the Letter of Transmittal was signed. If purchase of, or payment for, Units is delayed for any reason or if the Purchaser is unable to purchase or pay for Units for any reason, then, without prejudice to the Purchaser's rights under the Offer, the Purchaser may cause the Depositary to retain tendered Units and such Units may not be withdrawn except to the extent that tendering Unitholders are entitled to withdrawal rights as set forth in this Section 4; provided, however, that the Purchaser is required, pursuant to Rule 14e-1(c) under the Exchange Act, to pay Unitholders the Purchase Price in respect of Units tendered or return such Units promptly after termination or withdrawal of the Offer. Any Units properly withdrawn will be deemed not to be validly tendered for purposes of the Offer. Withdrawn Units may be re-tendered, however, by following any of the procedures described in Section 3 at any time prior to the Expiration Date. SECTION 5. EXTENSION OF TENDER PERIOD; TERMINATION; AMENDMENT. The Purchaser expressly reserves the right, in its sole discretion, at any time and from time to time, (i) to extend the period of time during which the Offer is open and thereby delay acceptance for payment of, and the payment for, any Units, (ii) to terminate the Offer and not accept for payment any Units not already accepted for payment or paid for, (iii) upon the occurrence of any of the conditions specified in Section 14, to delay the acceptance for payment of, or payment for, any Units not already accepted for payment or paid for, and (iv) to amend the Offer in any respect (including, without limitation, by increasing the consideration offered, increasing or decreasing the number of Units being sought, or both). Notice of any such extension, termination or amendment will promptly be disseminated to Unitholders in a manner reasonably designed to inform Unitholders of such change in compliance with Rule 14d-4(c) under the Exchange Act. In the case of an extension of the Offer, such extension will be followed by a press release or public announcement which will be issued no later than 9:00 a.m., New York City time, on the next business day after the scheduled Expiration Date, in accordance with Rule 14e-1(d) under the Exchange Act. If the Purchaser extends the Offer, or if the Purchaser (whether before or after its acceptance for payment of Units) is delayed in its payment for Units or is unable to pay for Units pursuant to the Offer for any reason, then, without prejudice to the Purchaser's rights under the Offer, the Purchaser may cause the Depositary to retain tendered Units and such Units may not be withdrawn except to the extent tendering Unitholders are entitled to withdrawal rights as described in Section 4; provided, however, that the Purchaser is required, pursuant to Rule 14e-1(c) under the Exchange Act, to pay Unitholders the Purchase Price in respect of Units tendered or return such Units promptly after termination or withdrawal of the Offer. If the Purchaser makes a material change in the terms of the Offer or the information concerning the Offer or waives a material condition of the Offer, the Purchaser will extend the Offer and disseminate additional tender offer materials to the extent required by Rules 14d-4(c) and 14d-6(d) under the Exchange Act. The minimum period during which an offer must remain open following a material change in the terms of the offer or information concerning the offer will depend upon the facts and circumstances, including the relative materiality of the change in the terms or information. In the Commission's view, an offer should remain open for a minimum of five business days from the date the material change is first published, sent or given to securityholders, and if material changes 6 10 are made with respect to information that approaches the significance of price or the percentage of securities sought, a minimum of ten business days may be required to allow for adequate dissemination to securityholders and for investor response. As used in this Offer to Purchase, "business day" means any day other than a Saturday, Sunday or a federal holiday, and consists of the time period from 12:01 a.m. through 12:00 Midnight, New York City time. SECTION 6. CERTAIN FEDERAL INCOME TAX CONSEQUENCES. The following summary is a general discussion of certain federal income tax consequences of a sale of Units pursuant to the Offer. This summary is based on the Internal Revenue Code of 1986, as amended (the "Code"), applicable Treasury Regulations thereunder, administrative rulings, practice and procedures and judicial authority as of the date of the Offer. All of the foregoing are subject to change, and any such change could affect the continuing accuracy of this summary. This summary does not discuss all aspects of federal income taxation that may be relevant to a particular Unitholder in light of such Unitholder's specific circumstances or to certain types of Unitholders subject to special treatment under the federal income tax laws (for example, foreign persons, dealers in securities, banks, insurance companies and tax-exempt organizations), nor does it discuss any aspect of state, local, foreign or other tax laws. Sales of Units pursuant to the Offer will be taxable transactions for federal income tax purposes, and may also be taxable transactions under applicable state, local, foreign and other tax laws. EACH UNITHOLDER SHOULD CONSULT HIS OR ITS TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES TO SUCH UNITHOLDER OF SELLING UNITS PURSUANT TO THE OFFER. A taxable Unitholder will recognize gain or loss on a sale of Units pursuant to the Offer equal to the difference between (i) the Unitholder's "amount realized" on the sale and (ii) the Unitholder's adjusted tax basis in the Units sold. The "amount realized" with respect to a Unit sold pursuant to the Offer will be a sum equal to the amount of cash received by the Unitholder for the Unit plus the amount of Partnership liabilities allocable to the Unit (as determined under Code Section 752). The amount of a Unitholder's adjusted tax basis in Units sold pursuant to the Offer will vary depending upon the Unitholder's particular circumstances, and will be affected by both allocations of Partnership income, gain or loss and any cash distributions made by the Partnership to a Unitholder with respect to such Units. In this regard, tendering Unitholders will be allocated a pro rata share of the Partnership's taxable income or loss with respect to Units sold pursuant to the Offer through the effective date of the sale, even though such Unitholders will assign to the Purchaser their right to receive cash distributions with respect to such Units. Based on the results of Partnership operations through December 31, 1994, and without giving effect to Partnership operations or transactions since that time, it is estimated that, depending on the Unitholder's date of entry into the Partnership, a taxable Unitholder who or which sells Units pursuant to the Offer that were acquired by such Unitholder at the time of the Partnership's original offering of Units will recognize a gain for federal income tax purposes of between $48 per Unit for those who acquired Units in August 1985 and $28 per Unit for those who acquired Units in August 1986. Under the passive activity loss rules (discussed below), such gain would be treated as passive activity income, which can be offset (subject to any other applicable limitations) by a Unitholder's passive activity losses from other investments. The gain or loss recognized by a Unitholder on a sale of a Unit pursuant to the Offer generally will be treated as a capital gain or loss if the Unit was held by the Unitholder as a capital asset. Such capital gain or loss will be treated as long- term capital gain or loss if the tendering Unitholder's holding period for the Unit exceeds one year. Under current law (which is subject to change), long-term capital gains of individuals and other non-corporate taxpayers are taxed at a maximum marginal federal income tax rate of 28%, whereas the maximum marginal federal income tax rate for other income of such persons is 39.6%. Capital losses are deductible only to the extent of capital gains, except that non-corporate taxpayers may deduct up to $3,000 of capital losses in excess of the amount of their capital gains against ordinary income. Excess capital losses generally can be carried forward to succeeding years (a corporation's carryforward period is five years and a non- corporate taxpayer can carry forward such losses indefinitely); in addition, corporations, but not non-corporate taxpayers, are allowed to carry back excess capital losses to the three preceding taxable years. The portion of a Unitholder's gain on the sale that is attributable to "unrealized receivables" (which include depreciation recapture) or "substantially appreciated inventory" as defined in Code Section 751, however, would be treated as ordinary income rather than as capital gain. It is possible that the basis allocation rules of Code Section 751 may result in a Unitholder's recognizing ordinary income with respect to the portion of the Unitholder's amount 7 11 realized on the sale of a Unit that is attributable to such items while recognizing a capital loss with respect to the remainder of the Unit. Under Code Section 469, a non-corporate taxpayer or personal service corporation can deduct passive activity losses in any year only to the extent of such person's passive activity income for such year, and closely held corporations may not offset such losses against so-called "portfolio" income. Gain or loss recognized upon a sale of a Unit pursuant to the Offer by a Unitholder who or which is subject to the passive activity loss limitation would be treated as passive activity income or loss. Such loss, if any, should no longer be subject to the passive activity loss limitation once the Unitholder sells all his Units. If a Unitholder is unable to sell all of his Units pursuant to the Offer, such loss could not be deducted under the passive activity loss rules (except to the extent of the Unitholder's passive activity income from the Partnership or other sources) until the Unitholder's remaining Units are sold. (See "Section 7. Effects of the Offer".) A taxable Unitholder (other than corporations and certain foreign individuals) who tenders Units may be subject to 31% backup withholding unless the Unitholder provides a taxpayer identification number ("TIN") and certifies that the TIN is correct or properly certifies that he is awaiting a TIN. A Unitholder may avoid backup withholding by properly completing and signing the Substitute Form W-9 included as part of the Letter of Transmittal. If a Unitholder who is subject to backup withholding does not properly complete and sign the Substitute Form W-9, the Purchaser will withhold 31% from payments to such Unitholder. Gain realized by a foreign Unitholder on a sale of a Unit pursuant to the Offer will be subject to federal income tax. Under Section 1445 of the Code, the transferee of a partnership interest held by a foreign person is generally required to deduct and withhold a tax equal to 10% of the amount realized on the disposition. The Purchaser will withhold 10% of the amount realized by a tendering Unitholder from the Purchase Price payable to such Unitholder unless the Unitholder properly completes and signs the FIRPTA Affidavit included as part of the Letter of Transmittal certifying the Unitholder's TIN, that such Unitholder is not a foreign person and the Unitholder's address. Amounts withheld would be creditable against a foreign Unitholder's federal income tax liability and, if in excess thereof, a refund could be obtained from the Internal Revenue Service by filing a U.S. income tax return. SECTION 7. EFFECTS OF THE OFFER. LIMITATIONS ON RESALES. Pursuant to the Partnership Agreement of the Partnership, transfers of Units which, when considered with all other transfers during the same applicable twelve-month period, would cause a termination of the Partnership for federal or applicable state income tax purposes (which termination may occur when 50% or more of the Units are transferred in a twelve-month period) are not permitted. Depending upon the number of Units tendered pursuant to the Offer, sales of Units on the secondary market for the twelve-month period following completion of the Offer may be limited. The Partnership will not process any requests for transfers of Units during such twelve-month period which the General Partner believes may cause a tax termination. In determining the number of Units subject to the Offer, the Purchaser took this restriction into account so as to permit transfers of at least 965 of the outstanding Units to occur prior to August 1, 1996 and an additional 1,016 Units from August 1, 1996 until April 30, 1997 without violating this restriction. EFFECT ON TRADING MARKET. There is no established public trading market for the Units and, therefore, a reduction in the number of Unitholders should not materially further restrict the Unitholders' ability to find purchasers for their Units. CONTROL OF ALL UNITHOLDER VOTING DECISIONS BY PURCHASER. Following the consummation of the Offer, the Purchaser anticipates that it will be admitted to the Partnership as a substitute Limited Partner with respect to the Units purchased pursuant to the Offer. As a substitute Limited Partner or pursuant to the power of attorney granted pursuant to the Letter of Transmittal, the Purchaser will have the right to vote each Unit purchased pursuant to the Offer. Depending on the number of Units purchased pursuant to the Offer, the Purchaser could be in a position to significantly influence all voting decisions with respect to the Partnership. Accordingly, the Purchaser could (i) prevent non-tendering Unitholders from taking action they desire but that the Purchaser opposes and (ii) take action desired by the Purchaser but opposed by non-tendering Unitholders. Under the Partnership Agreement, Unitholders holding a majority of the Units are entitled to take action with respect to a variety of matters, including: removal 8 12 of the General Partner; dissolution of the Partnership; the sale of all or substantially all of the Partnership's properties; material changes in the investment objectives and policies of the Partnership; and most types of amendments to the Agreement of Limited Partnership of the Partnership (the "Partnership Agreement"). When voting on such matters, the Purchaser will vote Units owned and acquired by it in its interest, which, because certain of its beneficial owners are affiliated with of the General Partner, may also be in the interest of the General Partner. The Units are registered under the Exchange Act, which requires, among other things, that the Partnership furnish certain information to its Unitholders and to the Commission and comply with the Commission's proxy rules in connection with meetings of, and solicitation of consents from, Unitholders. Purchases of Units pursuant to the Offer will not result in the Units becoming eligible for deregistration under Section 12(g) of the Exchange Act. POSSIBLE DEFAULT UNDER LICENSE AGREEMENTS. The consummation of the Offer may result in a breach of the license agreements with Hampton Inns, Inc. ("Hampton Inns") covering the Partnership's properties. The General Partner has advised the Purchaser that if a breach is asserted, the General Partner will endeavor to obtain the consent of Hampton Inns, which consent, under the terms of the license agreements, may not be unreasonably withheld. Termination of the license agreements would also constitute a default under all of the mortgages encumbering the Partnership's properties (See "Section 9. Certain Information Concerning the Partnership" for a description of such mortgages.) Any required consent under the license agreements is not a condition to the Offer. POSSIBLE ACCELERATION OF MORTGAGE DEBT. A mortgage encumbering the Albuquerque, New Mexico property, representing approximately $2,375,000 outstanding principal amount of indebtedness, contains provisions which could give the holder thereof the right to accelerate the mortgage debt as a result of the consummation of the transactions contemplated by the Offer. If the lender successfully asserts that its mortgage debt may be accelerated, the Partnership will be required to satisfy the outstanding mortgage debt and to pay any prepayment fees, expenses or other sums required pursuant to the terms of the mortgage under such circumstance. In such event, the General Partner has advised the Purchaser that the Partnership may seek to arrange for alternative sources of mortgage financing for such property. However, any such refinancing may be at interest rates which are higher or otherwise on terms which are less favorable than those provided for by the current mortgage. SECTION 8. FUTURE PLANS. The Purchaser is acquiring the Units for investment purposes and with a view to making a profit. Subject to the limitation on resales discussed in Section 7, following the completion of the Offer, the Purchaser may acquire additional Units. Any such acquisition may be made through private purchases or by any other means deemed advisable. Any such acquisition may be at a price higher or lower than the price to be paid for the Units purchased pursuant to the Offer. Neither the Purchaser nor the General Partner has any present plans or intentions with respect to a merger, reorganization or liquidation of the Partnership, a sale of assets or refinancing of any of the Partnership's properties (except that all of the outstanding mortgage debt is scheduled to mature (and will likely require refinancing) during or before May 1997) or a change in the management, capitalization or distribution policy of the Partnership. (See "Section 9. Certain Information Concerning the Partnership".) However, the Purchaser believes that consistent with its fiduciary obligations the General Partner will continue to review any opportunities such as sales or refinancings and will seek to maximize returns to investors in the Units. The General Partner's intentions are to manage the Partnership's assets to maximize capital appreciation and improve property operations. See "Section 10. Conflicts of Interest and Transactions with Affiliates" for certain information concerning the General Partner's potential conflict of interest with respect to sales or refinancings. The purchase of Units will allow the Purchaser to benefit from any of the following: (a) any cash distributions from the operations in the ordinary course of the business of the Partnership; (b) any distributions of net proceeds from the sale or refinancing of any of the Partnership's properties; (c) any gain on a resale of Units; and (d) any distributions of net proceeds from a liquidation of the Partnership. SECTION 9. CERTAIN INFORMATION CONCERNING THE PARTNERSHIP. The Partnership was organized on June 28, 1984, under the laws of the State of California. Its principal executive offices are located at One Insignia Financial Plaza, Greenville, South Carolina 29602. Its telephone number is (864) 239-1000. The Partnership's primary business is the ownership of limited service hotels and it presently owns interests in 22 Hampton Inn Hotels. Eighteen of the Hampton Inn Hotels are owned in a joint venture with Hampton Inns (the "Hampton Inns Joint Venture") in which the Partnership and an affiliated partnership, Growth Hotel Investors 9 13 II (through Growth Hotel Investors Combined Fund No. 1 (the "Combined Fund")) own an 80% interest and Hampton Inns owns a 20% subordinated interest. Under the terms of the joint venture agreement, Hampton Inns is not entitled to receive any distributions of sale proceeds on account of its interest until such time as the Combined Fund has received cumulative distributions equal to 100% of its capital contribution plus a 12% return thereon. 32% of the Combined Fund is owned by the Partnership and 68% is owned by Growth Hotel Investors II. All of the Hampton Inn Hotels are operated under a license agreement with Hampton Inns, and the 18 hotels owned by the Hampton Inns Joint Venture are managed by Hampton Inns. All of the mortgage debt on the Hampton Inn Hotels in which the Partnership owns interests is scheduled to mature (and will likely require refinancing) during or before May 1997. (See "Schedule of Mortgages" below.) The original anticipated holding period of the Partnership's properties was 5 to 10 years following the acquisition of a property. Currently, properties in the Partnership's portfolio have been held for varying periods ranging from approximately 7 to 10 years. The Partnership believes that the General Partner will continue to review opportunities to sell the Partnership's properties and refinance its indebtedness consistent with its fiduciary obligations and with a view to maximizing returns to Unitholders. PROPERTIES. A description of the hotel properties in which the Partnership has an ownership interest is as follows. Except as otherwise indicated, all properties are owned in fee.
Date of Name and Location Purchase Rooms - --------------------------------- -------- ----- Hampton Inn-Syracuse(1) 12/85 117 6605 Old Collamer Rd. East Syracuse, New York Hampton Inn-Brentwood 12/85 114 5630 Franklin Pike Circle Nashville, Tennessee Hampton Inn-Aurora(1) 12/86 132 South Abilene Aurora, Colorado Hampton Inn-Albuquerque North 04/87 125 7433 Pan American Freeway Albuquerque, New Mexico GROWTH HOTEL INVESTORS COMBINED - ------------------------------- FUND NO.1(2) - --------- Hampton Inn-Memphis I-40 12/86 117 East(3) 1585 Sycamore View Drive Memphis, Tennessee Hampton Inn-Columbia-West 12/86 121 1094 Chris Drive West Columbia, South Carolina Hampton Inn-Spartanburg 12/86 112 6023 Alexander Road Spartanburg, South Carolina
10 14
Date of Name and Location Purchase Rooms - --------------------------------- -------- ----- Hampton Inn-Little Rock-North 12/86 123 500 West 29th Street North Little Rock, Arkansas Hampton Inn-Amarillo 12/86 116 1700 140 East Amarillo, Texas Hampton Inn-Greenville 12/86 123 246 Congaree Road Greenville, South Carolina Hampton Inn-Charleston-Airport 12/86 125 4701 Arco Lane North Charleston, South Carolina Hampton Inn-Memphis-Poplar 12/86 126 5320 Poplar Avenue Memphis, Tennessee Hampton Inn-Greensboro 12/86 121 2004 Veasly Street Greensboro, North Carolina Hampton Inn-Birmingham 12/86 123 1466 Montgomery Hwy. Birmingham, Alabama Hampton Inn-Atlanta-Roswell 03/87 129 9995 Dogwood Road Roswell, Georgia Hampton Inn-Chapel Hill 03/87 122 1740 US 15 & 501 Highway Chapel Hill, North Carolina Hampton Inn-Dallas-Richardson 03/87 130 1577 Gateway Richardson, Texas Hampton Inn-Nashville-Briley 03/87 120 Parkway(3) 2350 Elm Hill Parkway Nashville, Tennessee Hampton Inn-San Antonio 06/87 123 -Northwest 4803 Manitou Drive San Antonio, Texas Hampton Inn-Madison Heights 12/87 126 32420 Stephenson Highway Madison Heights, Michigan Hampton Inn-Mountain Brook(3) 12/87 131 2731 U.S. Highway 280 Birmingham, Alabama
11 15
Date of Name and Location Purchase Rooms - --------------------------------- -------- ----- Hampton Inn-Northlake(3) 09/88 130 3400 Northlake Parkway Atlanta, Georgia
(1) Property is owned by a joint venture or limited partnership in which the Partnership has a controlling interest. (2) The properties listed under this heading are owned by the Hampton Inns Joint Venture. (3) The property is subject to a land lease extending as follows:
Year Option Lease Period Property Expires (Years) ------------------------------------------ ------- ------- Hampton Inn-Memphis I-40 East 2004 20 Hampton Inn-Nashville-Briley Parkway 2006 20 Hampton Inn-Mountain Brook 2007 50 Hampton Inn-Northlake 2008 40
12 16 ACCUMULATED DEPRECIATION SCHEDULE. Set forth below is a table showing the gross carrying value and accumulated depreciation and federal tax basis of each of the Partnership's properties as of December 31, 1995. The information included in the table under the heading Growth Hotel Investors Combined Fund No. 1 represents 100% of interest of the Combined Fund in the properties. 32% of the Combined Fund is owned by the Partnership.
Gross Carrying Accumulated Federal Property Value Depreciation Rate Method Tax Basis - ------------------------- --------- ------------ ---- ------ --------- GROWTH HOTEL INVESTORS - ---------------------- Hampton Inn-Syracuse $,997,000 $1,877,000 5-39 S/L $,127,000 Hampton Inn-Brentwood 5,708,000 2,026,000 5-39 S/L 3,300,000 Hampton Inn-Aurora 6,944,000 3,005,000 5-39 S/L 3,700,000 Hampton Inn-Albuquerque 5,651,000 1,807,000 5-39 S/L 3,765,000 GROWTH HOTEL INVESTORS - ---------------------- Hampton Inn-Memphis I-40 4,123,000 1,525,000 5-30 S/L 1,921,000 Hampton Inn-Columbia West 4,618,000 1,588,000 5-30 S/L 2,334,000 Hampton Inn-Spartanburg 4,072,000 1,390,000 5-39 S/L 2,080,000 Hampton Inn-Little Rock 4,434,000 1,378,000 5-39 S/L 2,376,000 Hampton Inn-Amarillo 2,534,000 758,000 5-39 S/L 1,628,000 Hampton Inn-Greenville 4,473,000 1,396,000 5-30 S/L 2,400,000 Hampton Inn-Charleston 4,862,000 1,562,000 5-39 S/L 2,569,000 Hampton Inn-Memphis Poplar 6,183,000 1,753,000 5-30 S/L 3,474,000 Hampton Inn-Greensboro 4,376,000 1,380,000 5-39 S/L 2,358,000 Hampton Inn-Birmingham 5,061,000 1,522,000 5-30 S/L 2,816,000 Hampton Inn-Atlanta 5,622,000 1,395,000 5-30 S/L 4,010,000 Hampton Inn-Chapel Hill 4,685,000 1,226,000 5-30 S/L 3,274,000 Hampton Inn-Dallas 5,717,000 1,328,000 5-30 S/L 4,177,000 Hampton Inn-Nashville 4,654,000 1,487,000 5-30 S/L 2,980,000 Hampton Inn-San Antonio 4,999,000 1,293,000 5-30 S/L 3,519,000 Hampton Inn-Madison 6,795,000 2,209,000 5-39 S/L 4,338,000 Hampton Inn-Mountain Brook 5,360,000 2,144,000 5-30 S/L 3,004,000 Hampton Inn-Northlake 4,838,000 1,978,000 5-30 S/L 2,810,000 ----------- ----------- ---------- $11,706,000(1) $36,027,000(1) $6,960,000(1) =========== =========== ==========
__________________ (1) $51,269,920, $17,454,840 and $29,553,760 of gross carrying value, accumulated depreciation and Federal tax basis, respectively, are attributable to interests owned by the Partnership. 13 17 SCHEDULE OF MORTGAGES.
PRINCIPAL PRINCIPAL BALANCE AT BALANCE DECEMBER 31, INTEREST PERIOD MATURITY DUE AT PROPERTY 1995 RATE(%) AMORTIZED DATE MATURITY -------- ------------ -------- --------- ---------- --------- GROWTH HOTEL INVESTORS - ---------------------- Hampton Inn-Aurora $3,060,024 10.5 30 yrs. 1/1/97 3,037,000 Hampton Inn-Albuquerque North 2,375,000 10 - 5/1/97 2,375,000 GROWTH HOTEL INVESTORS - ---------------------- COMBINED FUND NO.1(1) - ------------------ Hampton Inn-Memphis I-40 East 1,797,398 10 30 yrs. 12/1/96 1,774,000 Hampton Inn-Columbia-West 2,092,809 10 30 yrs. 12/1/96 2,065,000 Hampton Inn-Spartanburg 1,793,705 10 30 yrs. 12/1/96 1,770,000 Hampton Inn-Little Rock-North 2,045,728 10 30 yrs. 12/1/96 2,018,000 Hampton Inn-Amarillo 1,137,337 10 30 yrs. 12/1/96 1,122,000 Hampton Inn-Greenville 2,084,500 10 30 yrs. 12/1/96 2,057,000 Hampton Inn-Charleston- 2,175,894 10 30 yrs. 12/1/96 2,146,000 Airport Hampton Inn-Memphis-Poplar 2,839,648 10 30 yrs. 12/1/96 2,801,000 Hampton Inn-Greensboro 2,011,571 10 30 yrs. 12/1/96 1,985,000 Hampton Inn-Birmingham 2,462,074 10 30 yrs. 12/1/96 2,429,000 Hampton Inn-Atlanta-Roswell 2,682,608 10 30 yrs. 12/1/96 2,646,000 Hampton Inn-Chapel Hill 2,290,661 10 30 yrs. 12/1/96 2,260,000 Hampton Inn-Dallas-Richardson 2,810,174 10 30 yrs. 12/1/96 2,772,000 Hampton Inn-Nashville-Briley 2,215,785 10 30 yrs. 12/1/96 2,185,000 Parkway Hampton Inn-San Antonio- 2,488,135 10 30 yrs. 12/1/96 2,455,000 Northwest Hampton Inn-Madison Heights 2,876,371 10 30 yrs. 12/1/96 2,837,000 Hampton Inn-Mountain Brook 2,586,905 7.63 30 yrs. 8/1/96 2,565,000 Hampton Inn-Northlake 2,406,754 7.63 30 yrs. 8/1/96 2,387,000 ----------- ----------- $46,233,081(1) $45,686,000(1) =========== ===========
__________________ (1) The information included in the table under the heading Growth Hotel Investors Combined Fund No. 1 represents 100% of the interest of the Combined Fund in the properties. 32% of the Combined Fund is owned by the Partnership. Accordingly, $18,871,202 and $18,299,680 of the principal balance at December 31, 1995 and at maturity, respectively, are attributable to interests owned by the Partnership. 14 18 OCCUPANCY. An occupancy and room rate summary for the years ended December 31, 1995, 1994 and 1993 is set forth on the following chart.
Average Average Occupancy Rate (%) Daily Room Rate ($) ------------------ ---------------------- 1995 1994 1993 1995 1994 1993 ---- ---- ---- ---- ---- ---- GROWTH HOTEL INVESTORS - ---------------------- Hampton Inn-Syracuse . . . . . . 60 71 76 54.76 50.61 48.32 Hampton Inn-Brentwood . . . . . . 82 86 83 62.26 54.42 50.51 Hampton Inn-Aurora . . . . . . . 79 78 74 56.04 52.00 50.55 Hampton Inn-Albuquerque North . . 80 85 84 54.97 52.37 49.70 GROWTH HOTEL INVESTORS COMBINED - ------------------------------- FUND NO.1 - --------- Hampton Inn-Memphis I-40 East . . 80 82 80 53.49 50.32 48.59 Hampton Inn-Columbia-West . . . . 81 84 84 54.42 51.17 47.32 Hampton Inn-Spartanburg . . . . . 69 70 68 47.83 42.89 40.36 Hampton Inn-Little Rock-North . . 79 78 77 48.79 45.52 43.20 Hampton Inn-Amarillo . . . . . . 75 77 79 50.55 47.12 44.31 Hampton Inn-Greenville . . . . . 81 80 79 52.30 47.62 44.99 Hampton Inn-Charleston-Airport . 76 80 79 53.48 50.16 47.35 Hampton Inn-Memphis-Poplar . . . 84 87 88 64.64 60.18 56.12 Hampton Inn-Greensboro . . . . . 86 87 84 57.99 51.50 47.11 Hampton Inn-Birmingham . . . . . 82 83 85 58.65 55.01 50.71 Hampton Inn-Atlanta-Roswell . . . 82 82 77 58.54 54.17 50.39 Hampton Inn-Chapel Hill . . . . . 87 82 79 56.14 50.95 46.39 Hampton Inn-Dallas-Richardson . . 78 76 67 50.82 46.63 45.77 Hampton Inn-Nashville-Briley Parkway . . . . . . . . . . . . 87 88 86 62.03 56.98 52.69 Hampton Inn-San Antonio-Northwest 62 72 78 57.67 57.19 55.11 Hampton Inn-Madison Heights . . . 71 72 67 54.04 51.21 49.68 Hampton Inn-Mountain Brook . . . 79 80 83 58.17 54.92 51.08 Hampton Inn-Northlake . . . . . . 81 76 73 54.86 52.33 48.68
15 19 SELECTED FINANCIAL DATA Set forth below is a summary of certain financial data for the Partnership which has been excerpted or derived from the Partnership's Annual Reports on Form 10-K for the years ended December 31, 1994, 1993, 1992, 1991 and 1990 and the Partnership's Quarterly Reports on Form 10-Q for the nine months ended September 30, 1995 and September 30, 1994. The quarterly data is unaudited. More comprehensive financial and other information is included in such reports and other documents filed by the Partnership with the Commission, and the following summary is qualified in its entirety by reference to such reports and other documents and all the financial information and related notes contained therein.
Nine Months Ended September 30, Year Ended December 31, ----------------- ------------------------------------------- 1995 1994 1994 1993 1992 1991 1990 ------ ------ -------- ------- ------- ------- ------- (Amounts in thousands except per unit data) TOTAL REVENUES: $8,098 $7,834 $ 10,049 $10,895 $ 8,798 $ 7,941 $ 7,345 ====== ====== ======== ======= ======= ======= ======= INCOME (LOSS) BEFORE MINORITY INTEREST IN JOINT VENTURES' OPERATIONS $3,021 $2,398 $2,920 $2,716 $(1,893) $(801) $(708) MINORITY INTEREST IN JOINT VENTURE OPERATIONS (35) (26) (36) (36) 34 163 55 EXTRAORDINARY ITEM - GAIN ON EXTINGUISHMENT OF DEBT ---- 605 606 ---- ---- ---- ---- ------- --- --- ------ ------- ------- ------- NET INCOME (LOSS) $2,986 $2,977 $3,490 $2,680 $(1,859) $(638) $(653) ====== ====== ====== ====== ======= ===== ===== NET INCOME (LOSS) PER LIMITED PARTNERSHIP ASSIGNEE UNIT (1): INCOME (LOSS) BEFORE EXTRAORDINARY ITEM $75 $60 $73 $68 $(44) $(15) $(16) EXTRAORDINARY ITEM - GAIN ON EXTINGUISHMENT OF DEBT ---- 15 15 ---- ---- ---- ---- ------- -- ------ ------ ------- ------- ------- NET INCOME (LOSS) $75 $75 $88 $68 $(44) $(15) $(16) === === === === ==== ==== ==== TOTAL ASSETS $29,943 $28,281 $27,898 $31,672 $29,908 $32,599 $34,040 ======= ======= ======= ======= ======= ======= ======= LONG TERM OBLIGATIONS: Notes payable $7,630 $7,665 $7,655 $12,488 $12,518 $12,638 $12,560 ====== ====== ====== ======= ======= ======= ======= CASH DISTRIBUTIONS PER LIMITED PARTNERSHIP ASSIGNEE UNIT (actual amount based on admission to partnership) $21 $20 $40 $35 $20 $20 $30 === === === === === === ===
(1) $1,000 original contribution per unit, based on weighted average limited partnership assignee units outstanding during the period, after allocation to the General Partner. 16 20 Unitholders are referred to the financial and other information included in the Partnership's Annual Report on Form 10-K for the fiscal year ended December 31, 1994, and the Partnership's Quarterly Report on Form 10-Q for the nine months ended September 30, 1995. Such reports and other documents may be examined and copies may be obtained from the offices of the Commission at 450 Fifth Street, N.W., Washington, D.C 20549, and at the regional offices of the Commission located in the Northwestern Atrium Center, 500 Madison Street, Suite 1400, Chicago, Illinois 60661, and 7 World Trade Center, New York, New York 10048. Copies should be available by mail upon payment of the Commission's customary charges by writing to the Commission's principal offices at 450 Fifth Street, N.W., Washington, D.C. 20549. SECTION 10. CONFLICTS OF INTEREST AND TRANSACTIONS WITH AFFILIATES. The General Partner, the Purchaser and their affiliates have conflicts of interest with respect to the Offer as set forth below. CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. The General Partner has a conflict of interest with respect to the Offer, including as a result of its affiliation with certain beneficial owners of the Purchaser. (See "Section 13. Background of the Offer".) VOTING BY THE PURCHASER. As a result of the Offer, the Purchaser may be in a position to significantly influence all Partnership decisions on which Unitholders may vote. (See "Section 7. Effects of the Offer".) This means that (i) non-tendering Unitholders could be prevented from taking action they desire but that the Purchaser opposes and (ii) the Purchaser may be able to take action desired by the Purchaser but opposed by the non-tendering Unitholders. REPAYMENT OF TENDER OFFER LOAN. A loan (the "PWRES Loan") may be obtained by the Purchaser in connection with the Offer. (See "Section 12. Source of Funds".) The Purchaser plans to service the PWRES Loan with amounts to be received by the Purchaser or its affiliates, whether in the form of distributions of cash flow from operations of the Growth Hotel Partnerships (as defined in section 12) or from the sale or other disposition of Tendered Units (as defined in Section 12) and general partnership interests in the Growth Hotel Partnerships ("Tender Cash Flow"), and capital contributions from its partners. The amount of the PWRES Loan is dependent upon the number of Tendered Units purchased in the Growth Hotel Tender Offers (as defined in Section 12), which number is not yet ascertainable. In the event that the Growth Hotel Tender Offers are fully subscribed, it is anticipated that the PWRES Loan will be approximately $20,800,000. One of several possible sources of Tender Cash Flow is the Purchaser's distributable portion of the proceeds of any sales or refinancings of Partnership properties attributable to Units owned by the Purchaser. Consequently, a conflict of interest may exist for the General Partner in determining whether and when to sell and/or refinance the Partnership's properties. Any such conflict, however, may be mitigated by the fact that (i) there exist other repayment sources, including capital contributions from the Purchaser's partners, (ii) the Purchaser's partners have agreed to advance funds to the Purchaser in order to enable the Purchaser to make timely interest payments, and (iii) the Purchaser may be able to refinance all or a portion of the PWRES Loan. DISTRIBUTIONS UPON SALES OR REFINANCINGS. As mentioned above, one source of Tender Cash Flow is the Purchaser's distributable portion of the proceeds of any sales or refinancings of Partnership properties attributable to Units owned by the Purchaser. The agreement governing the PWRES Loan will provide that the Purchaser is required to make a prepayment on the PWRES Loan of an amount equal to the Purchaser's distributable portion of the net proceeds (less amounts for taxes) of a sale (and 100% of the net proceeds of a refinancing) of the Purchaser's distributable portion of the proceeds of such sale or refinancing, whether or not distributed by the Partnership. Consequently, unless the Purchaser otherwise has funds available to make such a required prepayment, a conflict of interest may exist for the General Partner in determining whether and when to cause the Partnership to distribute the proceeds of any such sale or refinancing to the Partnership's partners. TRANSACTIONS WITH AFFILIATES. The General Partner of the Partnership, an affiliate of certain beneficial owners of the Purchaser, owns a 2% interest in the Partnership and thus receives, as a continuing interest in the Partnership, an amount equal to a 2% allocation of the Partnership's profits, and 2% of distributions. The General Partner also receives a Partnership management incentive equal to 10% of cash available for distribution, and the General Partner and its affiliates are entitled to be reimbursed for certain expenses. (See "Section 13. Background of the Offer" for information with regard to a recent change in control of the General Partner.) 17 21 The following chart sets forth amounts paid to the General Partner and its affiliates by the Partnership during the last three fiscal years and the nine months ended September 30, 1995.
9 Months Ended 1992 1993 1994 9/30/95 ---- ---- ---- ------- Continuing Interest $15,000 $26,000 $31,000 $15,000 Partnership Management 40,000 70,000 79,000 40,000 Incentive Reimbursement of Expenses 316,000 --- 171,000 90,000 Tax certiorari fee --- --- --- 1,000
SECTION 11. CERTAIN INFORMATION CONCERNING THE PURCHASER. The Purchaser was organized for the purpose of acquiring the Units. The partners of the Purchaser are Fleetwood and Cayuga. Fleetwood is a newly-formed Delaware corporation beneficially owned by Carl C. Icahn. Cayuga is a newly-formed Delaware limited partnership, and Cayuga Capital is a newly-formed Delaware corporation. The limited partners of Cayuga include employees, partners and/or affiliates of Apollo, an affiliate of Insignia and the former stockholders of NPI. The stockholders of Cayuga Capital include a partner of Apollo, an affiliate of Insignia and a former stockholder of NPI. The principal executive office of the Purchaser, Cayuga and Cayuga Capital is at 100 Jericho Quadrangle, Jericho, New York 11753. The principal executive office of Fleetwood is at 100 South Bedford Road, Mt. Kisco, New York 10549. For certain information concerning the partners of the Purchaser and their respective principals, see Schedule 1 to this Offer to Purchase. For certain financial information concerning the Purchaser and its partners, see Schedule 2 to this Offer to Purchase. Except as otherwise set forth herein, (i) neither the Purchaser, Fleetwood, Cayuga, Cayuga Capital, to the best of Purchaser's knowledge, the persons listed on Schedule 1 nor any affiliate of the foregoing beneficially owns or has a right to acquire any Units, (ii) neither the Purchaser, Fleetwood, Cayuga, Cayuga Capital, to the best of Purchaser's knowledge, the persons listed on Schedule 1, nor any affiliate thereof or director, executive officer or subsidiary of Cayuga Capital or Fleetwood has effected any transaction in the Units within the past 60 days, (iii) neither the Purchaser, Fleetwood, Cayuga, Cayuga Capital, to the best of Purchaser's knowledge, any of the persons listed on Schedule 1, nor any director or executive officer of Cayuga Capital or Fleetwood has any contract, arrangement, understanding or relationship with any other person with respect to any securities of the Partnership, including, but not limited to, contracts, arrangements, understandings or relationships concerning the transfer or voting thereof, joint ventures, loan or option arrangements, puts or calls, guarantees of loans, guarantees against loss or the giving or withholding of proxies, (iv) there have been no transactions or business relationships which would be required to be disclosed under the rules and regulations of the Commission between any of the Purchaser, Fleetwood, Cayuga, Cayuga Capital or, to the best of Purchaser's knowledge, the persons listed on Schedule 1, on the one hand, and the Partnership or its affiliates, on the other hand, and (v) there have been no contracts, negotiations or transactions between the Purchaser, Fleetwood, Cayuga, Cayuga Capital or, to the best of Purchaser's knowledge, the persons listed on Schedule 1, on the one hand, and the Partnership or its affiliates, on the other hand, concerning a merger, consolidation or acquisition, tender offer or other acquisition of securities, an election of directors or a sale or other transfer of a material amount of assets. The Purchaser currently owns 1 Unit which it acquired in February 1996 from Cayuga for $705. SECTION 12. SOURCE OF FUNDS. The Purchaser expects that approximately $11,550,000 (inclusive of fees and expenses) would be required to purchase the Units sought pursuant to the Offer, if tendered. Simultaneously with the commencement of the Offer, the Purchaser also commenced a tender offer for limited partnership assignee units of Growth Hotel Investors II, a California Limited Partnership (together with the Partnership, the "Growth Hotel 18 22 Partnerships"). The Offer and the other tender offer are collectively referred to herein as the "Growth Hotel Tender Offers" and the limited partnership assignee units of the Growth Hotel Partnerships which are purchased by the Purchaser pursuant to the Growth Hotel Tender Offers are referred to herein as the "Tendered Units". Neither of the Growth Hotel Tender Offers is dependent or conditioned upon the other Growth Hotel Tender Offer. Assuming the Growth Hotel Tender Offers are fully subscribed, the Purchaser will obtain not less than $10 million of the funds necessary to consummate the Growth Hotel Tender Offers from capital contributions from its partners. The remainder of such funds will be obtained from debt financing to be provided by Paine Webber Real Estate Securities Inc. (the "Lender") concurrently with the consummation of the Offer pursuant to the terms of a commitment letter, dated February 13, 1996 (the "Commitment Letter") between the Lender and the Purchaser. The Commitment Letter, which is subject to the completion by the Lender of its satisfactory review and due diligence analysis of the legal, business and financial aspects of the Offer, provides for the PWRES Loan to be made to the Purchaser in order to enable it to consummate the Growth Hotel Tender Offers. A funding fee of not less than $100,000 and up to $400,000 is payable by the Purchaser to the Lender in connection with the PWRES Loan. The PWRES Loan will be due and payable one year after initial funding subject to the right of the Purchaser to extend for two consecutive one-year periods provided that the PWRES Loan is not then in default. Interest on the PWRES Loan will accrue monthly and be payable in arrears at a rate per annum equal to 250 basis points over LIBOR during the initial 12 months of the loan, 350 basis points over LIBOR during the second 12 months of the loan and 450 basis points over LIBOR during the last 12 months of the loan. As of February 1, 1996 the LIBOR rate was 5 1/16% per annum. The Lender will also be entitled to additional interest on the PWRES Loan in the form of a residual fee. Payment of the Lender's additional interest, however, is subordinate to the prior return of the aggregate capital contributions received by the Purchaser, together with a 15% per annum return thereon. The residual fee will consist of not less than 10% and not more than 15% of Tender Cash Flow. The specified percentage to be received by the Lender will be based upon the period of time during which the PWRES Loan was outstanding. The amount of the PWRES Loan is dependent upon the number of Tendered Units acquired. Because such amount and the time of repayment of the PWRES Loan cannot be ascertained at this time, the effective rate of interest on the PWRES Loan cannot be determined. Although the PWRES Loan will be prepayable at any time without premium or penalty, a prepayment is required upon the occurrence of certain events. The Purchaser will be required to prepay the outstanding principal amount of the PWRES Loan in an amount equal to the Purchaser's distributable portion of the net proceeds (less amounts for taxes) of a sale (and 100% of the net proceeds of a refinancing) of a property owned by the Growth Hotel Partnerships, whether or not such amounts are distributed to the Purchaser. (See "Section 10. Conflicts of Interest and Transactions With Affiliates" for a discussion of certain conflicts of interest which will be created as a result of the Purchaser's obligation to prepay the PWRES Loan with the proceeds of sales or refinancings of Partnership properties.) As collateral security for the PWRES Loan, among other things, the Purchaser will be required to pledge and collaterally assign to the Lender the Tendered Units, other Units owned by affiliates of the Purchaser and approximately $2 million of additional collateral, and the Purchaser's partners will be required to pledge all their interests in the Purchaser. As additional collateral security, NPI Realty, the indirect managing general partner of the Partnership, will be required to pledge its general partnership interest in the General Partner to the Lender. Further, the Purchaser will establish an interest reserve account for the benefit of the Lender in an amount equal to 125% of the annualized interest on the PWRES Loan minus the actual or annualized distributions paid with respect to the Tendered Units during the most recent 12 month period. The Purchaser anticipates that the loan agreement governing the PWRES Loan will contain certain customary affirmative and negative reporting and operational covenants. The Purchaser will be required to pay the Lender reasonable and customary fees in connection with the PWRES Loan. It is also anticipated that the agreement governing the PWRES Loan will provide that certain actions (i.e., bankruptcy or insolvency and default under mortgage indebtedness) by the Growth Hotel Partnerships shall constitute a default under the PWRES Loan. 19 23 Neither the Purchaser nor the General Partner has any present plans or intentions with respect to a merger, reorganization or liquidation of the Partnership, a sale of assets or refinancing of any of the Partnership's properties (except that all of the outstanding mortgage debt is scheduled to mature (and will likely require refinancing) during or before May 1997) or a change in the management, capitalization or distribution policy of the Partnership. However, the Purchaser believes that the General Partner will continue to review opportunities to sell the Partnership's properties and refinance its indebtedness consistent with its fiduciary obligations and with a view to maximizing returns to Unitholders. The amount of the PWRES Loan is dependent upon the number of Tendered Units to be acquired, which amount is not currently ascertainable. If the Growth Hotel Tender Offers are successful, and the maximum number of Tender Units sought are tendered, unless properties owned by the Growth Hotel Partnerships are sold or refinanced and the proceeds thereof are distributed to the partners, repayment of the PWRES Loan would be dependent upon the ability of the Purchaser to obtain replacement financing. (See "Section 10. Conflicts of Interest and Transactions with Affiliates" for a discussion of certain conflicts of interest which will be created as a result of the Purchaser consummating the PWRES Loan.) Neither the Purchaser nor the General Partner is able to identify any specific property owned by the Growth Hotel Partnerships which is intended to be sold. The Purchaser anticipates that, over the course of the PWRES Loan or any refinancing thereof, the allocable share of sale or refinancing proceeds to be received by it on account of its investment in the Tendered Units will be sufficient to retire the principal balance of the PWRES Loan or any replacement loans. However, the Purchaser has not made any plans or arrangements to refinance the PWRES Loan. SECTION 13. BACKGROUND OF THE OFFER. ACQUISITION OF CONTROL. On December 6, 1993, a wholly-owned subsidiary of NPI assumed management and obtained control of the General Partner of the Partnership and certain other affiliated partnerships, by being appointed as substitute managing partner of the indirect managing general partner of the Partnership. At the time of such appointment, NPI was controlled by Michael L. Ashner, Arthur N. Queler and Martin Lifton. On October 12, 1994, NPI sold one-third of its stock to an affiliate of Apollo. On August 17, 1995, the stockholders of NPI entered into an agreement to sell all of the issued and outstanding stock of NPI to IFGP Corporation, an affiliate of Insignia. This transaction was consummated on January 19, 1996. (See the Form 8-K for the Partnership dated January 19, 1996 for additional information with respect to this transaction.) On October 19, 1995, Carl Icahn telephoned Andrew Farkas, Chairman of Insignia, and expressed an interest in making a tender offer for limited partnership assignee units of the Growth Hotel Partnerships. During the month of October, Mr. Icahn met with Mr. Farkas and Mr. Ashner and proposed making such tender offers through a joint venture with affiliates of NPI and Insignia. On October 31, 1995, Mr. Ashner informed Mr. Icahn that there was no interest in entering into such a joint venture. Discussions were again held regarding such a transaction in December 1995 and January and February 1996. On February 13, 1996, Mr. Ashner (on behalf of Cayuga) agreed to commence the Growth Hotel Tender Offers together with Mr. Icahn, provided that the Offers were made at the purchase prices specified in the Growth Hotel Tender Offers. On February 13, 1996, Cayuga and Fleetwood executed the partnership agreement of the Purchaser (the "Joint Venture Agreement"), which provides in substance that (i) the Units purchased pursuant to the Offer would be voted as directed by Cayuga and Fleetwood in proportion to their respective interests in the Purchaser, except that Cayuga would control certain aspects of the voting, including votes on any proposal (a) made by the General Partner of the Partnership, (b) to remove the General Partner, (c) that would in any way adversely alter the rights, authority or obligations of the General Partner or (d) to reduce any compensation payable to the General Partner or any affiliate of the General Partner; and (ii) except as contemplated by the foregoing provisions and subject to certain limited exceptions, (a) neither Cayuga nor Fleetwood or their respective affiliates and other related persons shall commence a tender offer for Units or purchase, buy, acquire or otherwise become the beneficial owner of Units, and (b) so long as an affiliate of NPI is the General Partner, Fleetwood will not (1) make, or in any way participate in, directly, or indirectly, any "solicitation" of "proxies" (as such terms are defined or used in Regulation 14A under the Exchange Act) or become a "participant" in any "election contest" (as such terms are defined or used in Rule 14a-11 of the Exchange Act) with respect to the Partnership, (2) initiate, propose or otherwise solicit Unitholders for the approval of one or more proposals with respect to the Partnership, or (3) instigate or encourage any Unitholder or 20 24 other third party to do any of the foregoing. The Joint Venture Agreement also provides that under certain limited circumstances NPI could be required to cause its affiliate to sell to Fleetwood or its designee the outstanding stock of NPI Realty for a formula price based primarily on the amount of property management fees paid by the Partnership to third parties (other than Hampton Inns and its affiliates) during the year preceding such sale. The foregoing is only a summary of the terms of the Joint Venture Agreement and is qualified in its entirety by reference to the full text of the Joint Venture Agreement, a copy of which has been filed as Exhibit (c)(1) to the Purchaser's Tender Offer Statement on Schedule 14D-1 and is incorporated herein by reference in its entirety. ESTABLISHMENT OF PURCHASE PRICE. The Purchaser has set the Purchase Price at $705 net per Unit. The Purchaser established the Purchase Price by analyzing a number of quantitative and qualitative factors including: (i) the volume and prices of recent secondary market resales of the Units; (ii) the lack of liquidity of an investment in the Partnership; (iii) an estimate of the liquidation value of the Partnership's assets; (iv) the costs to the Purchaser associated with acquiring the Units; (v) the administrative costs of continuing to own the Partnership's assets through a publicly registered limited partnership; and (vi) estimated transaction costs of completing the Offer of approximately $1,000,000. Secondary market sales activity for the Units, including privately negotiated sales, has been limited and sporadic. The Partnership's Form 10-K for the year ended December 31, 1994 states that "[n]o market for Limited Partnership Assignee Units exists, nor is expected to develop." At present, privately negotiated sales and sales through intermediaries (e.g., through the trading system operated by Chicago Partnership Board, Inc., which publishes sell offers by holders of Units) are the only means available to a Unitholder to liquidate an investment in Units (other than the Offer) because the Units are not listed or traded on any exchange or quoted on any NASDAQ list or system. High and low sales prices of Units may be obtained through certain entities such as Partnership Spectrum, an independent, third-party source which reports such information; however, the gross sales prices reported by Partnership Spectrum do not necessarily reflect the net sales proceeds received by sellers of Units, which typically are reduced by commissions and other secondary market transaction costs to amounts less than the reported prices. Set forth below are the high and the low sales prices for Units as reported by Partnership Spectrum during the periods indicated.
Low Sales High Sales Price Per Unit Price Per Unit -------------- -------------- 12/01/94 - 01/31/95 . . . . . . . 351.00 380.00 02/01/95 - 03/31/95 . . . . . . . 360.00 438.00 04/01/95 - 05/31/95 . . . . . . . 390.00 450.00 06/01/95 - 07/31/95 . . . . . . . 415.00 450.00 08/01/95 - 09/30/95 . . . . . . . 420.00 514.00 10/01/95 - 11/30/95 . . . . . . . 450.00 550.00
The Purchaser is offering to purchase Units which are a relatively illiquid investment and is not offering to purchase the Partnership's underlying assets. Consequently, the Purchaser does not believe that the underlying asset value of the Partnership is determinative in arriving at the Purchase Price. Nevertheless, the Purchaser derived the Liquidation Value for the Partnership's assets using the capitalization of income approach. In determining the Liquidation Value, the Purchaser first calculated the "Adjusted Value" of each of the Partnership's properties. The Adjusted Value was determined by reducing a property's net operating income ("NOI") for the twelve month period commencing on January 1, 1995 and ending December 31, 1995 (i.e., the excess of actual property revenues over actual property expenses during such period) by an amount customarily reserved for capital expenditures at hotel properties (the "FF&E Reserve"). This amount was then divided by an 11.5% capitalization rate (the "Cap Rate") and reduced by reason of the adjustments referred to in the table below to determine the property's Adjusted Value. The FF&E Reserve used was 5% of gross revenues. 21 25 THE PURCHASER BELIEVES THAT THE FF&E RESERVE AND CAP RATE UTILIZED BY IT ARE WITHIN A RANGE OF RESERVES AND CAPITALIZATION RATES CURRENTLY EMPLOYED IN THE MARKETPLACE. THE UTILIZATION OF DIFFERENT RESERVES AND CAPITALIZATION RATES COULD ALSO BE APPROPRIATE. IN THIS REGARD, UNITHOLDERS SHOULD BE AWARE THAT THE USE OF LOWER RESERVES AND/OR CAPITALIZATION RATES OR AN INCREASE IN NOI WOULD RESULT IN HIGHER ADJUSTED VALUES FOR THE PARTNERSHIP'S PROPERTIES. The following table applies the method used by the Purchaser to determine the Adjusted Value.
- --------------------------------------------------------------------------------- PROPERTY NOI FF&E RESERVE ADJUSTMENTS ADJUSTED VALUE - --------------------------------------------------------------------------------- Syracuse $ 453,704 $ 78,541 515,415(1)(2) 2,746,871 - --------------------------------------------------------------------------------- Brentwood 921,434 112,086 200,180(2) 6,837,629 - --------------------------------------------------------------------------------- Aurora 883,996 108,743 355,265(1)(2) 6,386,065 - --------------------------------------------------------------------------------- Albuquerque 1,024,406 105,143 405,415(2) 7,588,176 - --------------------------------------------------------------------------------- Memphis I-40 530,177 88,220 1,250,17(2)(3) 2,592,932 - --------------------------------------------------------------------------------- Columbia 911,528 104,431 215,720(2) 6,802,515 - --------------------------------------------------------------------------------- Spartanburg 379,375 68,413 218,990(2) 2,485,027 - --------------------------------------------------------------------------------- Little Rock 654,919 83,947 228,217(2) 4,736,757 - --------------------------------------------------------------------------------- Amarillo 690,617 86,623 201,129(2) 5,050,993 - --------------------------------------------------------------------------------- Greenville 682,231 93,852 171,086(2) 4,945,253 - --------------------------------------------------------------------------------- Charleston 785,162 98,950 195,323(2) 5,771,738 - --------------------------------------------------------------------------------- Memphis-Poplar 1,108,456 126,668 45,625(2) 8,491,662 - --------------------------------------------------------------------------------- Greensboro 907,535 108,414 54,475(2) 6,894,403 - --------------------------------------------------------------------------------- Birmingham 959,129 110,811 221,375(2) 7,155,303 - --------------------------------------------------------------------------------- Atlanta 972,108 112,006 49,790(2) 7,429,358 - --------------------------------------------------------------------------------- Chapel Hill 789,866 99,229 116,165(2) 5,889,374 - --------------------------------------------------------------------------------- Dallas 595,194 88,219 168,360(2) 4,240,118 - --------------------------------------------------------------------------------- Nashville 828,736 112,391 1,901,732(2)(3) 4,327,355 - --------------------------------------------------------------------------------- San Antonio 815,631 103,844 157,349(2) 6,032,103 - --------------------------------------------------------------------------------- Madison Heights 571,124 89,856 169,415(2) 4,015,524 - --------------------------------------------------------------------------------- Mountain Brook 828,906 110,896 1,075,277(2)(3) 5,168,288 - --------------------------------------------------------------------------------- Northlake 756,179 102,772 1,079,347(2)(3) 4,602,453 - --------------------------------------------------------------------------------- TOTAL $17,050,413 $2,194,055 $8,995,822 $120,189,897 - ---------------------------------------------------------------------------------
1. Includes $250,000 and $150,000, representing amounts required to be paid to joint venture partners in connection with the sale of the Syracuse and Aurora properties, respectively. 2. Includes the following amounts presently required under agreement with Hampton Inns to be expended on capital improvements by a purchaser of property as a condition to transfer of license to operate property as a Hampton Inn: Syracuse - $265,415, Brentwood - $200,180, Aurora - $205,265, Albuquerque - 22 26 $405,415, Memphis I-40 - $82,185, Columbia-West - $215,720, Spartanburg - $218,990, Little Rock - $228,217, Amarillo - $201,129, Greenville - $171,086, Charleston - $195,323, Memphis - Poplar - $45,625, Greensboro -$54,475, Birmingham - $221,375, Atlanta - $49,790, Chapel Hill - $116,165, Dallas - $168,360, Nashville - $135,465, San Antonio - $157,349, Madison Heights - $169,415, Mountain Brook - $216,045 and Northlake -$155,160. 3. Includes the following adjustments attributable to property being held under a land lease: Memphis I-40 - $1,167,987; Nashville - $1,766,267; Mountain Brook - $859,232; and Northlake - $924,187. Such amounts have been determined by dividing the Adjusted Value (prior to any adjustment other than that referred to in note 2) by the number of years remaining under the applicable land lease and dividing the amount so determined by the Cap Rate. To determine the Liquidation Value of the Partnership's assets, the Purchaser then (i) reduced the aggregate Adjusted Value by 3.5% ($4,206,646) to take into account the estimated closing costs which would be incurred upon the sale by the Partnership of its properties, including brokerage commissions, title costs, surveys, appraisals, legal fees and transfer taxes, and (ii) added to the aggregate Adjusted Value the amount of all net current assets (including net current assets of the Combined Fund) at December 31, 1995, which equaled $5,982,000. Finally, the Adjusted Value of each property was (i) reduced by subtracting to the extent of such property's Adjusted Value its long term debt as of December 31, 1995 (including any applicable prepayment penalty), which reduction amounted to approximately $46,535,000 in the aggregate, and (ii) further reduced the Adjusted Value to reflect the Partnership's 32% interest in the properties owned by the Combined Fund and the amount required to be paid to Hampton Inns under its joint venture agreement with the Combined Fund. The resulting Liquidation Value of the Partnership's assets was approximately $37,565,600 or $997 per Unit (based upon the percentage of capital distributions to which Unitholders are entitled). The Purchaser believes that realization by the Partnership of the Liquidation Value may be impacted by factors affecting real estate and the hotel industry generally. No Partnership properties or assets have been identified for sale, and neither the General Partner nor the Purchaser has any present plans or intentions with respect to liquidation of the Partnership. Furthermore, the Purchaser believes that sales of the Partnership's properties for all cash purchase prices may be affected by the foregoing factors. During the first quarter of 1994, Metric Realty, an unaffiliated third party whose affiliate performed asset management services for the Partnership and currently performs such services for affiliates of the General Partner, expressed an interest in purchasing all of the Partnership's property interests for a purchase price which the General Partner estimated would have resulted in a distribution to Unitholders of approximately $860 per Unit. Such expression of interest was preliminary in nature and was subject to the satisfaction of numerous conditions, including the preparation and execution of a purchase contract, extensive due diligence and the consent of Unitholders and third parties. The Partnership Agreement provides, among other things, that upon dissolution of the Partnership subsequent to the sale of all of the Partnership's properties, the General Partner is required to contribute capital to the Partnership in an amount equal to any deficit then existing in its capital account. Through ownership of Units by the Purchaser, the potential liability of the General Partner and its present and former beneficial owners is effectively reduced. Although there was a deficit in the capital account of the General Partner of $1,170,989 as of the end of 1994 (equal to $31.71 per Unit), such amount is subject to future reduction through allocation of a portion of the taxable gain, if any, that results from the sale by the Partnership of its properties under the Partnership Agreement. Consequently, the ultimate amount, if any, of the deficit and the date on which it would be paid are indeterminable. Accordingly, the Purchaser has attributed no value to this obligation in establishing the Purchase Price. The Purchase Price represents the price at which the Purchaser is willing to purchase Units. No independent person has been retained to evaluate or render any opinion with respect to the fairness of the Purchase Price and no representation is made by the Purchaser, any affiliate of the Purchaser or the General Partner as to such fairness. The Purchaser did not attempt to obtain current independent valuations or appraisals of the underlying properties and other assets owned by the Partnership. As indicated above, the Purchaser does not believe that such valuations or appraisals should be determinative as to the Purchaser's 23 27 establishment of the Purchase Price. Other measures of the value of the Units may be relevant to Unitholders. Unitholders are urged to consider carefully all of the information contained herein and consult with their own advisors, tax, financial or otherwise, in evaluating the terms of the Offer before deciding whether to tender Units. SECTION 14. CONDITIONS OF THE OFFER. Notwithstanding any other term of the Offer, the Purchaser shall not be required to accept for payment or to pay for any Units tendered if all authorizations, consents, orders or approvals of, or declarations or filings with, or expirations of waiting periods imposed by, any court, administrative agency or commission or other governmental authority or instrumentality, domestic or foreign, necessary for the consummation of the transactions contemplated by the Offer shall not have been filed, occurred or been obtained. Furthermore, notwithstanding any other term of the Offer, the Purchaser shall not be required to accept for payment or pay for any Units not theretofore accepted for payment or paid for and may terminate or amend the Offer as to such Units if, at any time on or after the date of the Offer and before the acceptance of such Units for payment or the payment therefor, any of the following conditions exists: (a) a preliminary or permanent injunction or other order of any federal or state court, government or governmental authority or agency shall have been issued and shall remain in effect which (i) makes illegal, delays or otherwise directly or indirectly restrains or prohibits the making of the Offer or the acceptance for payment of or payment for any Units by the Purchaser, (ii) imposes or confirms limitations on the ability of the Purchaser effectively to exercise full rights of ownership of any Units, including, without limitation, the right to vote any Units acquired by the Purchaser pursuant to the Offer or otherwise on all matters properly presented to the Partnership's Unitholders, (iii) requires divestiture by the Purchaser of any Units, (iv) causes any material diminution of the benefits to be derived by the Purchaser as a result of the transactions contemplated by the Offer, or (v) might materially adversely affect the business, properties, assets, liabilities, financial condition, operations, results of operations or prospects of the Purchaser or the Partnership; (b) there shall be any action taken, or any statute, rule, regulation or order proposed, enacted, enforced, promulgated, issued or deemed applicable to the Offer by any federal or state court, government or governmental authority or agency, which might, directly or indirectly, result in any of the consequences referred to in clauses (i) through (v) of paragraph (a) above; (c) any change or development shall have occurred or been threatened since the date hereof, in the business, properties, assets, liabilities, financial condition, operations, results of operations or prospects of the Partnership, which, in the reasonable judgment of the Purchaser, is or may be materially adverse to the Partnership, or the Purchaser shall have become aware of any fact that, in the reasonable judgment of the Purchaser, does or may have a material adverse effect on the value of the Units; (d) there shall have been threatened, instituted or pending any action or proceeding before any court or government agency or other regulatory or administrative agency or commission or by any other person challenging the acquisition of any Units pursuant to the Offer, or otherwise directly or indirectly relating to the Offer, or otherwise, in the reasonable judgment of the Purchaser, adversely affecting the Purchaser or the Partnership; (e) the Partnership shall have (i) issued, or authorized or proposed the issuance of, any partnership interests of any class, or any securities convertible into, or rights, warrants or options to acquire, any such interests or other convertible securities, (ii) issued or authorized or proposed the issuance of any other securities, in respect of, in lieu of, or in substitution for, all or any of the presently outstanding Units, (iii) refinanced any of the Partnership's properties, other than in the ordinary course of the Partnership's business and consistent with the past practice, (iv) declared or paid any distribution, other than in cash and consistent with past practice, on any of its partnership interests, or (v) the Partnership or the General Partner shall have authorized, proposed or announced its intention to propose any merger, consolidation or business combination transaction, acquisition of assets, disposition of assets or material change in its capitalization, or any comparable event not in the ordinary course of business and consistent with past practice; 24 28 (f) there shall have occurred (i) any general suspension of trading in, or limitation on prices for, securities on any national securities exchange or in the over-the-counter market in the United States, (ii) a declaration of a banking moratorium or any suspension of payments in respect of banks in the United States, (iii) any limitation by any governmental authority on, or other event which might affect, the extension of credit by lending institutions or result in any imposition of currency controls in the United States, (iv) a commencement of a war or armed hostilities or other national or international calamity directly or indirectly involving the United States, (v) a material change in United States or other currency exchange rates or a suspension of a limitation on the markets thereof, or (vi) in the case of any of the foregoing existing at the time of the commencement of the Offer, a material acceleration or worsening thereof; or (g) the transactions contemplated by the Commitment Letter shall not have been consummated. The foregoing conditions are for the sole benefit of the Purchaser and may be asserted by the Purchaser regardless of the circumstances giving rise to such conditions or may be waived by the Purchaser in whole or in part at any time and from time to time in its sole discretion. Any determination by the Purchaser concerning the events described above will be final and binding upon all parties. SECTION 15. CERTAIN LEGAL MATTERS. GENERAL. Except as set forth in this Section 15, the Purchaser is not aware of any filings, approvals or other actions by any domestic or foreign governmental or administrative agency that would be required prior to the acquisition of Units by the Purchaser pursuant to the Offer. Should any such approval or other action be required, it is the Purchaser's present intention that such additional approval or action would be sought. While there is no present intent to delay the purchase of Units tendered pursuant to the Offer pending receipt of any such additional approval or the taking of any such action, there can be no assurance that any such additional approval or action, if needed, would be obtained without substantial conditions or that adverse consequences might not result to the Partnership's business, or that certain parts of the Partnership's business might not have to be disposed of or held separate or other substantial conditions complied with in order to obtain such approval or action, any of which could cause the Purchaser to elect to terminate the Offer without purchasing Units thereunder. The Purchaser's obligation to purchase and pay for Units is subject to certain conditions, including conditions related to the legal matters discussed in this Section 15. ANTITRUST. The Purchaser does not believe that the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, is applicable to the acquisition of Units contemplated by the Offer. MARGIN REQUIREMENTS. The Units are not "margin securities" under the regulations of the Board of Governors of the Federal Reserve System and, accordingly, such regulations are not applicable to the Offer. STATE TAKEOVER LAWS. A number of states have adopted anti-takeover laws which purport, to varying degrees, to be applicable to attempts to acquire securities of corporations which are incorporated in such states or which have substantial assets, securityholders, principal executive offices or principal places of business therein. Although the Purchaser has not attempted to comply with any state anti-takeover statutes in connection with the Offer, the Purchaser reserves the right to challenge the validity or applicability of any state law allegedly applicable to the Offer and nothing in this Offer to Purchase nor any action taken in connection herewith is intended as a waiver of such right. If any state anti-takeover statute is applicable to the Offer, the Purchaser might be unable to accept for payment or purchase Units tendered pursuant to the Offer or be delayed in continuing or consummating the Offer. In such case, the Purchaser may not be obligated to accept for purchase or pay for any Units tendered. SECTION 16. FEES AND EXPENSES. Except as set forth in this Section 16, the Purchaser will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of Units pursuant to the Offer. The Purchaser has retained The Herman Group, Inc. to act as Information Agent and as Depositary in connection with the Offer. The Purchaser will pay The Herman Group reasonable and customary compensation 25 29 for their respective services in connection with the Offer, plus reimbursement for out-of-pocket expenses. The Purchaser will also pay all costs and expenses of printing and mailing the Offer and its legal fees and expenses. SECTION 17. MISCELLANEOUS. The Purchaser is not aware of any jurisdiction in which the making of the Offer is not in compliance with applicable law. If the Purchaser becomes aware of any jurisdiction in which the making of the Offer would not be in compliance with applicable law, the Purchaser will make a good faith effort to comply with any such law. If, after such good faith effort, the Purchaser cannot comply with any such law, the Offer will not be made to (nor will tenders be accepted from or on behalf of) the holders of Units residing in such jurisdiction. No person has been authorized to give any information or to make any representation on behalf of the Purchaser not contained herein or in the Letter of Transmittal and, if given or made, such information or representation must not be relied upon as having been authorized. The Purchaser has filed with the Commission a Schedule 14D-1, pursuant to Rule 14d-3 under the Exchange Act, furnishing certain additional information with respect to the Offer, and may file amendments thereto. The Schedule 14D-1 and any amendments thereto, including exhibits, may be inspected and copies may be obtained at the same places and in the same manner as set forth in Section 9 hereof (except that they will not be available at the regional offices of the Commission). Devon Associates February 15, 1996 26 30 Appendix A GLOSSARY APOLLO: Apollo Real Estate Advisors, L.P. BUSINESS DAY: Any day other than Saturday, Sunday or a federal holiday, and consists of the time period from 12:01 a.m. through 12:00 Midnight, New York City time CAP RATE: The 11.5% capitalization rate used in calculating the Liquidation Value CAYUGA: Cayuga Associates L.P. CAYUGA CAPITAL: Cayuga Capital Corporation, the general partner of Cayuga CODE: The Internal Revenue Code of 1986, as amended COMBINED FUND: Growth Hotel Investors Combined Fund No. 1 COMMISSION: The Securities and Exchange Commission COMMITMENT LETTER: The commitment letter dated February 13, 1996 between the Lender and the Purchaser DEPOSITARY: The Herman Group, Inc. ELIGIBLE INSTITUTION: A member firm of a registered national securities exchange, a member of the National Association of Securities Dealers, Inc., a commercial bank, savings bank, credit union, savings and loan association or trust company having an office, branch or agency in the United States EXCHANGE ACT: Securities Exchange Act of 1934, as amended EXPIRATION DATE: 12:00 Midnight, New York City Time on March 14, 1996, unless and as extended GENERAL PARTNER: Montgomery Realty Company-85 GROWTH HOTEL PARTNERSHIPS: The Partnership together with Growth Hotel Investors II, a California limited partnership GROWTH HOTEL TENDER OFFERS: The Offer together with the offer of the Partnership for limited partnership assignee units of Growth Hotel Investors II, a California limited partnership INSIGNIA: Insignia Financial Group, Inc. INFORMATION AGENT: The Herman Group, Inc. LENDER: Paine Webber Real Estate Securities Inc. LIQUIDATION VALUE: The Purchaser's estimate of the liquidation value of the Partnership's assets, as determined in Section 13 of the Offer to Purchase NOI: Net Operating Income NPI: National Property Investors, Inc. 31 NPI REALTY: NPI Realty Management Corp. OFFER: This offer of the Purchaser set forth in this Offer to Purchase and the related Letter of Transmittal, as each may be supplemented or amended from time to time OFFER TO PURCHASE: This Offer of the Purchaser, dated February 15, 1996 PARTNERSHIP: Growth Hotel Investors, a California limited partnership PURCHASER: Devon Associates PWRES LOAN: The loan to the Purchaser contemplated by the Commitment Letter TIN: Taxpayer identification number UNITHOLDERS: Holders of Units UNITS: limited partnership assignee units of the Partnership 2 32 SCHEDULE 1 PARTNERS OF THE PURCHASER AND THEIR RESPECTIVE PRINCIPALS Set forth below is the name, current business address, present principal occupation, and employment history for at least the past five years of each director and executive officer of Cayuga Capital and Fleetwood. Each person listed below is a citizen of the United States. PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT; MATERIAL OCCUPATION, POSITION, OFFICE OR EMPLOYMENT FOR THE PAST FIVE YEARS Cayuga Capital MICHAEL L. ASHNER. Mr. Ashner has been a Director and President of Cayuga Capital since November 1995. Since January 1996, Mr. Ashner has also been President and Chief Executive Officer of Winthrop Financial Associates, A Limited Partnership ("Winthrop"). From June 1994 until January 1996, Mr. Ashner was a Director, President and Co-Chairman of NPI. Mr. Ashner was also a Director and executive officer of NPI Property Management Corporation ("NPI Management") from April 1984 until January 1996. Since 1981, Mr. Ashner has also served as President of Exeter Capital Corporation, a firm which has organized and administered real estate limited partnerships. Mr. Ashner's business address is 100 Jericho Quadrangle, Suite 214, Jericho, New York 11753. W. EDWARD SCHEETZ. Mr. Scheetz has been a Director of Cayuga Capital since November 1995. Mr. Scheetz was a Director of NPI from October 1994 until January 1996. Since May 1993, Mr. Scheetz has been a limited partner of Apollo, the managing general partner of Apollo Real Estate Investment Fund, L.P., a private investment fund. Mr. Scheetz has also served as a Director of Roland International, Inc., a real estate investment company since January 1994, and as a Director of Capital Apartment Properties, Inc., a multi-family residential real estate investment trust, since January 1994. Since June 1995, Mr. Scheetz has also served as a Director of Crocker Realty Trust, Inc. From 1989 to May 1993, Mr. Scheetz was a principal of Trammel Crow Ventures, a national real estate investment firm. Mr. Scheetz received his A.B. in Economics, Magna Cum Laude, from Princeton University. Mr. Scheetz's business address is 1301 Avenue of the Americas, 38th floor, New York, New York 10019. FRANK M. GARRISON. Mr. Garrison has been a Director, Vice President and Assistant Treasurer of Cayuga Capital since February 1996. Mr. Garrison has also been Executive Managing Director of Insignia and President of Insignia Financial Services since July 1994. Between January 1993 and July 1994, Mr. Garrison was Manager Director of Investment Banking of Insignia. From January 1992 to December 1992, Mr. Garrison was Vice President -- Investment Banking of Insignia. From January 1991 to December 1991, Mr. Garrison was employed by Donelson Ventures Holdings, L.P., a limited partnership engaged in real estate investing activities. From January 1989 to December 1990, he was an employee of Jacques-Miller Inc. Mr. Garrison's business address is 102 Woodmont Blvd., St. 400, Nashville, TN 37205. PETER BRAVERMAN. Mr. Braverman has been a Vice President of Cayuga Capital since November 1995. Since January 1996, Mr. Braverman has been a Senior Vice President of Winthrop. From June 1995 until January 1996, Mr. Braverman was a Vice President of NPI and NPI Management. From June 1991 until March 1994, Mr. Braverman was President of the Braverman Group, a firm specializing in management consulting for the real estate and construction industries. From 1988 to 1991, Mr. Braverman was Vice President and Assistant 33 Secretary of Fischbach Corporation, a publicly traded, international real estate and construction firm. Mr. Braverman's business address is 100 Jericho Quadrangle, Suite 214, Jericho, New York 11753. ARTHUR N. QUELER. Mr. Queler has been a Director and Treasurer of Cayuga Capital since November 1995. From June 1994 until January 1996, Mr. Queler was a Director, Executive Vice President, Secretary and Treasurer of NPI and from 1984 until January 1996 was a Director and executive officer of NPI Management. Mr. Queler has also served as President of ANQ Securities, Inc., a NASD registered broker-dealer firm which has been responsible for supervision of licensed brokers and coordination with a nationwide broker-dealer network for the marketing of NPI investment programs, since 1983. Mr. Queler's business address is 5665 Northside Drive, N.W., Suite 370, Atlanta, Georgia 30328. Fleetwood Corp. CARL C. ICAHN. Mr. Icahn has been the sole Director of Fleetwood since February 1996. He is also President and a Director of Starfire Holding Corporation (formerly Icahn Holding Corporation), a Delaware corporation ("SHC") and Chairman of the Board and a Director of various of SHC's subsidiaries, including ACF Industries, Inc., a New Jersey corporation ("ACF"). SHC is primarily engaged in the business of holding, either directly or through subsidiaries, a majority of the common stock of ACF. ACF is primarily engaged in the business of leasing, selling and manufacturing railroad freight and tank cars. Mr. Icahn has been President and a Director of SHC since August 1982 and has been a Director of ACF since June 1984 and Chairman of the Board of ACF since October 1984. Mr. Icahn also maintains similar positions with various of ACF's affiliates, including; (i) since 1968, Mr. Icahn has been Chairman of the Board, President and a Director of Icahn & Co., Inc., a Delaware corporation (collectively with its predecessor companies by merger, "Icahn & Co."), which is a registered broker-dealer and a member of the NASD; (ii) since November 1990, Mr. Icahn has been Chairman of the Board and a Director of American Property Investors, Inc., a Delaware corporation ("API"), primarily engaged in the business of acting as general partner of American Real Estate Partners, L.P., and (iii) from 1986 until January 1993, when he resigned, Mr. Icahn was a Director and Chairman of the Board of Trans World Airlines, Inc. ("TWA"). Since June 1993, Mr. Icahn has also served as a Director of Astrum International Corp., a Delaware holding company ("Astrum") whose principal subsidiaries are Samsonite Corporation, a manufacturer and distributor of luggage, Culligan International Company, a manufacturer of water purification and treatment equipment and McGregor Corporation, a manufacturer and distributor of apparel products and licensor of apparel brand names. Mr. Icahn's business address is 114 West 47th Street, 19th floor, New York, New York 10036. EDWARD E. MATTNER. Mr. Mattner has been President of Fleetwood since February 1996. Since May 1976, Mr. Mattner has been employed as a securities trader at Icahn & Co., a registered broker-dealer and a member of the NASD. Mr. Mattner's business address is 114 West 47th Street, 19th floor, New York, New York 10036. RICHARD T. BUONATO. Mr. Buonato has been Treasurer of Fleetwood since February 1996. He is also Vice President and Controller of Icahn & Co., a registered broker-dealer and member of the NASD. Mr. Buonato has served as Vice President since December 1977 and as Controller since May 1976. Since February 1982, Mr. Buonato has also served as Vice President and Controller of SHC. Mr. Buonato's business address is 114 West 47th Street, 19th floor, New York, New York 10036. GAIL GOLDEN. Ms. Golden has been Vice President and Secretary of Fleetwood since February 1996. She has also been acting as Chief Executive Officer of Global Travel Marketing Service since December 1995. Since August 1978, Ms. Golden has acted as Vice President -- Administration of Icahn & Co., Inc. Ms. Golden's business address is 114 West 47th Street, 19th Floor, New York, New York 10036. 34 SCHEDULE 2 Independent Auditor's Report To the Partners Cayuga Associates L.P. (A Delaware Limited Partnership) Jericho, New York We have audited the accompanying consolidated balance sheet of Cayuga Associates L.P. (A Delaware Limited Partnership) and subsidiary as of February 14, 1996. This financial statement is the responsibility of the Company's management. Our responsibility is to express an opinion on this financial statement based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the balance sheet is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statement. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall balance sheet presentation. We believe that our audit of the balance sheet provides a reasonable basis for our opinion. In our opinion, the financial statement referred to above presents fairly, in all material respects, the consolidated financial position of Cayuga Associates L.P. (A Delaware Limited Partnership) and subsidiary as of February 14, 1996 in conformity with generally accepted accounting principles. IMOWITZ KOENIG & CO., LLP Certified Public Accountants New York, New York February 14, 1996 35 CAYUGA ASSOCIATES L.P., AND SUBSIDIARY (A Delaware Limited Partnership) Consolidated Balance Sheet February 14, 1996 ASSETS - ------ Cash $ 998,500 Investment in Limited Partnerships 1,500 Deferred Costs 1,100,000 ------------- Total Assets $ 2,100,000 ============= LIABILITIES AND PARTNERS' EQUITY - -------------------------------- Accrued Expenses $ 1,100,000 ------------- Minority Interest 330,000 ------------- Commitment Partners' Equity: General Partner 6,700 Limited Partners 663,300 ------------- Total Partners' Equity 670,000 ------------- Total Liabilities and Partners' Equity $ 2,100,000 =============
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENT 36 CAYUGA ASSOCIATES L.P., AND SUBSIDIARY (A DELAWARE LIMITED PARTNERSHIP) Notes to Consolidated Financial Statement 1. ORGANIZATION Cayuga Associates L.P., a Delaware Limited Partnership ("Cayuga"), was formed on October 30, 1995. Cayuga is a general partner in Devon Associates ("Devon"), a joint venture which plans to acquire limited partnership assignee units in Growth Hotel Investors, a California limited partnership, and in Growth Hotel Investors II, a California limited partnership (the "Limited Partnerships"). The general partner of Cayuga is Cayuga Capital Corporation, a Delaware Corporation ("Cayuga Capital"). A shareholder of Cayuga Capital controls the general partners of the Limited Partnerships. 2. PRINCIPLES OF CONSOLIDATION The consolidated balance sheet includes the accounts of Cayuga and its majority owned subsidiary, Devon Associates (collectively referred to as the "Partnership"). Material intercompany transactions and account balances are eliminated in consolidation. 3. DEFERRED COSTS Deferred costs consist of fees and expenses related to the proposed offers to purchase units in the Limited Partnerships. The costs will be capitalized as part of the Partnership's investment upon the consummation of the purchases. 4. PARTNERS' EQUITY The partnership agreements of Cayuga and Devon require the partners to contribute up to an additional $9,000,000, in the aggregate, to the Partnership in order to effect the acquisition of the Limited Partnership assignee units. The timing of the contributions will be made in conjunction with the requirements of the loan commitment (See Note 5). 37 CAYUGA ASSOCIATES L.P., AND SUBSIDIARY (A DELAWARE LIMITED PARTNERSHIP) Notes to Consolidated Financial Statement 5. COMMITMENT In order to complete the purchase of Limited Partnership assignee units, the Partnership has received a commitment for debt financing from Paine Webber Real Estate Securities Inc. ("Paine Webber") subject to final approval by Paine Webber. The amount of the financing to be received is subject to a formula, based on capital contributed to the Partnership, as outlined in the commitment. The loan will be due one year after initial funding, subject to the right to extend such loan for two consecutive one-year periods, provided that the loan is not then in default. Interest will accrue at a rate per annum equal to 250 basis points over one-month LIBOR (approximately 5% per annum at February 14, 1996) during the initial twelve months of the loan, 350 basis points over one- month LIBOR during the second twelve months of the loan and 450 basis points over one-month LIBOR during the last twelve months of the loan. The lender will also be entitled to additional interest on the loan pursuant to the terms of the formula set forth in the commitment. Prepayment of the loan is required upon the occurrence of certain events. The collateral for the loan includes the Limited Partnership assignee units acquired, additional Limited Partnership assignee units owned by affiliates, approximately $2,000,000 of additional collateral and all interests in Devon. It is anticipated that the Partnership will incur approximately $1,000,000 in fees and expenses relating to the financing. 38 Independent Auditor's Report To the Partners Devon Associates Jericho, New York We have audited the accompanying balance sheet of Devon Associates as of February 14, 1996. This financial statement is the responsibility of the Company's management. Our responsibility is to express an opinion on this financial statement based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the balance sheet is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statement. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall balance sheet presentation. We believe that our audit of the balance sheet provides a reasonable basis for our opinion. In our opinion, the balance sheet referred to above presents fairly, in all material respects, the financial position of Devon Associates as of February 14, 1996 in conformity with generally accepted accounting principles. IMOWITZ KOENIG & CO., LLP Certified Public Accountants New York, New York February 14, 1996 39 DEVON ASSOCIATES Balance Sheet February 14, 1996 ASSETS - ------ Cash $ 998,500 Investment in Limited Partnerships 1,500 Deferred Costs 1,000,000 ----------- Total Assets $ 2,000,000 =========== LIABILITIES AND PARTNERS' EQUITY - -------------------------------- Accrued Expenses $ 1,000,000 ----------- Commitment Partners' Equity 1,000,000 ----------- Total Liabilities and Partners' Equity $ 2,000,000 ===========
SEE NOTES TO FINANCIAL STATEMENT 40 DEVON ASSOCIATES NOTES TO FINANCIAL STATEMENT 1. ORGANIZATION Devon Associates ("Devon" or the "Partnership"), was formed on February 13, 1996. Devon proposes to acquire limited partnership assignee units in Growth Hotel Investors, a California limited partnership, and in Growth Hotel Investors II, a California limited partnership (the "Limited Partnerships"). The general partners of Devon are Cayuga Associates L.P., a Delaware Limited Partnership ("Cayuga") and Fleetwood Corp., A Delaware Corporation ("Fleetwood"). A shareholder of the general partner of Cayuga controls the general partners of the Limited Partnerships. 2. DEFERRED COSTS Deferred costs consist of fees and expenses related to the offers to purchase units in the Limited Partnerships. These costs will be capitalized as part of Devon's investment upon consummation of the purchases. 3. PARTNERS' EQUITY The partnership agreement requires the partners to contribute up to an additional $9,000,000 to the Partnership in order to effect the acquisition of the Limited Partnership assignee units. The timing of the contributions will be made in conjunction with the requirements of the loan commitment (See Note 4). 4. COMMITMENT In order to complete the purchase of limited partnership assignee units, Devon has received a commitment for debt financing from Paine Webber Real Estate Securities Inc. ("Paine Webber") subject to final approval by Paine Webber. The amount of the financing to be received is subject to a formula, based on capital contributed to the Partnership, as outlined in the commitment. The loan will be due one year after initial 41 funding, subject to the right to extend such loan for two consecutive one-year periods, provided that the loan is not then in default. Interest will accrue at a rate per annum equal to 250 basis points over one-month LIBOR (approximately 5% per annum at February 14, 1996) during the initial twelve months of the loan, 350 basis points over one-month LIBOR during the second twelve months of the loan and 450 basis points over one-month LIBOR during the last twelve months of the loan. The lender will also be entitled to additional interest on the loan pursuant to the terms of the formula set forth in the commitment. Prepayment of the loan is required upon the occurrence of certain events. The collateral for the loan includes the Limited Partnership assignee units acquired, additional Limited Partnership assignee units owned by affiliates, approximately $2,000,000 of additional collateral and all interests in Devon. It is anticipated that Devon will incur approximately $1,000,000 in fees and expenses relating to the financing. 42 FLEETWOOD CORP. BALANCE SHEET FEBRUARY 13, 1996 (NOT AUDITED) ASSETS - ------ Cash $ 20,000 Investment in Devon Associates $ 330,000 --------- Total Assets $ 350,000 ========= SHAREHOLDER'S EQUITY - -------------------- Common Stock $ 1 --------- Additional Paid - in Capital $ 349,999 --------- Total Shareholder's Equity $ 350,000 =========
43 The Letter of Transmittal and any other required documents should be sent or delivered by each Unitholder or his broker, dealer, commercial bank, trust company or other nominee to the Depositary at the address set forth below: THE HERMAN GROUP, INC. By Hand or Overnight Delivery: 2121 Jacinto Street 26th Floor Dallas, Texas 75201 By Mail (insured or registered recommended): P.O. Box 357 Dallas, Texas 75221-9602 By Facsimile: (214) 999-9348 or (214) 999-9323 For Telephone Information contact the Information Agent at: (800) 530-4966 Any questions or requests for assistance or for additional copies of this Offer to Purchase, the Letter of Transmittal and other tender offer materials may be directed to the Information Agent at the telephone number listed above. You may also contact your broker for assistance concerning the Offer. EX-99.A2 3 LETTER OF TRANSMITTAL 1 EXHIBIT 99.(a)(2) GROWTH HOTEL INVESTORS, A CALIFORNIA LIMITED PARTNERSHIP LETTER OF TRANSMITTAL TAX IDENTIFICATION NO.: (Please indicate changes or corrections to the name, address and Tax Identification Number printed above.) THE OFFER, WITHDRAWAL RIGHTS AND PRORATION PERIOD WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON MARCH 14, 1996 (THE "EXPIRATION DATE") UNLESS EXTENDED. To participate in the Offer, a duly executed copy of this Letter of Transmittal and any other documents required by this Letter of Transmittal must be received by the Depositary on or prior to the Expiration Date. Delivery of this Letter of Transmittal or any other required documents to an address other than as set forth below does not constitute valid delivery. The method of delivery of all documents is at the election and risk of the tendering Unitholder. Please use the pre-addressed, postage-paid envelope provided. This Letter of Transmittal is to be completed by Unitholders of Growth Hotel Investors, a California limited partnership (the "Partnership"), pursuant to the procedures set forth in the Offer to Purchase (as defined below). Capitalized terms used herein and not defined herein have the meanings ascribed to such terms in the Offer to Purchase. PLEASE CAREFULLY READ THE ACCOMPANYING INSTRUCTIONS Gentlemen: The undersigned hereby tenders to Devon Associates (the "Purchaser") the number of assignee limited partnership units ("Units") in the Partnership set forth below at $705 per Unit upon the terms and subject to the conditions set forth in the Offer to Purchase, dated February 15, 1996 (the "Offer to Purchase"), and this Letter of Transmittal (which together constitute the "Offer"). Receipt of the Offer to Purchase is hereby acknowledged. The undersigned recognizes that, if more than 15,000 Units are validly tendered prior to or on the Expiration Date and not properly withdrawn, the Purchaser will, upon the terms of the Offer, accept for payment from among those Units tendered prior to or on the Expiration Date 15,000 Units on a pro rata basis, with adjustments to avoid purchases of certain fractional Units, based upon the number of Units validly tendered prior to the Expiration Date and not withdrawn. Subject to and effective upon acceptance for payment of any of the Units tendered hereby, the undersigned hereby sells, assigns and transfers to, or upon the order of, Purchaser all right, title and interest in and to such Units which are purchased pursuant to the Offer. The undersigned hereby irrevocably constitutes and appoints the Purchaser as the true and lawful agent and attorney-in-fact of the undersigned with respect to such Units, with full power of substitution (such power of attorney being deemed to be an irrevocable power coupled with an interest), to deliver such Units and transfer ownership of such Units on the books of the Partnership, together with all accompanying evidences of transfer and authenticity, to or upon the order of the Purchaser and, upon payment of the purchase price in respect of such Units by the Purchaser, to receive all benefits and otherwise exercise all rights of beneficial ownership of such Units including, without limitation, all voting rights all in accordance with the terms of the Offer. Subject to and effective upon the purchase of any Units tendered hereby, the undersigned hereby requests that the Purchaser be admitted to the Partnership as a "substitute Limited Partner" under the terms of the Partnership Agreement of the Partnership. Upon the purchase of Units pursuant to the Offer, all prior proxies and consents given by the undersigned with respect to such Units will be revoked and no subsequent proxies or consents may be given (and if given will not be deemed effective). In addition, by executing this Letter of Transmittal, the undersigned assigns to the Purchaser all of the undersigned's right to receive distributions from the Partnership with respect to Units which are purchased pursuant to the Offer. The undersigned hereby represents and warrants that the undersigned owns the Units tendered hereby within the meaning of Rule 13d-3 under the Securities Exchange Act of 1934, as amended, and has full power and authority to validly tender, sell, assign and transfer the Units tendered hereby, and that when any such Units are purchased by the Purchaser, the Purchaser will acquire good, marketable and unencumbered title thereto, free and clear of all liens, restrictions, charges, encumbrances, conditional sales agreements or other obligations relating to the sale or transfer thereof, and such Units will not be subject to any adverse claim. Upon request, the undersigned will execute and deliver any additional documents deemed by the Purchaser to be necessary or desirable to complete the assignment, transfer, or purchase of Units tendered hereby. The undersigned understands that a tender of Units to the Purchaser will constitute a binding agreement between the undersigned and the Purchaser upon the terms and subject to the conditions of the Offer. The undersigned recognizes that under certain circumstances set forth in the Offer to Purchase, the Purchaser may not be required to accept for payment any of the Units tendered hereby. In such event, the undersigned understands that any Letter of Transmittal for Units not accepted for payment will be destroyed by the purchaser. All authority herein conferred or agreed to be conferred shall survive the death or incapacity of the undersigned and any obligations of the undersigned shall be binding upon the heirs, personal representatives, successors and assigns of the undersigned. Except as stated in the Offer to Purchase, this tender is irrevocable. NO. UNITS UNIT PRICE TOTAL PURCHASE PRICE ================================================================================ SIGNATURE BOX-1 INDIVIDUALS AND JOINT OWNERS (PLEASE READ AND COMPLETE AS NECESSARY BOXES A, B, AND C ON THE FOLLOWING PAGE) ================================================================================ Please sign exactly as your name is printed (or corrected) above. For joint owners, each joint owner must sign. (See Instruction 1.) The signatory hereto hereby certifies under penalties of perjury the statements in Box A, Box B and, if applicable Box C. IMPORTANT: TRUSTEES, EXECUTORS, ADMINISTRATORS, GUARDIANS, ATTORNEYS-IN-FACT, OFFICERS OF CORPORATIONS OR OTHER PERSONS ACTING IN A FIDUCIARY OR REPRESENTATIVE CAPACITY, SHOULD COMPLETE SIGNATURE BOX 2 FOR TRUSTEES, CORPORATIONS AND FIDUCIARIES. ================================================================================ X_____________________________________________________________________________ (Signature of Owner) (Date) X_____________________________________________________________________________ (Signature of Owner) (Date) Tel: (_____) ______- __________ (Day) (_____) ____-______(Evening) ================================================================================ FOR INFORMATION AND ASSISTANCE WITH ASSISTANCE WITH THE OFFER, PLEASE CALL: THE HERMAN GROUP, INC. (800) 530-4966. For Units to be validly tendered, Unitholders should complete and sign this Letter of Transmittal and return it in the self addressed, postage-paid envelope enclosed, or by Hand or Overnight Delivery to: The Herman Group, Inc. 2121 San Jacinto Street, 26th Floor, Dallas, TX 75201, or by Facsimile (214) 999-9348 or (214) 999-9323. 2 ================================================================================ SIGNATURE BOX-2 TRUSTEES, CORPORATIONS, AND FIDUCIARIES (SEE INSTRUCTIONS 1, 3 AND 4 AS NECESSARY) - -------------------------------------------------------------------------------- TRUSTEES, EXECUTORS, ADMINISTRATORS, GUARDIANS, ATTORNEYS-IN-FACT, OFFICERS OF A CORPORATION OR OTHER PERSON ACTING IN A FIDUCIARY OR REPRESENTATIVE CAPACITY, PLEASE COMPLETE THIS BOX AND SEE INSTRUCTION 1. The signatory hereto hereby certifies under penalties of perjury the statements in Box A, Box B, and, if applicable Box C. X____________________________________ X_____________________________________ (Signature) (Signature) Name and Capacity ____________________________ (Title) ________________________ Address ________________________________________________________________________ (city) (state) (zip) Area Code and Telephone No. (___)_____________ (Day)(___)_____________ (Evening) NOTARIZATION OF SIGNATURE (If required. See Instruction 1) STATE OF ____________ ) ) SS.: COUNTY OF ____________ ) On this ___day of ________________, 1996, before me came personally ____________ ________________________________________________________________________________ (Please Print) to me known to be the person who executed this Letter of Transmittal. ___________________________________ Notary Public OR SIGNATURE GUARANTEE (If required. See Instruction 1) Name and Address of Eligible Institution _______________________________________ ________________________________________________________________________________ ________________________________________________________________________________ Authorized Signature __________________________ Title _______________________ Name _____________________________________________ Date _________________, 199__ ================================================================================ ================================================================================ BOX A SUBSTITUTE FORM W-9 (SEE INSTRUCTION 3 - BOX A) - -------------------------------------------------------------------------------- The person signing this Letter of Transmittal hereby certifies the following to the Purchaser under penalties of perjury: (i) The TIN printed (or corrected) on the front of this Letter of Transmittal is the correct TIN of the Unitholder, or if this box [ ] is checked, the Unitholder has applied for a TIN. If the Unitholder has applied for a TIN, a TIN has not been issued to the Unitholder, and either: (a) the Unitholder has mailed or delivered an application to receive a TIN to the appropriate IRS Center of Social Security Administration Office, or (b) the Unitholder intends to mail or deliver an application in the near future (it being understood that if the Unitholder does not provide a TIN to the Purchaser 31% of all reportable payments made to the Unitholder will be withheld until a TIN is provided to the Purchaser); and (ii) Unless this box [ ] is checked, the Unitholder is not subject to a backup withholding either because the Unitholder: (a) is exempt from backup withholding, (b) has not been notified by the IRS that the Unitholder is subject to backup withholding as a result of a failure to report all interest or dividends, or (c) has been notified by the IRS that such Unitholder is no longer subject to backup withholding. Note: Place and "X" in the box in (ii) if you are unable to certify that the Unitholder is not subject to backup withholding. ================================================================================ ================================================================================ BOX B FIRPTA AFFIDAVIT (SEE INSTRUCTION 3 - BOX B) - -------------------------------------------------------------------------------- Under Section 1445(e)(5) of the Internal Revenue Code and Treas. Reg. 1.1445-11T(d), a transferee must withhold tax equal to 10% of the amount realized with respect to certain transfers of an interest in a partnership of 50% or more of the value of its gross assets consists of U.S. real property interests and 90% or more of the value of its gross assets consists of U.S. real property interests plus cash equivalents, and the holder of the partnership interest is a foreign person. To inform the Purchaser that no withholding is required with respect to the Unitholder's interest in the Partnership, the person signing this Letter of Transmittal hereby certifies the following under penalties of perjury: (i) Unless this box [ ] is checked, the Unitholder, if an individual, is a U.S. citizen or a resident alien for purposes of U.S. income taxation, and if other than an individual, is not a foreign corporation, foreign partnership, foreign estate or foreign trust (as those terms are defined in the Internal Revenue Code and Income Tax Regulations); (ii) the Unitholder's U.S. social security number (for individuals) or employer identification number (for non- individuals) is correctly printed (or corrected) on the front of this Letter of Transmittal; and (iii) the Unitholder's home address (for individuals), or office address (for non-individuals), is correctly printed (or corrected) on the front of this Letter of Transmittal. If a corporation, the jurisdiction of incorporation is ____________________. The person signing this Letter of Transmittal understands that this certification may be disclosed to the IRS by the Purchaser and that any false statements contained herein could be punished by fine, imprisonment, or both. ================================================================================ ================================================================================ BOX C SUBSTITUTE FORM W-8 (SEE INSTRUCTION 4 - BOX C) - -------------------------------------------------------------------------------- By checking this box [ ], the person signing this Letter of Transmittal hereby certifies under penalties of perjury that the Unitholder is an "exempt foreign person" for purposes of the backup withholding rules under the U.S. federal income tax laws, because the Unitholder: (i) Is a nonresident alien individual or a foreign corporation, partnership, estate or trust; (ii) If an individual, has not been and plans not be present in the U.S. for a total of 183 days or more during the calendar year; and (iii) Neither engages, nor plans to engage, in a U.S. trade or business that has effectively connected gains from transactions with a broker or barter exchange. ================================================================================ 3 INSTRUCTIONS FORMING PART OF THE TERMS AND CONDITIONS OF THE OFFER 1. SIGNATURE AND DELIVERY REQUIREMENTS. INDIVIDUAL AND JOINT OWNERS - TENDER, SIGNATURE REQUIREMENTS. After carefully reading and completing this Letter of Transmittal, in order to tender Units Unitholder(s) must sign at the "X" in SIGNATURE BOX-1 on the bottom of the front page of this Letter of Transmittal. The signature(s) must correspond exactly with the name printed (or corrected) on the front of this Letter of Transmittal without any change whatsoever. If this Letter of Transmittal is signed by the registered Unitholder(s) of the Units, no notarization or signature guarantee on this Letter of Transmittal is required. NOTE: FOR UNITS HELD IN CUSTODIAL ACCOUNT, THE BENEFICIAL OWNER SHOULD SIGN IN BOX 1. Similarly, if Units are tendered for the account of a member firm of a registered national security exchange, a member firm of the National Association of Securities Dealers, Inc. or a commercial bank, savings bank, credit union, savings and loan association or trust company having an office, branch or agency in the United States (each an "Eligible Institution"), no notarization or signature guarantee is required. If any tendered Units are registered in the names of two or more joint holders, all such holders must sign this Letter of Transmittal. TRUSTEES, CORPORATIONS AND FIDUCIARIES - TENDER, SIGNATURE REQUIREMENTS. Trustees, executors, administrators, guardians, attorneys-in-fact, officers of a corporation, authorized partner of a partnership or other persons acting in a fiduciary or representative capacity must sign at the "X" in SIGNATURE BOX-2 and have their signatures notarized or guaranteed by an Eligible Institution, by completing the Notarization or Signature Guarantee set forth in SIGNATURE BOX-2 of this Letter of Transmittal. If this Letter of Transmittal is signed by trustees, administrators, guardians, attorneys-in-fact, officers of corporations, authorized partners or others acting in a fiduciary or representative capacity, such persons should so indicate their title when signing (see SIGNATURE BOX-2) and must submit proper evidence satisfactory to the Purchaser of their authority to so act. DELIVERY REQUIREMENTS. For Units to be validly tendered, a properly completed and duly executed Letter of Transmittal, together with any required notarizations or signature guarantees in SIGNATURE BOX-2 and any other documents required by this Letter of Transmittal, but be received by the Depositary prior to or on the Expiration Date at its address set forth on the front of this Letter of Transmittal. No alternative, conditional or contingent tenders will be accepted. All tendering Unitholders by execution of this Letter of Transmittal waive any right to receive any notice of the acceptance of their tender. Delivery of the Letter of Transmittal is at the risk of the Investor. To ensure receipt of the Letter of Transmittal, it is suggested that you use overnight courier delivery or, if the Letter of Transmittal is to be delivered by United States mail, you use certified or registered mail, return receipt requested. TO BE EFFECTIVE, A DULY COMPLETED AND SIGNED LETTER OF TRANSMITTAL (OR FACSIMILE THEREOF) MUST BE RECEIVED BY THE INFORMATION AGENT AT THE ADDRESS (OR FACSIMILE NUMBER) SET FORTH BELOW BEFORE 12:00 MIDNIGHT, NEW YORK CITY TIME, ON MARCH 14, 1996. By Mail: THE HERMAN GROUP, INC. P.O. Box 357 Dallas, Texas 75221-9602 By Hand Delivery: 2121 San Jacinto Street, 26th Floor Dallas, Texas 75201 By Facsimile: (214) 999-9348 or (214) 999-9323 For Additional Information Call: (800) 530-4966
4 DOCUMENTATION. Deceased Owner - Copy of Death Certificate. If other than a Joint Tenant, see also Executor/Administrator/Guardian below. Deceased Owner (Other) - See Executor/Administrator/Guardian (a) below. Executor/Administrator/Guardian - (a) Send copy of Court Appointment Documents; and (b) a copy of applicable provisions of Will (Title Page, Executor powers asset distribution); OR (c) Estate distribution documents. Attorney-in-Fact - Power of Attorney Corporate/Partnerships - Resolution(s) of Board of Directors or other evidence of authority to so act. Trust/Pension Plans - Cover pages of the trust or plan, along with the trustee(s) section and/or amendments or resolutions of the above to prove authority to so act.
2. TRANSFER TAXES. The purchaser will pay or cause to be paid all transfer taxes, if any, payable in respect of Units accepted for payment pursuant to the Offer. 3. U.S. PERSONS. A Unitholder who or which is a United States citizen or resident alien individual, a domestic corporation, a domestic partnership, a domestic trust or a domestic estate (collectively, "United States persons") as those terms are defined in the Internal Revenue Code and Income Tax Regulations, should complete the following: BOX A - SUBSTITUTE FORM W-9. In order to avoid 31% federal income tax backup withholding, the Unitholder must provide to the Purchaser the Unitholder's correct Taxpayer Identification Number ("TIN") and certify, under penalties of perjury, that such Unitholder is not subject to such backup withholding. The TIN that must be provided on the Substitute W-9 is that of the registered Unitholder as printed (or corrected) on the front of this Letter of Transmittal. If a correct TIN is not provided, penalties may be imposed by the Internal Revenue Service ("IRS"), in addition to the Unitholder being subject to backup withholding. Certain Unitholders (including, among others, all corporations) are not subject to backup withholding. Backup withholding is not an additional tax. If withholding results in an overpayment of taxes, a refund may be obtained from the IRS. NOTE: THE CORRECT TIN FOR AN IRA ACCOUNT IS THAT OF THE CUSTODIAN (NOT THE INDIVIDUAL SOCIAL SECURITY NUMBER OF THE BENEFICIAL OWNER). BOX B - FIRPTA AFFIDAVIT. To avoid potential withholding of tax pursuant to Section 1445 of the Internal Revenue Code, each Unitholder who or which is a United States Person (as defined in Instructions 3 above) must certify, under penalties of perjury, the Unitholder's TIN and address, and that the Unitholder is not a foreign person. Tax withheld under Section 1445 of the Internal Revenue code is not an additional tax. If withholding results in an overpayment of tax, a refund may be obtained from the IRS. 4. BOX C - FOREIGN PERSONS. In order for a Unitholder who is a foreign person (i.e., not a Unites States person as defined in 3 above) to qualify as exempt from 31% backup withholding, such foreign Unitholder must certify, under penalties of perjury, the statement in BOX C of this Letter of Transmittal attesting to that foreign person's status by checking the box preceding such statement. However, such person will be subject to withholding of tax under Section 1445 of the Code. 5. ADDITIONAL COPIES OF OFFER TO PURCHASE AND LETTER OF TRANSMITTAL Requests for assistance or additional copies of the Offer to Purchase and this Letter of Transmittal may be obtained from the Purchaser by calling (800) 530-4966. EX-99.A3 4 COVER LETTER, DATED FEBRUARY 15, 1996 1 EXHIBIT 99.(a)(3) DEVON ASSOCIATES 100 JERICHO QUADRANGLE, SUITE 214 JERICHO, NEW YORK 11753 February 15, 1996 Dear Limited Partner: As described in the enclosed Offer to Purchase and related Letter of Transmittal (the "Offer"), Devon Associates is offering to purchase your Limited Partnership Assignee Units (the "Units") in Growth Hotel Investors (the "Partnership") for $705 cash per Unit. The Offer will provide you with an opportunity to liquidate your investment without the usual transaction costs and commissions associated with a market sale. Moreover, if Devon subsequently increases the price of its Offer, you will automatically receive the higher price for your purchased Units. We suggest that you review the enclosed Offer with your personal financial and tax advisor. If you choose to tender your Units, mail (using the enclosed pre-addressed, postage-paid envelope) or telecopy a duly completed and executed copy of the Letter of Transmittal and any documents required by the Letter of Transmittal to: The Herman Group, Inc. By Hand or Overnight Delivery By Mail (insured or registered recommended) - ----------------------------- ------------------------------------------- 2121 Jacinto Street P.O. Box 357 26th Floor Dallas, Texas 75221-9602 Dallas, Texas 75201 By Facsimile (214) 999-9348 or (214) 999-9323 IF YOU HAVE ANY QUESTIONS, PLEASE CALL THE HERMAN GROUP AT 1-800-530-4966. DEVON ASSOCIATES EX-99.B1 5 COMMITMENT LETTER, DATED FEBRUARY 13, 1996 1 EXHIBIT (b)(1) PAINE WEBBER REAL ESTATE SECURITIES INC. 1285 Avenue of the Americas New York, New York 10019 February ___, 1996 Devon Associates 100 Jericho Quadrangle Suite 214 Jericho, New York 11753 Attention: Mr. Michael L. Ashner re Senior Secured Financing Gentlemen: You have advised Paine Webber Real Estate Securities Inc. ("PWRES") that you intend to make an offer (the "Acquisition") for the acquisition of limited partnership units (the "LP Units") in each of the partnerships (the "Tender Offer Partnerships") identified in Exhibit A to Annex A attached to this letter (this "Commitment") and made a part hereof by means of offers to purchase (the "Tender Offers") initiated by Devon Associates (the "Borrower"). 1. The Borrower. The Borrower will be a newly-formed, bankruptcy remote single purpose New York general partnership, the equity interests in which will be owned as follows: (i) One-third of the partnership interests in the Borrower will be owned by Fleetwood Corp. ("Icahn Corp."), a newly-formed, bankruptcy remote single purpose Delaware corporation. 100% of the stock in Icahn Corp. will be owned by Carl C. Icahn (collectively, the "Icahn Investors"). 2 -2 (ii) The remaining two-thirds of the partnership interests in the Borrower will be owned by Cayuga Associates, L.P. ("Cayuga"), a newly-formed, bankruptcy remote single purpose Delaware limited partnership. The partnership interests in Cayuga will be owned as follows: (a) The general partnership interests in Cayuga, which interests will constitute 1% of the partnership interests in Cayuga, will be owned by Cayuga Capital Corporation ("Cayuga Corp."), a newly- formed, bankruptcy remote single purpose Delaware corporation. 33.33% of the stock in Cayuga Corp. will be owned directly by Michael L. Ashner, 33.33% of the stock in Cayuga Corp. will be owned directly by the Apollo Investors (as hereinafter defined), and 33.33% of the stock in Cayuga Corp. will be owned directly by the Insignia Investors (as hereinafter defined); (b) 11.724% of the remaining 99% partnership interests in Cayuga, which interests will constitute limited partnership interests, will be owned directly by Insignia Financial Group, Inc. and/or its affiliates (collectively, the "Insignia Investors"); (c) 24.12% of the remaining 99% partnership interests in Cayuga, which interests will constitute limited partnership interests, will be owned directly by Emmet J. Cashin, Jr., Jarold A. Evans and/or W. Patrick McDowell (or trusts created by such persons) (collectively, the "Fox Investors"); (d) 23.785% of the remaining 99% partnership interests in Cayuga, which interests will constitute limited partnership interests, will be owned directly by Apollo Real Estate Advisors, L.P. and/or its partners, employees or affiliates (collectively, the "Apollo Investors"); and (e) 40.37% of the remaining 99% partnership interests in Cayuga, which interests will constitute limited partnership interests, will be owned directly by Michael L. Ashner, Martin Lifton, Arthur N. Queler and Peter Braverman and/or their spouses and issue (and trusts established for the benefit of their spouses and issue) (collectively, the "QALB Investors"). 3 -3 2. The Acquisition. PWRES understands that the Acquisition of the LP Units pursuant to the Tender Offers and the payment of related reasonable fees and expenses (which shall not be payable to the Icahn Investors, the QALB Investors, the Apollo Investors, the Insignia Investors, the Fox Investors or any affiliates of any of the foregoing) will be funded by (i) a secured credit facility in the original principal amount of up to $40,000,000 (the "Credit Facility") to be made available to the Borrower and (ii) cash equity contributions to the Borrower equal in the aggregate to (x) $2,500,000 as a condition precedent to the funding of the first $10,000,000 under the Credit Facility, plus (y) an additional $2,500,000 as a condition precedent to the funding of each additional $10,000,000 under the Credit Facility. Annex A to this Commitment contains a Summary of Certain Terms (the "Term Sheet") setting forth the principal terms and conditions of the Credit Facility. 3. Commitment; Due Diligence; Conditions to Funding. PWRES is pleased to confirm that subject to satisfaction of all of the conditions set forth in this Commitment and in the Term Sheet, PWRES will provide 100% of the Credit Facility. As you are aware, PWRES and its advisors are in the process of performing certain legal, business and financial due diligence analysis and review of the proposed transaction (the "Transaction") including, without limitation, with respect to (i) the limited partnerships (including, without limitation, the Tender Offer Partnerships) which have been formed for the purpose of investing in real estate and the partnerships, subsidiaries and joint ventures in which such limited partnerships have an interest (each an "Operating Partnership" and, collectively, the "Operating Partnerships"), (ii) the Borrower, Icahn Corp., Cayuga and Cayuga Corp., Montgomery Realty Company-85, the managing general partner in each of the Tender Offer Partnerships (the "TOP-GP"), NPI Realty Management Corporation, the managing general partner in the TOP-GP ("NPI Realty"), QALA III, a Georgia general partnership ("QALA") (the owner of the "Additional LP Units" as defined in the Term Sheet), the Icahn Investors, the QALB Investors, the Apollo Investors, the Insignia Investors and the Fox Investors (collectively, the "Credit Parties"), and (iii) the Tender Offers. PWRES's willingness to provide the Credit Facility described in this Commitment is subject to (a) PWRES being satisfied in its sole discretion (1) with the partnership and corporate structure of the Borrower, the TOP-GP, NPI Realty, the Tender Offer Partnerships and the entities which, directly or indirectly, own interests in the Borrower, the Operating Partnerships (including the Tender Offer Partnerships), the TOP-GP (and any other general partner in a Tender Offer Partnership), NPI Realty 4 -4 and the provisions of the partnership agreements and corporate documents of such entities, (2) that, subject to the provisions of the partnership agreements of the Tender Offer Partnerships, following the exercise of its rights under the security for the Credit Facility, PWRES and its successors and assigns (or any other purchaser of the collateral securing the Credit Facility) will have the right to exercise the rights of the TOP-GP to control the liquidation and dissolution of the Tender Offer Partnerships and the sale, financing and management of property owned, directly or indirectly, by the Tender Offer Partnerships, (3) that all consents of all persons and entities will be obtained which PWRES determines are required to ensure that PWRES (and its successors and assigns or any other purchaser of the collateral securing the Credit Facility) will have the ability to realize the benefits intended to be afforded pursuant to the security agreements securing the Credit Facility, (4) with the management agreements, franchise agreements, licensing agreements and any other agreements relating to the management and operation of property owned, directly or indirectly, by the Tender Offer Partnerships, (5) with the state of title held by the Operating Partnerships in their respective properties, and (6) with the impact of the results of the diligence analyses described in clauses (1) through (5) above upon PWRES' underwriting of the Credit Facility and property owned, directly or indirectly, by the Tender Offer Partnerships; (b) PWRES not becoming aware of any facts or information after the date hereof (which, if other than information in the nature of that described in clause (a) above, was not previously disclosed to it) which in its sole judgement has a material adverse effect on its evaluation of the Tender Offers or the business, property, operations, nature of assets, assets, liabilities, condition (financial or otherwise) or prospects of (1) the Borrower, Cayuga, Icahn Corp., Cayuga Corp., QALA, the TOP-GP or NPI Realty, (2) any Tender Offer Partnership or (3) the Operating Partnerships (other than the Tender Offer Partnerships) taken as a whole; and (c) no material adverse change having occurred in the Tender Offers or the business, property, operations, nature of assets, assets, liabilities, condition (financial or otherwise) or prospects of (1) the Borrower, Cayuga, Icahn Corp., Cayuga Corp., QALA, the TOP-GP or NPI Realty, (2) any Tender Offer Partnership, or (3) the Operating Partnerships (other than the Tender Offer Partnerships) taken as a whole. In the event that PWRES becomes aware of any such fact or information, PWRES is not so satisfied as described above or any material adverse change occurs, PWRES may, in its sole discretion, suggest alternative financing, amounts or structures (including, without limitation, interest and fees) that assure adequate protection for PWRES or decline to provide or participate in the proposed financing. PWRES shall not be responsible or liable for any consequential damages which may be alleged as a result of its failure to provide the Credit Facilities or for any damages for its failure to provide the Credit Facilities as permitted above. 5 -5 4. Payment of Fees and Expenses; Indemnity. To induce PWRES to issue this Commitment and to continue with its due diligence analysis and review, you hereby agree that all reasonable fees and expenses (including the reasonable fees and expenses of counsel for PWRES, auditors, field examiners, appraisers, consultants or other outside experts) of PWRES arising in connection with this Commitment (and the due diligence in connection herewith) and in connection with the Transaction shall be for your account, whether or not the Transaction is consummated, the Credit Facility is made available or the definitive legal documents with respect thereto are executed and are delivered by any party. You further agree to indemnify and hold harmless PWRES and each director, officer, employee and affiliate thereof (each an "indemnified person") from and against any and all actions, suits, proceedings (including any investigations or inquiries), claims, losses, damages, liabilities or reasonable costs and expenses of any kind or nature whatsoever (including, without limitation, the reasonable fees and disbursements of counsel and amounts paid in settlement of court costs) which may be incurred by or asserted against or involve PWRES or any such indemnified person as a result of or arising out of or in any way related to or resulting from any transaction (whether or not consummated) contemplated by this Commitment and, upon demand, to pay and reimburse PWRES and each indemnified person for any reasonable legal or other out-of-pocket expenses incurred in connection with investigating, defending or preparing to defend any such action, suit, proceeding (including any inquiry or investigation) or claim (whether or not PWRES or any such person is a party to any action or proceeding out of which any such expenses arise), provided that you shall not have to indemnify any indemnified person against any loss, claim, damage, expense or liability which resulted solely from the gross negligence or wilful misconduct of such indemnified person. This Commitment is issued for your benefit only and no other person or entity may rely hereon. The provisions of this paragraph shall survive any termination of this Commitment. 5. Confidentiality. This Commitment is delivered to you with the understanding that, whether or not this or any other commitment is accepted from PWRES relating to any aspect of the Transaction outlined herein, this Commitment and the terms outlined herein and in the Term Sheet will be kept confidential by you and not disclosed to any third party (including, without limitation, other sources of financing) without the express prior written consent of PWRES, except that (a) you may disclose this Commitment and the 6 -6 Term Sheet and the contents hereof and thereof (i) to the Credit Parties and to your and their partners, shareholders, officers, directors, employees, accountants, attorneys and other advisors on a confidential basis in connection with the transactions contemplated hereby or thereby or (ii) as required by law, and (b) after your acceptance of this Commitment you may disclose this Commitment, the Term Sheet and the contents hereof and thereof (as well as a summary of the principal terms and conditions of PWRES's commitment and obligations hereunder or thereunder) in any public filings whether in connection with the transactions contemplated hereby or otherwise (provided that any such written disclosure shall be subject to PWRES's review and approval, which approval will not be unreasonably withheld). The provisions of this paragraph shall survive any termination of this Commitment. 6. No Brokers. As a material inducement for PWRES to execute and deliver this Commitment, you hereby represent and warrant that neither you nor any person acting on your behalf (including, without limitation, any Credit Party) have employed or used a broker in connection with the transactions contemplated herein, and you agree to indemnify and hold harmless PWRES and each other indemnified person from and against all loss, cost, damage or expense arising by reason of any claim made by any such broker. The provisions of this paragraph shall survive any termination of this Commitment. 7. Advertising. Upon the closing of the transactions contemplated in this Commitment, PWRES and its affiliates shall be entitled, but not required, to advertise the same from time to time in media selected by PWRES or its affiliates at their expense, provided that no such advertisement shall refer to the use of the proceeds of the Credit Facility. Neither you nor your affiliates shall advertise the closing of the transactions contemplated herein prior to such closing. Upon the closing of the transactions contemplated herein, you and your affiliates shall be entitled, but not required, to advertise the same from time to time in media selected by you at your expense, provided that your advertisements shall include a disclosure, in each case approved in writing by PWRES, that PWRES provided the Credit Facility. 7 -7 8. Independent Contractor. Any services provided by PWRES pursuant hereto are those of an independent contractor providing a service. Nothing contained herein (i) shall constitute PWRES or any of its affiliates or you or any of your affiliates as members of any partnership, joint venture, association or other separate entity, (ii) shall be construed to impose any liability as such on PWRES or (iii) shall constitute a general or limited agency or be deemed to confer on any party hereto any express, implied or apparent authority to incur any obligation or liability on behalf of any other. 9. Entire Agreement. This Commitment and the Term Sheet attached hereto contain all of the agreements and understandings of the parties hereto and their respective obligations in connection therewith. All prior negotiations, proposals, agreements and understandings relating to the subject matter of this Commitment and the Term Sheet are hereby agreed to be superseded hereby. 10. Governing Law. This Commitment and the rights and obligations of the parties hereunder shall be construed in accordance with and governed by the law of the State of New York. If you are in agreement with the foregoing, please sign and return to PWRES the enclosed copy of this Commitment by no later than 5:00 p.m., New York time on February 15, 1996. This Commitment shall terminate at such time unless you accept this Commitment as provided above. Very truly yours, PAINE WEBBER REAL ESTATE SECURITIES INC. By --------------------------------- William W. Evans, III Managing Director 8 -8 Agreed to and Accepted this __ day of February, 1996 DEVON ASSOCIATES, a New York general partnership By: Fleetwood Corp., a general partner By: -------------------------- Edward Mattner President By: Cayuga Associates, L.P., a general partner By: Cayuga Capital Corporation, its general partner By: -------------------------- Michael L. Ashner President 9 ANNEX A SUMMARY OF CERTAIN TERMS AND CONDITIONS*/ Borrower: A newly-formed, bankruptcy remote, single purpose general partnership satisfactory to Paine Webber Real Estate Securities Inc. ("PWRES") in all respects. The Borrower will tender for outstanding limited partnership units ("LP Units") in the two limited partnerships listed on Exhibit A hereto (the "Tender Offer Partnerships"), which Tender Offer Partnerships are controlled by Montgomery Realty Company-85, the managing general partner in each of the Tender Offer Partnerships (the "TOP-GP"). Lender: PWRES (or its designee). Equity Contribution: As a condition precedent to the initial $10,000,000 incurrence of loans under the Credit Facility (any incurrence of loans under the Credit Facility being hereinafter referred to as a "Loan"), an aggregate of $2,500,000 in cash equity contributions must be made to the Borrower by the partners therein and such cash equity contributions must be utilized by the Borrower to (i) acquire the LP Units pursuant to the Tender Offers and (ii) pay related reasonable fees and expenses incurred in connection with the Tender Offers. As a condition precedent to each subsequent $10,000,000 incurrence of Loans under the Credit Facility, an aggregate of $2,500,000 in additional cash equity contributions must be made to the Borrower by the partners therein and such cash equity contributions must be utilized by the Borrower to acquire the LP Units pursuant to the Tender Offers and pay related reasonable fees and expenses incurred in connection __________________________________ */ All capitalized terms used herein but not defined shall have the meanings provided in the Commitment Letter to which this summary is attached. 10 therewith. Additional cash equity contributions may be made to the Borrower by the partners therein from time to time during the Availability Period (as defined below) for purposes of paying the costs and expenses of the Tender Offers and funding any increases in the purchase prices of the LP Units pursuant to the Tender Offers over the initial purchase prices for the LP Units (such initial purchase prices to be as previously agreed between the Borrower and PWRES (for each LP Unit its "Initial Price"). The aggregate amount of cash equity contributions actually made to the Borrower in accordance with the immediately preceding paragraph and not refunded with proceeds of the Loans in accordance with the Section of this Term Sheet entitled "Use of Proceeds" is hereinafter referred to as the "Capital Contribution Amount"; each cash equity contribution made to the Borrower in accordance with the immediately preceding paragraph is hereinafter referred to as a "Capital Contribution"; and the minimum amount of aggregate cash equity contributions required to have been made to the Borrower in accordance with the immediately preceding paragraph as of the date of any advance of Loan proceeds is hereinafter referred to as the "Required Capital Contribution Amount". Use of Proceeds: The proceeds of the Loans incurred under the Credit Facility will be used by the Borrower solely (i) to fund the acquisition of the LP Units in the Tender Offer Partnerships pursuant to the Tender Offers and (ii) to pay fees and expenses incurred in connection with the acquisition of the LP Units, up to a maximum amount of $3,300,000, which have been approved by PWRES and which are not payable to the Icahn Investors, the QALB Investors, the Apollo Investors, the Insignia Investors, the Fox Investors or any affiliates of any of the foregoing. Notwithstanding the foregoing, (i) the aggregate purchase price paid for the LP Units of a Tender Offer Partnership may not exceed the Initial Price for such LP Units and the fees and expenses related to the Tender Offers may not exceed $3,300,000 in the aggregate, unless the sum of the aggregate excess purchase prices paid for all LP Units, plus the related fees and expenses in excess of $3,300,000 does not exceed the amount by which the Capital Contributions -2- 11 actually received by the Borrower which are not repaid with proceeds of the Loans as contemplated by clause (ii) below exceeds the Required Capital Contribution Amount, (ii) the proceeds of the Loans made on the Closing Date may be utilized to (x) repay loan advances made by the partners in the Borrower to the Borrower in connection with the Tender Offers, or (y) return Capital Contributions made by such partners which exceed the Required Capital Contribution Amount, and (iii) the proceeds of the Loans made on the last day of the Availability Period may be utilized to return Capital Contributions made to the Borrower in an amount equal to the lesser of (x) the amount by which such Capital Contributions exceed the Required Capital Contribution Amount and (y) the amount by which the aggregate Initial Price for all LP Units (assuming that the full number of LP Units tendered for pursuant to the Tender Offers are purchased) exceeds the aggregate Initial Price for all LP Units actually acquired pursuant to the Tender Offer. The maximum number of LP Units of any Tender Offer Partnership accepted by the Borrower shall in all events be less than the number of such LP Units which, (A) when added to the number of LP Units in such Tender Offer Partnership that were transferred during the preceding 12-month period, would cause a liquidation or termination of the relevant Tender Offer Partnership for tax purposes or (B) would result in any Tender Offer Partnership being deemed to be "going private". Commitment: Up to $40,000,000. In no event will the aggregate principal amount of the Loans made to the Borrower exceed 85% of the aggregate Initial Prices allocated to the LP Units actually acquired by the Borrower in the Tender Offers. Availability: The Loans may be incurred under the Credit Facility at any time prior to the 360th day after the initial borrowing of the Loans under the Credit Facility (the "Closing Date") upon at least five days prior written notice, provided that (x) the aggregate principal amount of the Loans incurred on the Closing Date shall be no less than $5 million and (y) Loans may not be incurred on more than five different days. The period during which Loans may be incurred under the Credit Facility is hereinafter referred to as the "Availability Period." -3- 12 Commitment Termination: The commitment, and PWRES's obligations to make Loans under the Credit Facility, will terminate if the Closing Date has not occurred on or before June 30, 1996. Maturity: The first anniversary of the Closing Date (the "Initial Maturity Date"), provided that the Borrower will have a right to two 1-year extensions of the maturity date provided that no default or event of default exists on the date of any such extension (such maturity date as it may be extended, the "Maturity Date"). Interest Rate: The Loans will bear interest at the LIBOR Rate (as defined below) as determined by PWRES for interest periods of one month plus the Applicable Margin, provided that the initial interest period for Loans incurred after the Closing Date will terminate on the date the interest period for the Loans incurred on the Closing Date terminates. "LIBOR Rate" shall mean, for any interest period, the rate per annum from time to time equal to the rate (rounded upward, if necessary, to the nearest 1/32 of one percent), shown on the Telerate page 3750 (or such display substituted therefor as is then customarily used to quote the London interbank offering rate as determined by PWRES in its reasonable discretion) as the offered rate per annum for one month U.S. dollar deposits of amounts in same day funds comparable to the principal amount of the Loans as of approximately 11:00 a.m. (London time) on each interest rate determination date for each interest period for such Loan, provided that if on any interest rate determination date the quotation specified in the preceding clause above does not appear on Telerate Page 3750, the LIBOR Rate will be either (a) the arithmetic mean (rounded upwards as aforesaid) of the offered rates which leading New York City banks selected by PWRES are quoting at approximately 11:00 a.m. (New York City time) on the relevant interest rate determination date for United States dollar deposits for the next month to the principal London office of each of the reference banks or those of them (being at least two in number) to which -4- 13 such offered quotations are, in the opinion of PWRES, being so made, or (b) in the event that PWRES can determine no such arithmetic mean, the arithmetic mean (rounded upwards as aforesaid) of the offered rates which leading New York City banks selected by PWRES are quoting on such interest rate determination date to leading European banks for United States dollar deposits for the next month. "Applicable Margin" shall mean a percentage per annum equal to (x) prior to the first anniversary of the Closing Date, 2.5%, (y) on and after the first anniversary of the Closing Date and prior to the second anniversary of the Closing Date, 3.5% and (z) on and after the second anniversary of the Closing Date, 4.5%. The Credit Facility shall include customary protective provisions for such matters as capital adequacy, increased costs, funding losses, illegality and withholding taxes. Interest in respect of the Loans shall be payable at the end of the applicable interest period. All interest calculations shall be based on a 360-day year and actual days elapsed. Upon the happening and continuance of any default in the payment of principal or interest, subject to limitations imposed by applicable law, all Loans shall bear interest at a rate per annum equal to the rate which is the greater of (x) 12% and (y) 3% in excess of the prime lending rate announced from time to time by Bankers Trust Company. Such interest shall be payable on demand. Residual Fee: As additional compensation on the Loans, after the Initial Return Obligation (as defined below) has been satisfied, PWRES will receive a residual fee (the "Residual Fee"). The amount of the Residual Fee will be the Participation Percentage (as defined below) of the Partnership Cash Flows (as defined below). The Borrower will be required to buy out PWRES's right to receive the Residual Fee not later than the 180th day following the Loan Satisfaction Date (as defined below). The purchase price to be paid by the Borrower for PWRES's right to receive the Residual -5- 14 Fee (the "Buy-out Price") shall be determined as of the Loan Satisfaction Date and shall be equal to the product of (a) an amount equal to the portion of the resultant liquidation value of the Tender Offer Partnerships on the Loan Satisfaction Date, assuming a sale of the properties owned by the Tender Offer Partnerships on the Loan Satisfaction Date and a full liquidation of the Tender Offer Partnerships in an orderly manner, which would be distributable in respect of the LP Units after giving effect as of the Loan Satisfaction Date to the satisfaction in full of the Loans and assuming the payment of all amounts attributable to the return on capital and return of capital referred to in clauses (ii) and (iii) of the definition of the "Initial Return Obligation", multiplied by (b) the Participation Percentage. There shall be credited to the Buy-out Price any amounts distributed to PWRES in respect of the Residual Fee during the period commencing on the Loan Satisfaction Date and expiring on the date the Borrower pays the Buy-out Price to PWRES which are attributable to (i) the sale or other disposition by the Borrower of LP Units and (ii) the sale, refinancing or other disposition of a Property. The liquidation value of the Tender Offer Partnerships shall be determined by an MAI appraiser mutually satisfactory to PWRES and the Borrower, and the cost of such appraisals shall be shared equally by PWRES and the Borrower. Interest shall accrue and shall be paid monthly by the Borrower on the daily outstanding balance of the Buy-out Price, from the Loan Satisfaction Date to the date upon which the Borrower pays the Buy-out Price, at a rate per annum equal to the LIBOR Rate plus 250 basis points. PWRES shall receive its Participation Percentage of Partnership Cash Flows from the date of satisfaction of the Initial Return Obligation until the date upon which the Borrower pays the Buy-out Price to PWRES. The "Initial Return Obligation" will be satisfied when each of the following has occurred: (i) the Loans, together with all interest accrued thereon and all other amounts owing under the Credit Facility (other than the Residual Fee) have been paid in full (such date, the "Loan Satisfaction Date"); -6- 15 (ii) there has been deemed applied to a return on capital as provided under "Application of Partnership Cash Flows" below, a cumulative, compounded (annually) amount equal to 15% per annum of the Capital Contribution Amount; and (iii) there has been deemed applied to a return of capital as provided under "Application of Partnership Cash Flows" below, an amount equal to the Capital Contribution Amount. "Partnership Cash Flows" shall mean, without duplication, for any period, (x) distributions received by the Borrower in respect of the LP Units during such period, and (y) proceeds received by the Borrower during such period from the sale or other disposition of the LP Units. "Participation Percentage" shall mean the lesser of (i) 15%, or (ii) the sum of (x) 10% plus (y) 5/24ths of 1.0% for each full or partial month in the term of the Loans after the Initial Maturity Date. Definitions of Cash Flow and Capital Event Proceeds: "Cash Flow" shall mean, for any period, and without duplication, (a) all distributions received by any of the Credit Parties during such period in respect of the Additional LP Units (hereinafter defined) which are not Capital Event Proceeds (hereinafter defined) or Deficit Distributions (hereinafter defined), (b) all distributions received by the Borrower during such period in respect of the LP Units which are not Capital Event Proceeds or Deficit Distributions, (c) all distributions (other than distributions of Loan proceeds made to the partners in the Borrower to return Capital Contributions made by such partners pursuant to and in accordance with the sections of this Term Sheet entitled "Equity Contribution" and "Use of Proceeds") and reimbursements received by any of the Credit Parties in respect of their respective partnership interests in the Borrower and Cayuga, and (d) all dividends and reimbursements received by any of the Credit -7- 16 Parties in respect of their shareholder interests in Cayuga Corp. and Icahn Corp. "Capital Event Proceeds" shall mean, for any period and without duplication, (a) distributions and any other amounts received by the Borrower or any of the other Credit Parties (including, without limitation, any sales commissions, fees or other compensation paid to the Borrower, any other Credit Party or any of their respective affiliates in connection with the related capital event) during such period in respect of the LP Units or the Additional LP Units on account of a sale of LP Units or Additional LP Units and (b) the Refinancing Amount (as defined below) and the Liquidation Amount (as defined below) for each Distribution Date (as defined below) occurring during such period in respect of the properties owned, directly or indirectly, by the Tender Offer Partnerships. "Distribution Date" shall mean each June 30 and December 31. "Capital Event Interest" in any amount shall mean the portion of such amount which would have been distributed to the Borrower and the other Credit Parties in respect of the LP Units and the Additional LP Units in the Tender Offer Partnership receiving such amount had 100% of such amount been distributed by the relevant Tender Offer Partnership. "Liquidation Amount" shall mean, for any Distribution Date and for any property owned, directly or indirectly, by a Tender Offer Partnership, the Capital Event Interest in the proceeds of (x) any sale of the properties owned, directly or indirectly, by such Tender Offer Partnership or (y) to the extent not applied to the repair, restoration or replacement of the affected property, condemnation or insurance proceeds with respect to such properties, which in the case of this clause (y) exceed $100,000 for each event for which such insurance or condemnation proceeds are payable, to the extent that such sale, condemnation or -8- 17 insurance proceeds are received during the period (for each Distribution Date, its "Measurement Period") commencing on the 15th day preceding the immediately preceding Distribution Date and ending on the 15th day preceding such Distribution Date and are not distributed in full by the relevant Tender Offer Partnership on or before such Distribution Date. "Refinancing Amount" shall mean, for any Distribution Date and for any property owned, directly or indirectly, by a Tender Offer Partnership: (x) if indebtedness in respect of such property is outstanding on the Closing Date, 100% of the Capital Event Interest in the amount by which the principal amount of indebtedness incurred in respect of such property (including any refinancing of existing indebtedness) during the Measurement Period for such Distribution Date exceeds 107% of the principal amount of the indebtedness in respect of such property which is outstanding on the Closing Date or (y) if no such indebtedness in respect of such property is outstanding on the Closing Date, the amount equal to 100% of the Capital Event Interest in indebtedness incurred in respect of such property during the Measurement Period for such Distribution Date to the extent that such excess indebtedness amounts are not distributed in full by the relevant Tender Offer Partnership. Deficit Contributions/ Deficit Distributions: "Deficit Contributions" shall mean capital contributions made to a Tender Offer Partnership by a general partner in such Tender Offer Partnership pursuant to Section 5 of the partnership agreement of such Tender Offer Partnership in connection with a dissolution or termination of such Tender Offer Partnership, which capital contributions are required to be made in order to (i) return Original Invested Capital (as defined in the partnership agreement of such Tender Offer Partnership), or (ii) restore a deficit balance in such general partner's Capital Account (as defined in the partnership agreement of such Tender Offer Partnership). -9- 18 "Deficit Distributions" shall mean any distributions made to the holders of the LP Units or the Additional LP Units which are distributions of amounts constituting Deficit Contributions. PWRES and its assignees will agree that it will pay to the Borrower any portion of any Deficit Distribution received by PWRES or such assignee, net of any tax liabilities attributable thereto (without taking into account any tax credits or net operating loss carry forwards otherwise available to PWRES or such assignee, as the case may be). PWRES and its assignees will agree that it will not retain any amount in respect of tax liabilities attributable to Deficit Distributions received by it if at the time of such receipt it shall have received an opinion of counsel satisfactory to it to the effect that no such tax liability will result from PWRES' or such assignee's, as the case may be, receipt of the Deficit Distribution. Those Credit Parties satisfactory to PWRES which are limited partners in Cayuga shall agree, jointly and severally, to indemnify and hold harmless PWRES and its successors and assigns from and against the payment of all or any portion of any Deficit Contribution, including, without limitation, any such payment requirement arising directly or indirectly by reason of the enforcement by PWRES (or its successors and assigns) of any of its rights in the Collateral. Application of Cash Flow/ Capital Event Proceeds/ Partnership Cash Flows: A. Application of Cash Flow. Until the occurrence of the Loan Satisfaction Date, Cash Flow will be applied as follows (with such application to be made on a monthly basis): -10- 19 (i) first, to the payment of interest on the Loans and the other obligations of the Borrower under the Credit Facility (other than the obligations to repay the principal amount of the Loans) which are then due and payable; (ii) second, provided that no default or event of default then exists, an amount equal to 35% of the Cash Flow remaining after application pursuant to clause (i) above shall be retained by the relevant Credit Parties for application to the satisfaction of their reasonable income tax obligations; and (iii) third, with respect to Cash Flow remaining after application pursuant to clauses (i) and (ii) above, 100% of such remaining Cash Flow shall be applied to the repayment of the principal of the Loans. Amounts retained for application to the satisfaction of income tax obligations of the Credit Parties pursuant to clause (ii) above may be accessed by the Credit Parties on a quarterly basis and until such time as such amounts have been so accessed such amounts shall be retained in the Security Account (hereinafter defined). Any shortfall in the amounts available for the payment of interest in respect of the Loans pursuant to clause (i) above shall be funded by the Borrower or, in the sole discretion of PWRES, from the Interest Reserve Account (as hereinafter defined). B. Application of Capital Event Proceeds. Until the occurrence of the Loan Satisfaction Date, Capital Event Proceeds will be applied as follows (with such application to be made upon receipt of such proceeds (with the Refinancing Amount and Liquidation Amount for a Distribution Date being deemed received on such Distribution Date)): -11- 20 (i) first, provided that no default or event of default then exists, a portion of any Capital Event Proceeds (other than Capital Event Proceeds constituting a Refinancing Amount) in an amount equal to the capital gains tax obligations which would be incurred by the Credit Parties in connection with the related capital event, assuming the applicable capital gains tax rate were equal to the maximum federal capital gains tax rate than in effect plus 6.0%, shall be retained by the Credit Parties for application to the satisfaction of the income tax obligations of the Credit Parties; and (ii) second, with respect to Capital Event Proceeds remaining after application pursuant to clause (i) above, 100% of such remaining Capital Events Proceeds shall be applied to the repayment of the principal of the Loans. Amounts retained for application to the satisfaction of the income tax obligations of the Credit Parties pursuant to clause (i) above may be accessed by the Credit Parties on a quarterly basis and until such time as such amounts have been so accessed they shall be retained in the Security Account. C. Application of Partnership Cash Flows. After the occurrence of the Loan Satisfaction Date, Partnership Cash Flows will be applied as follows (with such applications to be made on a monthly basis): (i) first, an amount equal to 15% per annum (computed on a cumulative compounded (annually) basis) of the Capital Contribution Amount shall be deemed applied to a return on capital pursuant to this clause (i) to the extent not theretofore deemed applied to said return on capital; (ii) second, the Partnership Cash Flows remaining after application pursuant to clause (i) above to the -12- 21 full amount of the deemed return on capital then accrued shall be deemed applied to the return of capital until such time as an aggregate amount equal to the Capital Contribution Amount shall be deemed applied to a return of capital pursuant to this clause (ii); and (iii) third, the Partnership Cash Flows remaining after application pursuant to clauses (i) and (ii) above shall be applied to the Residual Fee and the remainder may be used by the Credit Parties for general corporate and partnership purposes. D. Application After an Event of Default. Notwithstanding anything to the contrary contained herein, upon the occurrence and during the continuance of an event of default, after PWRES shall give notice thereof to the Borrower, all Collateral and the proceeds thereof (including, without limitation, Capital Event Proceeds) shall be applied to the repayment of principal and interest on the Loans and to the satisfaction of the Borrower's other obligations under the Credit Facility. Repayment of the Loans: The Loans shall be repaid as follows: (i) the entire unpaid principal amount of the Loans shall be due and owing on the Maturity Date; and (ii) the Loans shall be repaid at the times, and in the amounts, required under "Application of Cash Flow/Capital Events Proceeds/Partnership Cash Flows" above. Security Account: PWRES shall establish, with a financial institution satisfactory to PWRES, a trust account (the "Security Account"), under the sole dominion and control of PWRES, and PWRES shall have a continuing security interest in and lien upon the Security Account and all funds on deposit therein from time to time (together with interest accruing thereon). The Security Account will be divided -13- 22 into a number of sub-accounts (each a "Sub-Account") to be determined. All Cash Flow and Capital Event Proceeds shall be deposited directly into the appropriate Sub-Account (with all entities making such payments being directed to make such payments directly into the appropriate Sub-Account). Amounts on deposit in the Security Account shall be applied in accordance with the section hereof entitled "Application of Cash Flow/Capital Event Proceeds/ Partnership Cash Flows". Interest Reserve: PWRES shall establish, with a financial institution satisfactory to PWRES, a trust account (the "Interest Reserve Account"), under the sole dominion and control of PWRES, and PWRES shall have a continuing security interest in and lien upon the Interest Reserve Account and all funds on deposit therein from time to time (together with interest accruing thereon). The Borrower shall maintain on deposit in the Interest Reserve Account at all times during the term of the Loans an amount determined by PWRES to be equal to the Required Interest Reserve Amount (as defined below). The Borrower shall deposit into the Interest Reserve Account, from time to time within 7 days following its receipt of notice from PWRES, the amount of any shortfall in the Required Interest Reserve Amount, it being understood that if the amount of any such shortfall is contributed to the Borrower by the constituent partners in the Borrower, the amounts so contributed shall not constitute Capital Contributions as defined in the section hereof entitled "Equity Contribution". "Annualized Loan Interest" shall mean, as of any determination date, an amount equal to (i) the aggregate amount of interest which would be payable in respect of the then- outstanding aggregate principal balance of the Loans in a twelve-month period, assuming that (x) the then-current interest rate would be applicable to the Loans during such twelve-month period and (y) no repayments would be made in respect of the Loans during such twelve-month period, multiplied by (ii) 125%. "Annualized LP Unit Distributions" shall mean, as of any determination date, an amount equal to the lesser of (i) the cash distributions (other than cash distributions which constitute Capital Event Proceeds) paid in respect of the -14- 23 LP Units on the most recent quarterly distribution payment date (assuming such LP Units were owned by the Borrower on such quarterly payment date), multiplied by four, and (ii) the cash distributions (other than cash distributions which constitute Capital Event Proceeds) paid in respect of the LP Units on the four most recent quarterly distribution payment dates (assuming such LP Units were owned by the Borrower on each of such quarterly payment dates). "Required Interest Reserve Amount" shall mean, as of any determination date, an amount equal to (i) the Annualized Loan Interest, minus (ii) the Annualized LP Unit Distributions. Collateral: All obligations of the Borrower under the Credit Facility (including, without limitation, the obligation to pay principal and interest on the Loans) shall be secured by a first priority perfected security interest in all of the following (collectively, the "Collateral"): (i) the partnership interests in the Borrower and the general and limited partnership interests in Cayuga, including all rights to distributions in respect thereof; (ii) the LP Units held by the Borrower, including all rights to distributions in respect thereof; (iii) all limited partnership interests in the Tender Offer Partnerships which are owned, directly or indirectly, by any of the Credit Parties (the "Additional LP Units"), including all rights to distributions in respect thereof; (iv) all stock of Cayuga Corp., Icahn Corp. and NPI Realty; (v) all partnership interests in the TOP-GP held by NPI Realty Management Corporation; -15- 24 (vi) the Security Account; (vii) the Interest Reserve Account; and (viii) cash, United States Treasuries or equivalents reasonably satisfactory to PWRES in an aggregate amount equal to (a) $2,000,000, minus (b) the value as of the Closing Date of the Additional LP Units pledged as Collateral by the Icahn Investors, which cash, treasuries or equivalents shall be pledged as Collateral in a manner satisfactory to PWRES. The Collateral will be released in full on the Loan Satisfaction Date. Prepayment: The Loans shall be fully prepayable in whole or in part on any interest payment date. PWRES shall retain its right to its Residual Fee following repayment of the Loans. Recourse: The obligations under the Credit Facility will be fully recourse to the Borrower, Cayuga, Icahn Corp., Cayuga Corp. (other than with respect to the demand funding notes from RJN Corporation, Michael L. Ashner and W. Edward Scheetz, each in the original principal amount of $70,000.00) and the Collateral and shall be non-recourse to the other Credit Parties. Fees: A non-refundable facility fee of $100,000 shall be deemed earned in full and shall be paid to PWRES on the Closing Date. In addition, PWRES shall be paid a funding fee on the date each Loan is advanced under the Credit Facility (including on the Closing Date) in an amount equal to 0.75% of the principal amount of each such Loan. In addition to the fees described above, as and to the extent set forth in paragraph 4 of the Commitment, the Borrower acknowledges and agrees that PWRES is entitled to receive payment for all of its reasonable fees and expenses arising in connection with the Commitment and the transactions contemplated therein and in this Term -16- 25 Sheet, whether or not any of such transactions are consummated, the Credit Facility is made available or the definitive legal documents with respect thereto are executed and delivered by any party. Conditions Precedent to Initial Loans: The conditions which shall be required to be satisfied prior to or simultaneously with the making of the Loans on the Closing Date will include those listed below, those listed in the Commitment to which this Summary of Certain Terms and Conditions is attached and any other typical for this type of facility and any others appropriate in the context of the proposed transaction: (i) The Tender Offer documentation (collectively, the "Tender Offer Materials") shall be in full force and effect and any modifications thereto from the Tender Offer Materials approved by PWRES pursuant to the section hereof entitled "Tender Offer Materials" shall be satisfactory to PWRES. (ii) All conditions precedent under the Tender Offer Materials to the consummation of the Tender Offer(s) with respect to the LP Units then being acquired shall have been satisfied. The Tender Offer(s) with respect to the LP Units then being acquired shall have been consummated after the receipt of all necessary governmental, regulatory and other third party approvals. (iii) The Borrower shall have received Capital Contributions in an amount at least equal to the Required Capital Contribution Amount and shall have utilized the full Required Capital Contribution Amount so made available to purchase the LP Units and pay related fees and expenses as contemplated above under "Use of Proceeds." (iv) The documentation evidencing the Credit Facility including the related security documentation (the -17- 26 "Credit Documents") shall have been executed and delivered reflecting the terms and conditions set forth in this Summary of Certain Terms and Conditions and shall otherwise be in form and substance satisfactory to PWRES and all conditions to the making of the Loans set forth therein shall have been satisfied on or prior to the date of funding. All Loans shall be in full compliance with all requirements of law including Regulations G, T, U and X of the Board of Governors of the Federal Reserve System. (v) No litigation by any entity (private or governmental) shall be pending or threatened (x) with respect to the Acquisition, the Credit Facility or the Tender Offers or any documentation executed in connection therewith or (y) which PWRES shall determine could have a materially adverse effect on the business, assets, liabilities, condition (financial or otherwise) or prospects of (m) the Borrower, Cayuga, Cayuga Corp., Icahn Corp., QALA, the TOP-GP or NPI Realty, (n) the Tender Offer Partnerships or (o) the Operating Partnerships (other than the Tender Offer Partnerships) taken as a whole. (vi) All necessary governmental, regulatory and third party approvals in connection with the Tender Offers, the transactions contemplated by the Credit Facility and otherwise referred to herein shall have been obtained and remain in effect, and all applicable waiting periods shall have expired without any action being taken by any competent authority which restrains, prevents, or imposes materially adverse conditions upon, the consummation of the Tender Offers. Additionally, there shall not exist any judgment, order, injunction or other restraint prohibiting or imposing materially adverse conditions upon, or materially delaying, or making economically unfeasible, the purchase of LP Units pursuant to the Tender Offers. -18- 27 (vii) All costs, fees, expenses (including, without limitation, legal fees and expenses) and other compensation contemplated hereby payable to PWRES shall have been paid to the extent due. (viii) PWRES shall have received legal opinions from counsel, in form and substance reasonably acceptable to PWRES. (ix) The security agreements required as described under the heading "Collateral" above shall have been executed and delivered and shall be satisfactory in form and substance to PWRES and PWRES shall have a first priority perfected interest in all Collateral as required above. In addition, (x) all payors of amounts required to be deposited in the Security Account shall have been instructed to make such payments directly to the Security Account and each such payor shall have acknowledged such instructions and consented thereto and (y) the Borrower shall have obtained all consents from all persons and entities which PWRES determines are necessary to ensure the validity, priority, perfection and enforceability of all security interests intended to be granted to PWRES pursuant to the section of this Term Sheet entitled "Collateral", including without limitation, any consents requested by PWRES from NPI Realty, GHI Associates, Fox Realty Investors and/or one or more of the constituent partners of Fox Realty Investors. (x) PWRES shall be satisfied that the aggregate net operating income (after reserves) of the properties owned, directly or indirectly, by the Tender Offer Partnerships is at least equal to $19,000,000 for the most recent 12-month period. -19- 28 Conditions to All Loans (including Loans incurred on the Closing Date): Absence of material adverse change, absence of material litigation, absence of default or unmatured default under the Credit Facility, continued accuracy of representations and warranties, continued satisfaction of the conditions precedent set forth under "Conditions Precedent to Initial Loans" with respect to the Tender Offer(s) for the LP Units then being acquired and receipt of such documentation (including, without limitation, opinions of counsel) as shall be required by PWRES. Representations and Warranties: The Credit Documents shall contain customary representations and warranties for transactions in the nature of the Transaction, including, without limitation, the following: (i) due organization, valid existence, good standing and authority and qualification to do business of the Borrower, Cayuga, the TOP-GP, NPI Realty, Cayuga Corp., Icahn Corp., QALA and each Operating Partnership; (ii) due authorization, execution and delivery of the Credit Documents by the Borrower and the other parties thereto; (iii) no conflicts with laws, regulations or orders of governmental authorities applicable to the Borrower, any other Credit Party or any Operating Partnership or their respective assets, and no conflicts with agreements to which the Borrower, any other Credit Party or any Operating Partnership is a party or which purport to bind them or their respective assets, and no conflicts with the organizational documents of the Borrower, any other Credit Party or any Operating Partnership (except that certain change of control provisions in the indebtedness of the Tender Offer Partnerships may be breached by the -20- 29 consummation of the Tender Offer and the financing under the Credit Facility); (iv) no governmental approvals, filings or registrations are required other than those previously obtained or made; (v) no litigation which could have a material adverse effect on the Loans, the security therefor or the ability of the Borrower or any other person or entity to perform its obligations under the Credit Documents or which could have a material adverse effect on the business, assets, liabilities, condition (financial or otherwise) or prospects of (m) the Borrower, (n) Cayuga, (o) Cayuga Corp., (p) Icahn Corp., (q) the TOP-GP, (r) NPI Realty, (s) QALA, (t) the Tender Offer Partnerships or (u) the other Operating Partnerships taken as a whole; (vi) the Borrower or the appropriate Credit Party having good, unencumbered title to each item of Collateral being pledged by it as security for the Loans and PWRES's security interest therein being a first priority perfected security interest; (vii) full and accurate disclosure by the Borrower and all other Credit Parties; (viii) the Borrower, Cayuga, Cayuga Corp., Icahn Corp., QALA, the TOP-GP, NPI Realty and all Operating Partnerships having made all required tax filings and having paid all taxes and other impositions applicable to them and/or their respective assets; (ix) (y) the Borrower, Cayuga, the TOP-GP, Cayuga Corp., Icahn Corp., QALA, NPI Realty and each Tender Offer Partnership being in substantial compliance with the terms of any indebtedness owed by it (whether secured or unsecured), no -21- 30 payment defaults existing under any such indebtedness and no notice of default having been received thereunder, except that (a) certain change of control provisions in the indebtedness of the Tender Offer Partnerships may have been breached by reason of the acquisition of control of such partnerships by affiliates of the QALB Investors and (b) certain change of control provisions in the indebtedness of the Tender Offer Partnerships may be breached by the consummation of the Tender Offer and the consummation of the financing under the Credit Facility, and (z) each Operating Partnership (other than a Tender Offer Partnership) being in substantial compliance with the terms of any indebtedness owed by it (whether secured or unsecured) except for noncompliances which in the aggregate could not reasonably be expected to have a material adverse effect on the Operating Partnerships taken as a whole; (x) the properties owned by each Operating Partnership being in material compliance with applicable laws and governmental requirements, and all taxes and other impositions (including insurance premiums) relating to such properties having been duly paid, escrowed against or contested in good faith; (xi) all financial information provided in respect of the Borrower, Cayuga, Cayuga Corp., Icahn Corp., QALA, the TOP-GP, NPI Realty and the Operating Partnerships and their respective assets being true, complete and correct in all material respects; (xii) no pending or threatened condemnation existing in respect of any property owned by an Operating Partnership and no casualty existing at any such property; -22- 31 (xiii) neither the Borrower, Cayuga, Cayuga Corp., Icahn Corp., NPI Realty, QALA nor the TOP-GP having any indebtedness other than the Credit Facility, and no Operating Partnership having any indebtedness other than as listed on Exhibit B hereto or advances made by partners in the Borrower to the Borrower which are being repaid with the proceeds of the Loans incurred on the Closing Date; (xiv) each Operating Partnership having good and marketable title to its property except as disclosed in the title reports relating thereto previously provided to PWRES; (xv) no state of facts existing with respect to zoning, ingress and egress, permitting, separate tax lot status and access to utilities which would materially impair the value or use of the properties owned by (x) the Tender Offer Partnerships or (y) the Operating Partnerships taken as a whole; (xvi) the special purpose nature of the Borrower, Cayuga, Icahn Corp. and Cayuga Corp. being in full force and effect; (xvii) Exhibit A hereto being a true and complete list of Tender Offer Partnerships and a list of all real property owned, directly or indirectly, by each such partnership and in the case of any such real property which is not owned directly by a Tender Offer Partnership, the entity which directly holds such real property and the means by which such Tender Offer Partnership owns an interest in such entity and its ownership interest therein; (xviii) the TOP-GP having the right to control, without the consent of any other person (except to the extent otherwise provided in the partnership agreements of the Tender Offer Partnerships, which provisions shall be satisfactory to PWRES), -23- 32 the Tender Offer Partnership and the liquidation and dissolution of the Tender Offer Partnerships and the sale, financing and management of property owned, directly or indirectly, by the Tender Offer Partnerships; (xix) true and complete copies having been provided to PWRES of (x) all organizational documents of the Borrower, Cayuga, the TOP-GP, NPI Realty, Cayuga Corp., Icahn Corp., QALA and the Operating Partnerships, and, to the extent requested by PWRES, the organizational documents of any other entity which is a partner or shareholder in any of the foregoing entities, (y) all agreements relating to the indebtedness of the Borrower, Cayuga, the TOP-GP, NPI Realty, Cayuga Corp., Icahn Corp., QALA and the Operating Partnerships and (z) all agreements relating to the management and operation of the assets of the Operating Partnerships, all of which agreements are listed on Exhibit C, and no amendments having been made to any of the foregoing; (xx) the Tender Offers having been consummated in compliance with applicable law and all the information in the Tender Offer Materials disclosing all material facts and not omitting any material facts; (xxi) the Borrower, Cayuga, the TOP-GP, QALA and each Tender Offer Partnership being a partnership for federal income tax purposes and not constituting a publicly traded partnership for purposes of Section 7704 of the Internal Revenue Code of 1986, as amended; and (xxii) no defaults existing under the partnership agreements of the Borrower, Cayuga, the TOP-GP, QALA or the Operating Partnerships. -24- 33 Covenants: The Credit Documents shall contain customary covenants for transactions in the nature of the Transaction, including, without limitation, the following: (i) maintenance of existence and compliance with laws by the Borrower, Cayuga, the TOP-GP, NPI Realty, Cayuga Corp., Icahn Corp., QALA and each Tender Offer Partnership; (ii) payment of taxes and other impositions (including insurance premiums) applicable to the Borrower, Cayuga, the TOP-GP, NPI Realty, Cayuga Corp., Icahn Corp., QALA and each Tender Offer Partnership and/or its respective assets; (iii) notice of pending or threatened litigation, proceedings or condemnation actions with respect to the Borrower, Cayuga, the TOP-GP, NPI Realty, Cayuga Corp., Icahn Corp., QALA or any Operating Partnership; (iv) notice of pending defaults under the Credit Documents; (v) notice of defaults under the indebtedness of the Operating Partnerships; (vi) management of the properties of the Operating Partnerships in a manner consistent with past practice and requirement that a monthly certificate be provided certifying that, except as is disclosed in said exhibit, all insurance premiums in respect of the insurance policies of the Operating Partnerships have been paid, all debt payments in respect of indebtedness of the Operating Partnerships have been made and all real estate taxes of the Operating Partnerships have been paid; (vii) financial reporting requirements; -25- 34 (viii) maintenance of existence and businesses and operations of the Borrower, Cayuga, the TOP-GP, NPI Realty, Cayuga Corp., Icahn Corp., QALA and each Tender Offer Partnership; (ix) each of the Borrower, Cayuga, Icahn Corp. and Cayuga Corp. remaining a single purpose, bankruptcy remote entity; (x) prohibition on other indebtedness, provided that the Borrower may incur advances from its partners prior to the Closing Date provided that such advances are paid in full on the Closing Date; (xi) restrictions on mergers, acquisitions, joint ventures, partnerships and acquisitions and dispositions of assets; (xii) restrictions on sale-leaseback transactions and lease payments; (xiii) restrictions on dividends, distributions, and on amendments of management agreements, partnership agreements and organizational, corporate and other documents; (xiv) restrictions on voluntary prepayments of other indebtedness and amendments thereto; (xv) restrictions on (x) transactions with affiliates other than (m) transactions disclosed in writing to PWRES prior to the date of the Commitment and (n) transactions consummated on an arm's length basis and (y) formation of subsidiaries; (xvi) restrictions on investments; (xvii) no liens other than the liens securing the Credit Facility and other exceptions to be negotiated; -26- 35 (xviii) adequate insurance coverage; (xix) ERISA covenants; (xx) restrictions on capital expenditures; (xxi) payment of costs (including enforcement costs); (xxii) application of Loan proceeds; (xxiii) no transfers of Collateral or of properties owned by the Borrower, Cayuga, Cayuga Corp. Icahn Corp., NPI Realty, or the TOP-GP. The covenants set forth above will be terminated on the Loan Satisfaction Date, provided that on and after the Loan Satisfaction Date the Borrower, Cayuga, Icahn Corp., and Cayuga Corp. will agree (x) to be bound by the same fiduciary duty to PWRES in respect of the Residual Fee as the general partners in the Operating Partnerships owe to the holders of the LP Units and (y) not to sell or transfer the LP Units to an affiliate or to any third party for consideration other than cash. Events of Default: The Credit Documents shall contain customary events of default for transactions in the nature of the Transaction, including, without limitation, the following: (i) failure to pay principal when due, interest within five days of due date or any other amount due under the Credit Documents within 30 days of notice by PWRES; (ii) failure to make required deposits into the Security Account or the Interest Reserve Account; (iii) failure to pay taxes or other impositions (including insurance premiums); -27- 36 (iv) any representation or warranty in the Credit Documents having been untrue in any material respect as of the date made or deemed made; (v) bankruptcy or insolvency of the Borrower, Cayuga, Icahn Corp., Cayuga Corp., the TOP-GP, NPI Realty or QALA; (vi) bankruptcy or insolvency of any Operating Partnership (including any Tender Offer Partnership); (vii) direct or indirect change in control of the Borrower, Cayuga, Icahn Corp., Cayuga Corp., the TOP-GP or QALA, with exceptions (including exceptions relating to the buy-sell provisions in the partnership agreements of the Borrower and Cayuga) and consent requirements to be negotiated; (viii) dissolution or other termination of the Borrower, Cayuga, Icahn Corp., Cayuga Corp., the TOP-GP, NPI Realty, or QALA; (ix) breach of other covenants in the Credit Documents, with cure periods after notice (if applicable) to be negotiated; (x) failure of any security for the Loans; (xi) cross-defaults to other indebtedness of the Borrower, Cayuga, Icahn Corp., NPI Realty, Cayuga Corp., QALA and the TOP-GP; (xii) cross-defaults to indebtedness of any Operating Partnership (including any Tender Offer Partnership); (xiii) material unsatisfied judgments with respect to the Borrower, Cayuga, Icahn Corp., Cayuga Corp., -28- 37 the TOP-GP, NPI Realty, QALA, the Credit Facility or the Tender Offers; and (xiv) ERISA defaults. Assignments and Participations: The Borrower may not assign its rights or obligations under the Credit Facility without the prior written consent of PWRES. PWRES may assign, and may sell participations in, its rights and obligations under the Credit Facility. The Credit Facility shall provide for a mechanism which will allow for each assignee to become, after the termination of the Availability Period, a direct signatory to the Credit Facility and will, after the termination of the Availability Period, relieve the assigning lender of its obligations with respect to the assigned portion of its commitment. Governing Law: The Credit Documents and the rights and obligations of the parties thereunder shall be construed in accordance with and governed by the law of the State of New York. Tender Offer Materials: The Commitment and this Term Sheet are expressly subject to approval by PWRES of the Tender Offer Materials. Securitization: PWRES intends to underwrite the Loans and the Collateral to rating agency standards, in order to facilitate a refinancing and securitization of the Loans and the Collateral in the event the Borrower has not satisfied its obligations in full by the Maturity Date. The Borrower and the other Credit Parties shall covenant and agree to cooperate in good faith with PWRES in connection with such underwriting and the performance of all due diligence deemed necessary or desirable by PWRES in connection therewith, and shall take all actions deemed necessary or desirable by PWRES to effect any such securitization of the Loans and the Collateral, provided that the Borrower and the other Credit Parties will not be obligated to agree to have their obligations materially increased or their rights materially decreased. Notwithstanding such underwriting by PWRES, unless PWRES agrees otherwise prior to the Maturity Date, the -29- 38 Borrower will be required to repay the Loans in full and satisfy all of its other obligations under the Credit Documents not later than the Maturity Date. -30- 39 Subsequent Transaction: The term "Subsequent Transaction" shall mean a transaction in the nature of any of the following which is consummated not later than the earlier to occur of (x) the date which is 12 months following the Loan Satisfaction Date and (y) the date which is 12 months following the date of termination or expiration of the Commitment: (i) the issuance of any debt or equity security, publicly or privately, or any other borrowing, assumption of debt, contribution to capital (other than contributions to capital made by the partners in the Borrower to the Borrower in the ordinary course of business and other than Capital Contributions made pursuant to the section of this Term Sheet entitled "Equity Contribution") or other transaction by which the Borrower raises funds for any purpose, or (ii) any borrowing by an entity in which any of the QALB Investors or any of their affiliates have a direct or indirect interest (a "QALB Tenderor"), the proceeds of which, in whole or in part, are intended to be applied to the acquisition of equity interests in either or both of the Tender Offer Partnerships. The term "Subsequent Transaction" shall not include a sale or financing of all or any portion of the assets owned by the Operating Partnerships. In the event the Borrower or a QALB Tenderor desires to enter into a Subsequent Transaction, it shall afford PWRES the same opportunity as that offered to any other person or entity to negotiate the arrangement of, or otherwise to provide, as lead manager, sole placement agent and/or lender/loan purchaser, as the case may be, such Subsequent Transaction. If the Borrower or a QALB Tenderor shall select another person or entity to arrange such Subsequent Transaction on economic terms substantially equal to or less favorable than those offered by PWRES, subject to and upon consummation of such Subsequent Transaction, PWRES shall be paid a fee in an amount equal to 1.0% of the aggregate gross value of all consideration (whether cash or otherwise) received by the Borrower, any QALB Tenderor or any of their affiliates in connection with such Alternative Transaction. Such fee shall be paid by the entity receiving such consideration. -31- 40 The rights and obligations of PWRES and the Borrower set forth in this section entitled "Subsequent Transaction" shall be effective as of the date of execution and delivery of the Commitment and shall survive until the earlier to occur of (x) the date which is 12 months following the Loan Satisfaction Date and (y) the date which is 12 months following the date of termination or expiration of the Commitment. If a Subsequent Transaction is consummated with a person or entity other than PWRES, the Borrower and the QALB Investors, respectively, shall be liable to PWRES for any fee owed to PWRES pursuant to this section for Subsequent Transactions consummated by the Borrower or the QALB Investors (or their respective affiliates), respectively. -32- 41 Exhibit A To Annex A Partnership Name Property EX-99.C1 6 DEVON ASSOCIATES PARTNERSHIP AGREEMENT 1 EXHIBIT 99.(c)(1) DEVON ASSOCIATES ----------------------- PARTNERSHIP AGREEMENT ----------------------- This Partnership Agreement (this "Agreement") of Devon Associates (the "Company"), a general partnership organized pursuant to the laws of the State of New York, is entered into and shall be effective as of February 13, 1996 (the "Effective Date") by and between Cayuga Associates L.P., a Delaware limited partnership ("Cayuga"), and Fleetwood Corp., a Delaware corporation ("Fleetwood"). As used in this Agreement, the term "Members" shall mean the partners of the Company from time to time. Initially, Cayuga and Fleetwood shall be the only Members; however, any Person may cease to be a Member and any Person may become a Member, in either case as provided in this Agreement. ARTICLE I. DEFINITIONS AND REPRESENTATIONS AND WARRANTIES Section 1.01 Definitions. As used in this Agreement, the terms set forth below shall have the following meanings: "Affiliate" means, as to any Person, (i) any other Person (and the immediate family members of such Person) that controls, is controlled by, or is under common control with the first Person; and (ii) if the first Person is a natural person, the immediate family members of that Person. "Associate" has the meaning specified in Rule 12b-2 under the Exchange Act. A Person shall be deemed to "Beneficially Own" (and to be the "Beneficial Owner" and have "Beneficial Ownership" of) any security if (i) such Person "beneficially owns" such security within the meaning of Rule 13d-3 under the Exchange Act or (ii) such Person has any direct or indirect economic interest in such security. "Business Day" has the meaning specified in Rule 14d-1 under the Exchange Act. "Buy/Sell Closing" has the meaning specified in Section 7.05(b)(iv). "Buy/Sell Notice" means a Cayuga Buy/Sell Notice or a Fleetwood Buy/Sell Notice, as the case may be. "Buy/Sell Notice Date" means the date on which a Fleetwood Buy/Sell Notice or a Cayuga Buy/Sell Notice, as the case may be, is received by the Noticed Member. "Buy/Sell Price" has the meaning specified in the terms Cayuga Buy/Sell Notice and Fleetwood Buy/Sell Notice. 2 "Buy/Sell Purchase Price" means, with respect to any sale of Interests, Member Units and Member Loans by a Member Group pursuant to a Buy/Sell Notice, the sum of (i) product of (a) the amount of Interests being sold by such Member Group times (b) the Buy/Sell Price, plus (ii) the product of (x) the number of Member Units being sold by such Member Group times (y) the Imputed Unit Price, plus (iii) the principal amount of Member Loans being sold by such Member Group together with accrued interest on such Member Loans through the Buy/Sell Closing. "Buy/Sell Right" means the right of a Member Group to give a Buy/Sell Notice. "Buy/Sell Trigger" means any of the events described in Section 7.05(b)(i), each of which gives the specified Member Groups a Buy/Sell Right upon the occurrence (and during the continuation) of such Buy/Sell Trigger. "Cayuga Buy/Sell Notice" means a notice that the Cayuga Group has elected to exercise its Buy/Sell Right pursuant to and as provided in Section 7.05, which notice shall contain and constitute an irrevocable offer by Cayuga, on behalf of the Cayuga Group, to either (i) purchase all Interests, all Member Units and all Member Loans Beneficially Owned by the Icahn Group, or (ii) sell to Fleetwood all Interests, all Member Units and all Member Loans Beneficially Owned by the Cayuga Group, in either case for the same cash price for each percentage point of Interests (the "Buy/Sell Price") specified by Cayuga in such notice, for the Imputed Unit Price per Member Unit and for the principal amount of such Member Loans together with accrued interest thereon through the Buy/Sell Closing. "Cayuga Group" means, collectively, (i) Cayuga and its respective Affiliates, (ii) each Person who shall be a general or limited partner in Cayuga and each of their respective Affiliates and (iii) each Person who is a direct or indirect transferee of any Cayuga Interests. "Cayuga Member" means each Person who is both a member of the Cayuga Group and a Member. "Cayuga Interests" means the Interests originally issued to Cayuga and any other Interests subsequently acquired by Cayuga or any of its Affiliates. "Cayuga Transfer Notice" means a written notice given by Cayuga to Fleetwood indicating that a member of the Cayuga Group intends to make a transfer pursuant to Section 7.05(a)(ii), which notice shall specify in detail the terms and conditions (including the proposed transferee) of the proposed transfer. "Closing Date" means each date on which an Offer expires pursuant to its terms and the Company accepts for payment, and thereby purchases, Units validly tendered and not withdrawn pursuant to the Offer. "Commenced" means the commencement of a Tender Offer, as determined under Rule 14d-2 of the Exchange Act or, if such Tender Offer is not subject to Section 14(d) of the Exchange Act, as determined in good faith by the Manager. 2 3 "Commission" means the United States Securities and Exchange Commission. "Company Units" means all Units acquired by the Company pursuant to a Tender Offer by the Company or in a Negotiated Purchase. "Competing Offer" means a Tender Offer for Units which (i) is Commenced prior to the expiration of the Offer by a Person that is not an Affiliate of any Member and (ii) has a cash purchase price per Unit that is at least 5% greater than the purchase price per Unit of the Offer on the date such Competing Offer is Commenced; provided, however, that a Tender Offer for Units which satisfies the criteria set forth in clauses (i) and (ii) nonetheless will not constitute a Competing Offer if, on the date such Tender Offer is Commenced, 15% or more of the outstanding Units have been validly tendered and not withdrawn pursuant to the Offer; provided, however, that if the purchase price of the Competing Offer is increased prior to the termination of the Offer,then such price increase shall be deemed to constitute the Commencement of a new Competing Offer for purposes of Section 4.02. "Effect a Redemption" has the meaning specified in Section 10.14. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Extraordinary Transaction" means any of (i) a liquidation of a Partnership, (ii) a sale of all or substantially all of a Partnership's assets, (iii) a merger, consolidation, business combination, "roll-up" or other similar transaction involving a Partnership, including without limitation any such transaction to be achieved in whole or in part by means of an exchange offer, or (iv) any other transaction, including but not limited to a termination of all or substantially all of the license agreements with Hampton Inns, which will result in a material structural change in a Partnership or its assets outside the ordinary course of business. "Fleetwood Buy/Sell Notice" means a notice that the Icahn Group has elected to exercise its Buy/Sell Right pursuant to and as provided in Section 7.05, which notice shall contain and constitute an irrevocable offer by Fleetwood, on behalf of the Icahn Group, to either (i) purchase all Interests, all Member Units and all Member Loans Beneficially Owned by the Cayuga Group, or (ii) sell to Cayuga all Interests, all Member Units and all Member Loans Beneficially Owned by the Icahn Group, in either case for the same cash price for each percentage point of Interests (the "Buy/Sell Price") specified by Fleetwood in such notice, for the Imputed Unit Price per Member Unit and for the principal amount of such Member Loans together with accrued interest thereon through the Buy/Sell Closing. In order to be effective such notice must be accompanied by evidence, reasonably satisfactory to the Cayuga Group, that (i) Fleetwood has, and will continue to maintain, the Required Net Worth or (ii) Fleetwood's obligations under Section 7.05(b) are guaranteed by an entity which has, and will continue to maintain, the Required Net Worth. "Fleetwood Member" means each Person who is both a member of the Icahn Group and a Member. 3 4 "Fleetwood Interests" means the Interests originally issued to Fleetwood and any other Interests subsequently acquired by Fleetwood or any of its Affiliates. "Fleetwood Transfer Notice" means a written notice given by Fleetwood to Cayuga indicating that a member of the Fleetwood Group intends to make a transfer pursuant to Section 7.05(a)(ii), which notice shall specify in detail the terms and conditions (including the proposed transferee) of the proposed transfer. "Follow-up Offer" means a Tender Offer for Units made by the Company in response to a Competing Offer in accordance with the provisions of Section 4.03(a)(i); provided that the terms and conditions (other than the purchase price, which shall be determined by the Manager in its sole discretion) of the Follow-up Offer shall be reasonable and customary under the circumstances. "Follow-up Offer Notice" means a written notice from the Company to the Members notifying them that the Company intends to make a Follow-up Offer, which notice shall set forth the material terms and conditions of the Follow- up Offer. "Future Hostile Offer" means a Tender Offer for Units which (i) is Commenced after the expiration of the Offer by a Person that is not an Affiliate of any Member and (ii) has a purchase price per Unit that is at least 35% of Net Asset Value; provided, however, that if the purchase price of the Future Hostile Offer is increased prior to the Commencement of a Responsive Offer or a Qualifying Offer, then such price increase shall be deemed to constitute the Commencement of a new Future Hostile Offer for purposes of Section 4.03. "General Partner" means Montgomery Realty Company-85, a California general partnership, which is the general partner of Growth Hotel Investors and the managing general partner of Growth Hotel Investors II as of the Effective Date. "GP Exercise Notice" means a written notice to Cayuga and NPI from Fleetwood that Fleetwood has elected to exercise the GP Transfer Option. In order to be effective such notice must be accompanied by evidence, reasonably satisfactory to the Cayuga Group, that (i) Fleetwood has, and will continue to maintain, the Required Net Worth or (ii) Fleetwood's obligations under Section 7.05(b) are guaranteed by an entity with the Required Net Worth. "GP Interest" means, collectively, the general partner interest in each Partnership held by the General Partner and any GP Units. "GP Purchase Price" means an amount in cash equal to: the sum of (i) the Imputed Unit Price multiplied by the number of GP Units owned by the General Partner on the date of the GP Transfer Closing plus (ii) 175% of the gross property management fees paid by the Partnership to all parties (other than Hampton Inns, Inc. or one of its Affiliates) during the Partnerships' most recently ended fiscal year preceding the Buy/Sell Closing with respect to properties owned by the Partnerships and not sold or under contract for sale as of the date of 4 5 the GP Transfer Closing. The GP Purchase Price shall be computed and certified by the Partnership's independent public accountants. "GP Stock" means 100% of the issued and outstanding capital stock of NPI Realty Management Corp., a Florida corporation and the co-general partner with Fox Realty Investors, a California general partnership, in the General Partner. "GP Transfer Closing" has the meaning specified in Section 7.05(b)(v). "GP Transfer Option" means the option, exercisable by Fleetwood from and after the date (if ever) on which (i) Cayuga notifies (or is deemed to have notified) Fleetwood pursuant to Section 7.05(b)(iii)(1) or (2) that the Cayuga Group has elected to sell its Interests and Member Units pursuant to a Fleetwood Buy/Sell Notice or (ii) any member of the Cayuga Group has sold Interests or Member Units at a Buy/Sell Closing, to purchase the GP Stock for the GP Purchase Price and in accordance with the provisions of Section 7.05(b)(v). "GP Units" means all Units owned of record by the General Partner on the date hereof. "Group" means a "partnership, limited partnership, syndicate or other group" within the meaning of Section 13(d)(3) of the Exchange Act. "Icahn" means Carl C. Icahn, an individual. "Icahn Group" means, collectively, (i) Icahn, Fleetwood and their respective Affiliates and (ii) each Person who is a direct or indirect transferee of any Fleetwood Interests. "Insignia" means Insignia Financial Group, Inc., a Delaware corporation. "Imputed Unit Price" means, in connection with any buy/sell transaction, an amount in cash equal to the quotient of (A) the sum of (i) the product of (a) the Buy/Sell Price times (b) one hundred percent of the Interests plus (ii) all liabilities of the Company as of the Buy/Sell Notice Date, minus (iii) all assets of the Company (other than the Company Units) as of the Buy/Sell Notice Date, divided by (B) the total number of Company Units as of the Buy/Sell Notice Date. "Institutional Debt" means the indebtedness of the Company for borrowed money due to PWRES and its successors and assigns. "Interests" means the percentage of beneficial interests in the profits and losses of the Company owned by the Members. "Limited Partner" means a limited partner of a Partnership. "Manager" has the meaning specified in Article VI. 5 6 "Member Group" means the Cayuga Group or the Icahn Group, as the case may be. "Member Loans" has the meaning specified in Section 9.03(a). "Member Units" means, with respect to any Member, all Units Beneficially Owned by such Member, any Member of such Member's Member Group or any Affiliate of any of the foregoing persons, other than (i) Company Units and (ii) GP Units. "NPI" means National Property Investors, Inc., a Delaware corporation. "Negotiated Purchase" means a purchase of Units by the Company in a negotiated transaction. "Net Asset Value" means, at any given time, the liquidation value per Unit as determined by the Manager and set forth in the Offer Documents for purposes of making an Offer. "Noticed Group" means the Member Group of which the Noticed Member is a member. "Noticed Member" means, as applicable, (i) Cayuga, if it has received a Fleetwood Buy/Sell Notice, or (ii) Fleetwood, if it has received a Cayuga Buy/Sell Notice. "Offer" means Tender Offers for Units to be made by the Company pursuant to Section 4.02, as such Tender Offers may be amended and supplemented from time to time. "Offer Documents" means all documents relating to a Tender Offer which are required to be filed with the Commission, including but not limited to the Offer to Purchase and any supplements and amendments thereto, and any press releases related thereto. "Offering Group" means the Member Group of which the Offering Member is a member. "Offering Member" means, as applicable, (i) Cayuga, if it has exercised its Buy/Sell Right and delivered a Cayuga Buy/Sell Notice to Fleetwood pursuant thereto, or (ii) Fleetwood, if it has exercised its Buy/Sell Right and delivered a Fleetwood Buy/Sell Notice to Cayuga pursuant thereto. "Partnership" means either Growth Hotel Investors, a California limited partnership, or Growth Hotel Investors II, a California limited partnership, as the context may require. "Partnership Agreement" means the Agreement of Limited Partnership of a Partnership, as in effect on the Effective Date and as the same may be amended from time to time after the Effective Date. 6 7 "Person" means any natural person or any corporation, partnership, venture, association or other entity. "PWRES" means PaineWebber Real Estate Securities Inc. "Qualified Purchase" means a purchase of Units by a Member or Members in a negotiated transaction permitted to be made pursuant to Section 4.03(b)(iii), 4.03(b)(iv) or 4.03(b)(v), provided that the following conditions are satisfied: (i) the Qualified Purchase may only be made on terms and conditions that are the same in all material respects as the terms and conditions of the proposed Negotiated Purchase set forth in the Unrestricted Purchase Notice or the Restricted Purchase Notice, as the case may be, that resulted in the right to make a Qualified Purchase (except that the purchase price per Unit may be greater than that stated in the Unrestricted Purchase Notice); and (ii) prior to making the Qualified Purchase, the Member or Members making the Qualified Purchase agree in writing with the Company for the benefit of the other Members (a) to register any Units purchased pursuant to such Qualified Purchase on the books of the Partnership in the record name of the Company, as nominee for such Member or Members, and (b) that any Units so purchased by such Member or Members pursuant to such Qualified Purchase and registered in the record name of the Company shall be voted as provided in Section 4.07 and shall be subject to the buy/sell provisions of Section 7.05(b). "Qualifying Offer" means a Tender Offer for Units by a Member or Members permitted to be made pursuant to Section 4.03(a), provided that the following conditions are satisfied: (i) the Member or Members making the Qualifying Offer agree in writing with the Company for the benefit of the other Members prior to the Commencement of the Qualifying Offer (a) to register any Units purchased pursuant to such Qualifying Offer on the books of the Partnership in the record name of the Company, as nominee for such Member or Members, and (b) that any Units so purchased by such Member or Members pursuant to such Qualifying Offer and registered in the record name of the Company shall be voted as provided in Section 4.07 and shall be subject to the buy/sell provisions of Section 7.05(b); and (ii) the Member or Members making the Qualifying Offer adequately disclose, in a manner reasonably acceptable to counsel to the other Members, the agreements described in clause (i) above and the effects thereof in the tender offer documents relating to such Qualifying Offer sent to the Limited Partners and filed with the Commission (if required to be filed). Counsel to the other Members must provide its or their comments to such disclosure within 24 hours after the receipt thereof. 7 8 "Redemption Amount" means (A) the aggregate amount of contributions to the Company's capital made pursuant to this Agreement in respect of Interests being redeemed, less any amounts paid by the Company to Members by way of distributions in respect of such Interests, plus (B) the product of (i) the number of Member Units being purchased, times (ii) 80.0% of Net Asset Value. Anything in this Agreement to the contrary notwithstanding, upon the election to Effect a Redemption with respect to any Member (the "Redeemed Member"), the remaining Members shall provide for the release to the Redeemed Member (or members of such Member's Member Group) of the collateral (other than Member Units) with respect to which the Redeemed Member has granted a security interest to PWRES pursuant to Section 9.03(c). "Required Net Worth" means total assets (excluding goodwill) less total liabilities of not less than $10 million. "Responsive Offer" means a Tender Offer for Units made by the Company in response to a Future Hostile Offer in accordance with the provisions of Section 4.03(a)(ii), provided that the terms and conditions (other than the purchase price, which shall be in the sole discretion of the Manager) of the Responsive Offer shall be reasonable and customary under the circumstances. "Responsive Offer Notice" means a written notice from the Company to the Members notifying them that the Company intends to make a Responsive Offer, which notice shall set forth the material terms and conditions of the Responsive Offer. "Restricted Purchase Notice" means a written notice from Cayuga to Fleetwood or from Fleetwood to Cayuga, as the case may be, proposing that the Company make a Negotiated Purchase that does not satisfy the criteria set forth in clauses (1) and (2) of Section 4.03(b)(i), which notice must set forth all of the material terms and conditions of the proposed Negotiated Purchase, including without limitation the proposed number of Units to be purchased and the proposed purchase price per Unit. "Tender Offer" means a tender offer that is subject to Section 14(e) of the Exchange Act. "Terms" means the following terms and conditions of a Tender Offer: (i) the purchase price, (ii) the minimum and maximum number of Units to be tendered for, (iii) the expiration date, and (iv) the conditions to the Offer. "Third Party" means, as to any Person, another Person that is not an Affiliate or an Associate of the first Person. "Third Party Proposal" means a proposal by a Person which is a Third Party as to each Member Group to cause the Partnership to engage in an Extraordinary Transaction. "Third Party Proposal Trigger" means the distribution by a Third Party to Limited Partners of proxy and/or consent solicitation materials relating to a Third Party Proposal, if and only if within five Business Days of the date such proxy and/or consent solicitation materials are 8 9 first received by any member of the Cayuga Group, Cayuga does not notify Fleetwood that Cayuga objects to the Third Party Proposal. "Units" means units of limited partnership interest in a Partnership. "Unrestricted Purchase Notice" means a written notice from Fleetwood to the Company proposing that the Company make a Negotiated Purchase that satisfies the criteria set forth in clauses (1) and (2) of Section 4.03(b)(i), which notice must set forth all of the material terms and conditions of the proposed Negotiated Purchase, including without limitation the proposed number of Units to be purchased and the proposed purchase price per Unit. Section 1.02 Representations and Warranties of Cayuga. Cayuga hereby represents and warrants to the Company and Fleetwood as follows: (a) The Cayuga Group Beneficially owns no Units as of the Effective Date. Partners in the Cayuga Group Beneficially Own Member Units consisting of 1,076 Units of Growth Hotel Investors and Member Units consisting of 2,941 Units of Growth Hotel Investors II as of the Effective Date. The General Partner does not own any Units of record. (b) [Intentionally omitted]. (c) None of the Partnership's contracts or other transactions with any member of the Cayuga Group is, and any such contract or other transaction entered into during the term of this Agreement will not be, prohibited by a Partnership Agreement. (d) For purposes of Section 3(c)(1) of the Investment Company Act of 1940, as amended, as of the Effective Date, no more than 45 Persons shall be deemed to "own" (within the meaning of Section 3(c)(1)) Interests by reason of the Cayuga Group's ownership of Interests. (e) Each Partnership's contracts with any member of the Cayuga Group is, and any such contract entered into during the term of this Agreement will be, terminable by such Partnership without premium or penalty upon 60 days' prior notice. (f) Cayuga has obtained, prior to the Effective Date, an amendment to the partnership agreement of the General Partner which grants to NPI Realty Management Corp. all rights as managing general partner of the General Partner to conduct the affairs of the General Partner and each Partnership. Section 1.03 Representations and Warranties of Fleetwood. Fleetwood hereby represents and warrants to the Company and Cayuga as follows: (a) The Icahn Group Beneficially owns Member Units consisting of 15 Units of Growth Hotel Investors and Member Units consisting of 55 Units of Growth Hotel Investors II as of the Effective Date. 9 10 (b) For purposes of Section 3(c)(1) of the Investment Company Act of 1940, as amended, as of the Effective Date, no more than 45 Persons shall be deemed to "own" (within the meaning of Section 3(c)(1)) Interests by reason of the Icahn Group's ownership of Interests. ARTICLE II. OFFICES Section 2.01 Office. The office of the Company shall be established and maintained at 100 Jericho Quadrangle, Suite 214, Jericho, New York 11753. Section 2.02 Other Offices. The Company may have other offices, either within or without the State of New York, at such place or places as the managing member (the "Manager") of the Company may from time to time appoint or the business of the Company may require. ARTICLE III. PURPOSE Section 3.01 Purpose. The Company was formed for the purpose of engaging in any lawful act or activity for which general partnerships may be organized under laws of the State of New York. While this Agreement is in effect, the sole and exclusive purposes of the Company shall be to acquire (including without limitation pursuant to an Offer), and thereafter to hold for investment and ultimately dispose of, or otherwise realize the value of, Units, and to conduct any other activities necessary or incidental to such purposes including without limitation exercising any and all voting and other rights appurtenant to the ownership of such Units. ARTICLE IV. STANDSTILL AND OFFER PROVISIONS Section 4.01 Standstill Provisions. (a) Subject to Sections 4.01(d) and 4.01(e) below and except as provided in Section 4.03, no member of the Cayuga Group or the Icahn Group shall (i) commence a Tender Offer for Units or (ii) purchase, buy, acquire or otherwise become or seek to become the Beneficial Owner of Units (or any other interest in the Partnership), in each case other than pursuant to the Offer; provided, however, that the foregoing shall not prohibit (x) the acquisition of Beneficial Ownership of Units by any member of the Cayuga Group or the Icahn Group as a result of any acquisition of Units by the Company or, (y) the acquisition by any member of the Cayuga Group or the Icahn Group of the capital stock of or any other interest in any other member of the Cayuga Group or the Icahn Group or (z) the Purchase by the Company from Cayuga of 1 Unit in each Partnership at a price of $705 for the Unit in Growth Hotel Investors 10 11 and $750 for the Unit in Growth Hotel Investors II which purchase is being consummated simultaneously with the execution and delivery of this Agreement. (b) Except as provided in Section 4.01(c) and in Section 4.07, any Member may, on behalf of the Company, exercise the Company's rights as a Limited Partner with respect to the Company Units and any Member Units registered in the name of the Company as nominee for such Member, including without limitation the Company's rights to access the books and records of the Partnership; provided, however, that no member of the Icahn Group may call or initiate a Limited Partner meeting or consent solicitation; and further provided that (i) from and after the date of a Buy/Sell Closing in which the Cayuga Group sells its Interests and Member Units to Fleetwood (or its designee), and so long as an Affiliate of NPI continues to be the General Partner, the participation by such Affiliate of NPI in any activity with respect to the Partnership (whether referred to in this Section 4.01(b) or otherwise) shall be limited to activities of the General Partner required under a Partnership Agreement or by the fiduciary obligations of such entity, and (ii) from and after the date of the GP Transfer Closing, such Affiliate of NPI shall also be prohibited from calling or initiating a Limited Partner meeting or consent solicitation and from engaging in any other activity with respect to a Partnership. (c) No member of the Cayuga Group or the Icahn Group, singly or as part of a Group, directly or indirectly, through one or more intermediaries or otherwise, may: (i) make, or in any way participate in, directly or indirectly, any "solicitation" of "proxies" (as such terms are defined or used in Regulation 14A under the Exchange Act) or become a "participant" in any "election contest" (as such terms are defined or used in Rule 14a-11 of the Exchange Act) with respect to the Partnership; (ii) initiate, propose or otherwise solicit Limited Partners for the approval of one or more proposals with respect to a Partnership; or (iii) instigate or encourage any Limited Partner or other Third Party to do any of the foregoing; provided, however, that until a Buy/Sell Closing occurs, this Section 4.01(c) shall not apply to members of the Cayuga Group with respect to the matters set forth in clauses (i)-(iii) of Section 4.07(b); and further provided that (x) from and after the date of a Buy/Sell Closing in which the Cayuga Group sells its Interests and Member Units to Fleetwood (or its designee), and so long as an Affiliate of NPI continues to be the General Partner, the participation by such Affiliate of NPI in any activity with respect to a Partnership (whether referred to in this Section 4.01(c) or otherwise) shall be limited to activities required under the Partnership Agreement or by the fiduciary obligations of such entity, and (y) from and after the date of the GP Transfer Closing, such Affiliate of NPI shall also be prohibited from participating in any activity referred to in this Section 4.01(c) and from engaging in any other activity with respect to a Partnership. (d) If at any time the only remaining Members are all members of the same Member Group, then the provisions of this Section 4.01 and Section 4.03(a)(vi) shall no longer apply to the members of such Member Group or to any Person who thereafter becomes a Member. (e) Notwithstanding anything in this Agreement to the contrary, no Person shall be deemed to have violated this Section 4.01(a) in the event that such Person acquires Beneficial Ownership of Units representing a de minimis amount of the total outstanding Units pursuant to a transaction in which such Person acquires an interest in another entity; provided that (i) the purpose of such transaction is not to acquire Units or otherwise circumvent the intent 11 12 of this Agreement, and (ii) if such acquisition occurs while such Person or any of its Affiliates is a member of a Member Group, then promptly after such acquisition such Person shall register such Units on the books of the Partnership in the record name of the Company, as nominee for such Person, and such Units shall constitute Member Units for purposes of this Agreement. (f) It is understood and agreed that except as provided in Section 4.02(a), the obligations of the Members (and any Person who becomes a Member) and the members of their respective Member Groups under the provisions of this Section 4.01 shall survive (i) termination or modification of this Agreement, (ii) termination (by sale, assignment, redemption or otherwise) of any Member's Beneficial Ownership of Interests, (iii) termination or dissolution of the Company, and (iv) termination of such Person as a Member. Section 4.02 The Offer. (a) The Offer shall initially be made upon the Terms mutually agreed upon by the Members. The Members acknowledge that they have agreed to the Terms contained in the draft dated February 13, 1996 of the Offer Documents. If the Members are unable to agree on any additional Terms of the Offer within 20 days of the Effective Date, then, notwithstanding any other provision of this Agreement to the contrary, the provisions of Section 4.01 shall be void and of no effect, and the Manager shall liquidate and dissolve the Company as soon as practicable. All terms and conditions other than the Terms of the Offer (including any supplements and amendments thereto) shall be determined by the Manager, provided that such other terms and conditions must be reasonable and customary under the circumstances. Each Member shall provide all information reasonably requested by the Company to complete the Offer Documents and consummate the Offer. Immediately following the Closing Date, the Company shall take all actions as are necessary for it to be admitted to the Partnership as a substitute Limited Partner as to all of the Units purchased pursuant to the Offer. (b) Except as provided in Section 4.02(c) below, any amendment to the Terms of the Offer after the Offer has been Commenced must be approved by all Members; provided, however, that only the Manager need approve any extension of the expiration date of the Offer which, in the opinion of legal counsel to the Company in connection with the Offer, (i) is required by the Exchange Act and the rules and regulations thereunder or by the Commission or (ii) is otherwise advisable under the circumstances. (c) If a Competing Offer has been Commenced, then the Manager may, in its sole discretion, increase the purchase price of the Offer from time to time; provided, however, that the purchase price of the Offer may not be increased to an amount that is greater than 110% of the purchase price of the Competing Offer at the time of any such increase. If the purchase price of the Offer is to be increased pursuant to this Section 4.02(c), then, within two Business Days of the receipt by Fleetwood of notice of a Competing Offer, Fleetwood, on behalf of all Fleetwood Members, shall elect whether or not to fund the Fleetwood Members' pro rata share of the Offer Call amount to be specified in a properly issued Capital Call Notice. If Fleetwood shall elect not to so fund, the Company shall be required to Effect a Redemption with respect to the Icahn Group. 12 13 (d) If (i) a Competing Offer has been Commenced, (ii) Fleetwood (on behalf of all Fleetwood Members) proposes in writing to Cayuga (on behalf of all Cayuga Members) to increase the purchase price of the Offer to a price that is at least equal to, but not greater than 110% of, the purchase price of the Competing Offer, and (iii) Cayuga does not agree within two Business Days after Fleetwood's request to increase the purchase price of the Offer, then the Company shall continue to make the Offer on unchanged terms and Fleetwood may elect within two Business Days following the expiration of the two Business Day period referred to in the foregoing clause (iii) to require the Company to Effect a Redemption in respect of the Icahn Group, in which case all members of the Icahn Group will continue to be subject to the provisions of Section 4.01. If Cayuga agrees to the increase in the purchase price of the Offer proposed by Fleetwood within such two Business day period, then the Manager shall take such action as is reasonably necessary to amend the Offer and effect such price increase. (e) The Herman Group, Inc. will be retained to act as depositary (the "Depositary") for each Offer on such terms as the Manager in its sole discretion shall determine. In addition, the Depositary will be reimbursed for its reasonable out-of-pocket expenses incurred in connection with each Offer. Section 4.03 Future Purchases of Units by the Company and Members. (a) Tender Offers. (i) If a Competing Offer has been Commenced and if within 48 hours of the Closing Date the Manager determines that the Company should make a Follow-up Offer, then (1) within 48 hours of the Closing Date the Company shall provide Fleetwood with a Follow-up Offer Notice, and (2) within three Business Days after the Closing Date the Company shall Commence a Follow-up Offer; provided, however, that if the Competing Offer is withdrawn prior to the Commencement of the Follow-up Offer, then the Company shall not Commence a Follow-up Offer. If the Company makes a Follow-up Offer in accordance with the preceding sentence, then, by written notice to the Company given on or prior to the second Business Day following the date of receipt by Fleetwood of a notice relating to such Follow-up Offer and specifying the purchase price to be paid, Fleetwood, on behalf of all Fleetwood Members, shall elect whether or not to fund the Fleetwood Members' pro rata share of the Offer Call amount to be specified in a properly issued Capital Call Notice. If Fleetwood shall elect not to so fund, the Company shall be required to Effect a Redemption with respect to the Icahn Group. Immediately following the date on which the Company accepts for payment Units validly tendered pursuant to the Follow-up Offer, the Company shall take all actions as are necessary for it to be admitted to the Partnership as a substitute Limited Partner with respect to all such Units accepted for payment. (ii) If a Future Hostile Offer is Commenced and if within five Business Days of the date on which the Future Hostile Offer is Commenced the Manager determines that the Company should make a Responsive Offer, then (1) within such five Business Day period the Company shall issue a press release (which 13 14 may omit information relating to the number of Units to be tendered for, the purchase price of the Responsive Offer and any other information counsel to the Company deems necessary in order to prevent the issuance of such press release from constituting the Commencement of a Tender Offer under Rule 14d- 2 of the Exchange Act) announcing the Company's intention to make a Responsive Offer, (2) within two Business Days following the issuance of such press release the Company shall provide Fleetwood with a Responsive Offer Notice, and (3) the Company shall Commence a Responsive Offer within ten Business Days of the date on which the Future Hostile Offer is Commenced; provided, however, that if the Future Hostile Offer is withdrawn prior to the Commencement of the Responsive Offer, then the Company shall not Commence a Responsive Offer. If the Company makes a Responsive Offer, then, by written notice to the Company given on or prior to the next Business Day following the date of receipt by Fleetwood of a notice relating to such Responsive Offer and specifying the purchase price to be paid, Fleetwood, on behalf of all Fleetwood Members, shall elect whether or not to fund the Fleetwood Members' pro rata share of the Offer Call amount to be specified in a properly issued Capital Call Notice. If Fleetwood shall elect not to fund then (i) if such Responsive Offer has a purchase price per Unit equal to or less then 80% of Net Asset Value, the Company shall be required to Effect a Redemption with respect to the Icahn Group or (ii) if such Responsive Offer has a purchase price per Unit greater than 80% of Net Asset Value, the Company shall not proceed with a Responsive Offer and the Cayuga Group shall be permitted to Commence a Qualifying Offer prior to the withdrawal or expiration of the Future Hostile Offer or within fifteen Business Days of the date on which the Future Hostile Offer is Commenced (but prior to the withdrawal of such Future Hostile Offers). Immediately following the date on which the Company accepts for payment Units validly tendered pursuant to the Responsive Offer, the Company shall take all actions as are necessary for it to be admitted to the Partnership as a substitute Limited Partner with respect to all such Units accepted for payment. (iii) If (1) the Company does not provide Fleetwood with a Follow-up Offer Notice within the 48 hour period referred to in Section 4.03(a)(i)(1), (2) the Company does not Commence a Follow-up Offer within three Business Days after the Closing Date (other than as a result of the fact that the Competing Offer was withdrawn), (3) the Company does not issue a press release announcing the Company's intention to make a Responsive Offer within five Business Days following the date on which a Future Hostile Offer is Commenced, or (4) the Company does not Commence a Responsive Offer (other than as a result of the fact that the Future Hostile Offer was withdrawn within ten Business Days of the date on which a Future Hostile Offer is Commenced), then, in any such case, the Company shall not make a Follow-up Offer or a Responsive Offer, as the case may be, and the Fleetwood Members shall be permitted to Commence a Qualifying Offer prior to the withdrawal or expiration of the Competing Offer or within fifteen Business Days of the date on which the Future Hostile Offer is Commenced (but prior to the withdrawal of such Future Hostile Offer), as the case may be; provided, however, that if clause (2) or clause (4) gives rise to the 14 15 right to make a Qualifying Offer, then the Cayuga Members also shall be permitted to make a Qualifying Offer if the reason that the Company did not Commence a Follow-up Offer within two Business Days after the Closing Date or a Responsive Offer within ten Business Days after the Commencement of the Future Hostile Offer, as the case may be, was outside the control of the Company, the Manager, and any member of the Cayuga Group. The Company shall promptly provide a Member who makes a Qualifying Offer with all information relating to the Company reasonably requested by such Member in connection with such Qualifying Offer. (iv) Immediately following the date on which the Member or Members making a Qualifying Offer accepts for payment Units validly tendered pursuant to such Qualifying Offer, the Company shall take all actions as are necessary for it to be admitted to the Partnership as a substitute Limited Partner with respect to all Units purchased by such Member or Members (and registered in the record name of the Company) pursuant to the Qualifying Offer. (v) The Company shall take all action reasonably necessary to ensure that any distribution received by the Company in respect of any Units purchased pursuant to a Qualifying Offer and registered in the record name of the Company as a result of a Qualifying Offer is received by the Member or Members for whom the Company is the nominee with respect to such Units as promptly as practicable after receipt thereof by the Company. (vi) The Company and the Members covenant and agree that other than as provided in (i), (ii) and (iii) above, none of the Company, the Members or any of their respective Affiliates may Commence a Tender Offer for Units after the expiration of the Offer. (b) Negotiated Purchases. (i) Without the consent of Fleetwood, the Company may make a Negotiated Purchase provided each of the following conditions are met: (1) the number of Units purchased by the Company in the Negotiated Purchase, together with all other Units purchased by the Company in prior Negotiated Purchases, does not exceed 10% of the total number of Units purchased by the Company pursuant to the Offer and any subsequent Tender Offer for Units by the Company; and (2) the price per Unit paid by the Company in the Negotiated Purchase does not exceed 80.0% of the Net Asset Value. (ii) The Company may make a Negotiated Purchase that does not satisfy the criteria set forth in clauses (1) and (2) of (i) above if Fleetwood consents to such Negotiated Purchase. 15 16 (iii) If Fleetwood provides an Unrestricted Purchase Notice to the Company and the Manager does not consent to the proposed Negotiated Purchase that is the subject of the Unrestricted Purchase Notice within three days of the date the Unrestricted Purchase Notice is received, then the Fleetwood Members shall be permitted to make a Qualified Purchase. The Company shall take all action reasonably necessary to ensure that any distribution received by the Company in respect of any Units registered in the record name of the Company pursuant to this Section 4.03(b)(iii) is received by the Fleetwood Members for whom the Company is the nominee with respect to such Units as promptly as practicable after receipt thereof by the Company. (iv) If Fleetwood provides a Restricted Purchase Notice to Cayuga and Cayuga does not consent in writing to the proposed Negotiated Purchase by the Company that is the subject of the Restricted Purchase Notice within three days of the date the Purchase Notice is received, then the Fleetwood Members shall be permitted to make a Qualified Purchase. The Company shall take all action reasonably necessary to ensure that any distribution received by the Company in respect of any Units registered in the record name of the Company pursuant to this Section 4.03(b)(iv) is received by the Fleetwood Member or Fleetwood Members for whom the Company is the nominee with respect to such Units as promptly as practicable after receipt thereof by the Company. (v) If Cayuga provides a Restricted Purchase Notice to Fleetwood and Fleetwood does not consent in writing to the proposed Negotiated Purchase by the Company that is the subject of the Restricted Purchase Notice within three days of the date the Purchase Notice is received, then the Cayuga Members shall be permitted to make a Qualified Purchase. The Company shall take all action reasonably necessary to ensure that any distribution received by the Company in respect of any Units registered in the record name of the Company pursuant to this Section 4.03(b)(v) is received by the Cayuga Member or Cayuga Members for whom the Company is the nominee with respect to such Units as promptly as practicable after receipt thereof by the Company. Section 4.04 Members' Review of Offer Documents. Each Member shall have the right to review in a timely manner all of the Offer Documents and to comment upon the Offer Documents, which comments shall be given due consideration by the Manager. If a Fleetwood Member requests that the Manager modify or add disclosure in the Offer Documents relating to such Fleetwood Member and the Manager does not modify or add such disclosure as requested, then the indemnity obligations of such Fleetwood Member under Article VIII of this Agreement shall not apply to any loss, claim, damage or liability that results from the Manager's failure to make such requested modification or addition. Section 4.05 Public Announcements. Subject to the requirements of applicable law, rule, regulation or order, no Member shall make any public announcement with respect to the Offer or any of the transactions or events incidental to the commencement, continuance or consummation of the Offer without the prior written consent of the other Members, which consent shall not be unreasonably withheld or delayed, provided that, to the extent disclosure 16 17 is required by law, rule, regulation or order, each Member shall use reasonable efforts, consistent with its legal obligations, to submit the form of proposed disclosure to the other Members and permit the other Members a reasonable opportunity to comment thereon prior to publication. Section 4.06 Litigation. (a) All litigation which in any way arises out of or relates to the Offer or any other purchase of Units by the Company, whether pursuant to a Tender Offer or in a Negotiated Purchase, shall be exclusively controlled by the Manager, including the selection of counsel for the Company and the Members (which counsel shall be reasonably acceptable to all Members), and all costs and expenses related to that litigation, including costs of settlement, shall be paid by the Company; provided, however, that any Member or member of the Cayuga Group or the Icahn Group may retain its own counsel at its own expense and, if such Member or member so elects, may be represented by its own counsel in any such litigation and may control any aspect of such litigation relating solely to such Member or member of the Cayuga Group and its Affiliates (other than the Company) or the Icahn Group and its Affiliates (other than the Company), as the case may be. The foregoing provisions shall apply notwithstanding that the defendants in the litigation are Persons other than the Company or its Members. Under no circumstances will the Manager or the Company agree to any settlement of litigation unless as part of that settlement each Member and all of their respective members or Affiliates named as defendants receive unconditional releases of liability relating to the allegations in the complaint in such litigation. (b) If within 10 days after being advised of the terms of any litigation settlement Fleetwood objects to the settlement and the Manager declines to modify the terms of that settlement in a manner reasonably acceptable to Fleetwood, then Fleetwood may elect to require the Company to Effect a Redemption with respect to the Icahn Group, and the Company and the remaining Members will be fully responsible for all costs and liability associated with the litigation, except only for costs and liabilities for which the Fleetwood Members are required to furnish indemnity under Section 8.03. Section 4.07 Voting of Partnership Units. (a) Subject to the provisions of Section 4.07(b) below, (i) the Company Units shall be voted (or waivers or written consents in respect thereof shall be executed) by the Company as directed by the Members in proportion to their respective interests in the Company, and (ii) the Member Units shall be voted (or waivers or written consents in respect thereof shall be executed) as directed by the Person or Persons for whom the Company is the nominee with respect to such Units. (b) Subject to the provisions of Section 7.05(b)(v)(4)(C), until a Buy/Sell Closing occurs, and unless Cayuga is in material default hereunder, the Company Units and the Member Units shall be voted as directed by the Manager: (i) on any proposal to remove the General Partner or any proposal that in any way adversely alters the rights, authority or obligations of the General 17 18 Partner, or to reduce any compensation payable to the General Partner or Affiliate of Cayuga; (ii) on any proposal to cause the Partnership to engage in an Extraordinary Transaction; provided, however, that if such proposal is a Third Party Proposal or is proposed by a general partner of the Partnership (other than the General Partner) and such proposal does not result in a Buy/Sell Trigger exercisable by Fleetwood on behalf of the Icahn Group, then the Company Units shall be voted against the Third Party Proposal or such proposal by a general partner and Cayuga shall, and shall cause its Affiliates (other than the General Partner) to, take such action as is reasonably necessary under the circumstances to defeat such Third Party Proposal or such proposal by a general partner; and (iii) on any proposal made by the General Partner of the Partnership. ARTICLE V. MEMBERS Section 5.01 Place of Meetings. Meetings of the Members of the Company shall be held at such place, either within or without the State of New York, as may from time to time be designated by the Manager and stated in a notice of meeting or in a duly executed waiver of notice thereof. Section 5.02 Annual Meeting. An annual meeting of the Members of the Company for the election of the Manager and for the transaction of such other business as may properly come before the meeting shall be held annually at such time as may be designated by the Manager and stated in the notice of meeting or waiver of notice thereof. Section 5.03 Special Meetings. Special meetings of the Members, to be held for such purpose or purposes as may be specified in the notice of meeting, may be called by the Manager or by any Member. Section 5.04 Notice of Meetings; Waiver. (a) Written notice of the date, hour, place and purpose or purposes of every meeting of Members shall be delivered as provided in Section 10.9 by the Manager (in the case of an annual meeting) or by the Member calling the meeting (in the case of a special meeting), or by such person as the foregoing may designate to perform this duty, not more than 60 days nor less than five days before the meeting, to each Member of record entitled to vote at such meeting. (b) Notwithstanding the provisions of Section 5.04(a), each person who is entitled to notice of any meeting of Members shall be deemed to have waived such notice if the Member attends such meeting in person or by proxy, or if the Member, before or after the meeting, submits a signed waiver of such notice to the Company. When a meeting of Members is adjourned to another time and place, unless the Manager after the adjournment shall fix a new 18 19 record date for such adjourned meeting or the adjournment is for more than 30 days, notice of such adjourned meeting need not be given if the time and place to which such meeting has been adjourned was announced at the meeting at which the adjournment was taken. Section 5.05 Quorum. Unless otherwise required by law, the presence in person or represented by proxy, of all of the Members thereat shall be necessary to constitute a quorum for the transaction of business at any meeting of Members. In the absence of a quorum at any such meeting or any adjournment or adjournments thereof, a majority in voting interest of those present in person or represented by proxy may adjourn such meeting from time to time until a quorum is present thereat. At any adjourned meeting at which a quorum is present any business may be transacted which might have been transacted at the meeting as originally called. Section 5.06 Voting; Proxies. (a) Each Member shall be entitled to one vote for each percentage point of Interests held in its name according to the membership interest ledger of the Company and may vote either in person or by proxy with respect to any matter submitted to a vote of the Members. Every proxy must be in writing and executed by the Member or by his duly authorized attorney-in-fact, in which case the Company may request the delivery of the original power of attorney as a condition of honoring such proxy. A proxy with respect to Interests held in the name of two or more persons shall be valid if executed by any one of them unless at or prior to exercise of the proxy the Company receives written notice to the contrary from any one of such persons. No proxy shall be valid after a period of three years from the date thereof unless otherwise provided in such proxy. (b) The following actions shall require the unanimous approval of all Members: (i) authorization and sales of additional Interests or other rights or interests in the Company; and (ii) amendments to this Agreement. In addition, all other actions not specifically contemplated by this Agreement to be taken by the Manager or the Company shall require the unanimous approval of all Members, and no Member (other than Cayuga acting in its capacity as Manager pursuant to the express terms of this Agreement) shall have the authority to or shall take any action on behalf of the Company without the written approval of all Members. Unless demanded by a Member present in person or represented by proxy at any meeting of the Members, the vote thereat may be by voice vote and need not be by ballot. Upon a demand by any such Member for a vote by ballot on any question, or at the direction of such chairman that a vote by ballot be taken on any question, such vote shall be taken. On a vote by ballot each ballot shall be signed by the Member voting, or by his proxy as such if there be such proxy, and it shall show the number of Interests voted by such Member or proxy. Section 5.07 Consent of Members in Lieu of Meeting. Any action permitted or required to be taken by vote at any meeting of the Members may be taken without a meeting upon the receipt by the Company of the written consent of all Members entitled to vote thereon; provided, that such written consent shall set forth the action so consented to. Section 5.08 Continuation on Withdrawal of a Member. The Company's existence will automatically terminate 90 days following the death, retirement, resignation, 19 20 expulsion, bankruptcy or dissolution of a Member or the occurrence of any event which terminates the continued membership of a Member in the Company (each, a "Withdrawal"), unless there are at least two remaining Members and the remaining Members agree to continue the Company by unanimous written consent within 90 days after the Withdrawal of a Member. In order to permit the continuation of the Company's existence in the event only one Member would otherwise be remaining, Interests may be transferred immediately to any Person approved by such remaining Member so that there are two Members to make the election contemplated in the preceding sentence. In the event of a Withdrawal of a Member, other than a Withdrawal resulting from a transfer of Interests permitted by Section 7.05, the Company may elect to Effect a Redemption with respect to the Member Group of which such Member is a member. ARTICLE VI. MANAGER Section 6.01 Number and Powers. (a) There shall be only one Manager of the Company, and the affairs of the Company shall be managed by the Manager to the limited extent specifically contemplated in this Agreement. The Members hereby agree that the initial Manager shall be Cayuga. (b) The Manager shall hold office until the expiration of his term and the election and qualification of his successor. The powers of the Manager shall be limited to those contemplated by this Agreement. Section 6.02 Election and Qualifications. So long as any member of the Cayuga Group Beneficially Owns any Interests and subject to clause (ii) of the second sentence of Section 6.04, the Manager shall be elected by Cayuga; thereafter the Manager shall be elected by 100% of the votes cast at a meeting of the Members duly called and held. Except as provided in Section 6.01 and this Section 6.02, the Manager shall be elected at the Annual Meeting of Members to hold office until the next Annual Meeting of Members and until his successor has been elected and shall have qualified. Section 6.03 Vacancies. Any vacancy in the position of Manager, whether caused by resignation, death, disqualification, or removal of the Manager or otherwise, may be filled as provided in the first sentence of Section 6.02. Section 6.04 Resignation or Removal. The Manager may resign at any time and such resignation shall take effect upon receipt thereof by the Members unless otherwise specified in the resignation. The Manager may be removed either (i) by vote of a majority of the Interests owned by Members entitled to elect or designate such Manager, with or without Cause, or (ii) by vote of 33 1/3% of the outstanding Interests for Cause. For purposes of this Agreement, "Cause" shall be defined as (i) fraud, dishonesty or willful misconduct, (ii) the commission of theft, embezzlement, obtaining funds or property under false pretenses, or similar acts of misconduct with respect to the property of the Company or its employees or (iii) conviction of a felony. 20 21 Section 6.05 Compensation. The Manager may receive compensation for services to the Company only to the extent approved by all Members or as otherwise set forth in this Agreement. ARTICLE VII. CONTRIBUTIONS OF CAPITAL; INTERESTS; TRANSFERS OF INTERESTS Section 7.01 Contributions. Each Member shall contribute to the Company the amount of cash set forth on Schedule I to this Agreement (the "Initial Contribution") in exchange for the amount of Interests set forth opposite such Member's name on Schedule I. As set forth in Section 7.06, Members will be required from time to time to make additional capital contributions. Section 7.02 [Intentionally Omitted] Section 7.03 [Intentionally Omitted] Section 7.04 [Intentionally Omitted] Section 7.05 Transfers of Interests. (a) Voluntary Transfers. (i) Except as otherwise provided in this Agreement, no Member and no transferee of a Member's Interests may directly or indirectly sell, assign, transfer, exchange, encumber or otherwise dispose of Beneficial Ownership of any Interests or any interest therein now held or hereafter acquired by a Member; provided, however, that (1) any Member may transfer all or any part of its Interests to another Member; (2) any Member may transfer Interests to another member of such Member's Member Group who agrees in a written amendment to this Agreement to become a Member and thus be bound by the provisions of this Agreement, provided that any such transfer does not result in a reduction in the indirect Beneficial Ownership by Icahn of the Fleetwood Interests or any reduction in the indirect Beneficial Ownership by the Cayuga Group (as defined in clause (i) and (ii) of the definition of the Cayuga Group) of the Cayuga Interests, and (3) transfers of interests in an entity that Beneficially Owns Interests shall not constitute assignments or transfers of Interests in violation of this provision, provided that any such transfer does not result in a reduction in the indirect Beneficial Ownership by Icahn of the Fleetwood Interests or a reduction in the indirect Beneficial Ownership by the Cayuga Group (as defined in clause (i) and (ii) of the definition of the Cayuga Group) of the Cayuga Interests; and further provided that notwithstanding anything to the contrary in this Agreement, (x) no direct or indirect transfer of Interests by any Person shall be deemed to occur by reason of any direct or indirect transfer of the capital stock or other security of Insignia, including without limitation any transfer of the capital stock or other security of Insignia pursuant to a merger, consolidation or other 21 22 extraordinary corporate transaction to which Insignia or any of its subsidiaries is a party, (y) it is expressly understood and agreed by the Members that nothing in this Agreement shall prohibit any Interests that are Beneficially Owned by a Member from being pledged to collateralize or otherwise support general corporate obligations of such Member or its Affiliates existing on the Effective Date or incurred during the term of this Agreement, in either case in the ordinary course of business, but that the foregoing shall not relieve any Member from its obligation to fully perform its undertakings in this Agreement and (z) no direct or indirect transfer by any Person shall be deemed to occur by reason of any transfer of any interest in an entity that Beneficially Owns Interests to partners, employees or Affiliates of Apollo Real Estate Advisors, L.P. (ii) A transfer that would otherwise be prohibited by paragraph (i) of this Section 7.05(a) nonetheless may be effected by a member of the Cayuga Group if at least 16 but not more than 60 days prior to the date of such transfer Fleetwood receives a Cayuga Transfer Notice; provided, however, that if Fleetwood properly exercises its Buy/Sell Right in respect of such Cayuga Transfer Notice as provided in Section 7.05(b), then such transfer may not be consummated until after the Buy/Sell Closing has occurred. (iii) A transfer that would otherwise be prohibited by paragraph (i) of this Section 7.05(a) nonetheless may be effected by a member of the Icahn Group if at least 16 but not more than 60 days prior to the date of such transfer Cayuga receives a Fleetwood Transfer Notice; provided, however, that if Cayuga properly exercises its Buy/Sell Right in respect of such Fleetwood Transfer Notice as provided in Section 7.05(b), then such transfer may not be consummated until after the Buy/Sell Closing has occurred. (b) Buy/Sell Provisions. (i) Buy/Sell Triggers. Each of the following events constitutes a Buy/Sell Trigger: (1) the expiration of a 10-day period following the filing by a Partnership with the Commission of each Annual Report on Form 10-K or 10-KSB, beginning six months after the filing (or deemed filing) of the Report for the Partnership's fiscal year ending in 1996; provided, however, that if for any reason the Partnership is not required to file an Annual Report on Form 10-K or 10-KSB with the Commission, then for purposes of this Buy/Sell Trigger the Company shall be deemed to have filed such Report on the 90th day following the last day of the applicable fiscal year of the Partnership; and further provided that if a Partnership is required to file an Annual Report with the Commission but does not timely file such Report (including any applicable extension under Rule 12b-25 under the Exchange Act), then for purposes of this Buy/Sell Trigger the Company shall be deemed to have filed such Report on the 105th day following the last day of the applicable fiscal year of the 22 23 Partnership (either party may exercise a Buy/Sell Right under this Section); (2) the giving of a notice (an "Objection Notice") by Fleetwood to Cayuga to the effect that Fleetwood opposes (x) any proposal made by the General Partner or any member of the Cayuga Group that is to be submitted to a vote of the Limited Partners (whether such vote is to be taken at a meeting or by written consent) or (y) any Third Party Proposal or any proposal by a general partner of a Partnership (other than the General Partner) with respect to which the General Partner does not take a neutral position or recommend that Limited Partners vote against, which Objection Notice must be given by Fleetwood not later than the 15th day after Cayuga first gives Fleetwood written notice of the proposed vote (which written notice shall be given by Cayuga as promptly as practicable); provided, however, that no Buy/Sell Trigger shall be deemed to have occurred if, within 15 days after receipt by Cayuga of an Objection Notice from Fleetwood, the proposal that is the subject matter of the Objection Notice is withdrawn; and further provided that the giving of an Objection Notice shall result in a Buy/Sell Right exercisable only by Fleetwood on behalf the Icahn Group; (3) the expiration of a Responsive Offer; provided, however, that the expiration of a Responsive Offer shall result in a Buy/Sell Right exercisable only by Fleetwood on behalf of the Icahn Group; (4) a Third Party Proposal Trigger; provided, however, that a Third Party Proposal Trigger shall result in a Buy/Sell Right exercisable only by Fleetwood on behalf of the Icahn Group; (5) the receipt by Fleetwood of a Cayuga Transfer Notice; provided, however, that the receipt by Fleetwood of a Cayuga Transfer Notice shall result in a Buy/Sell Right exercisable only by Fleetwood on behalf of the Icahn Group; (6) the receipt by Cayuga of a Fleetwood Transfer Notice; provided, however, that the receipt by Cayuga of a Fleetwood Transfer Notice shall result in a Buy/Sell Right exercisable only by Cayuga on behalf of the Cayuga Group; (7) the occurrence of a material default by a Cayuga Member under this Agreement, which default continues uncured or unwaived for a period of 15 consecutive days; provided, however, that such default shall result in a Buy/Sell Right exercisable only by Fleetwood on behalf the Icahn Group; (8) the occurrence of a material default by a Fleetwood Member under this Agreement, which default continues uncured or 23 24 unwaived for a period of 15 consecutive days; provided, however, that such default shall result in a Buy/Sell Right exercisable only by Cayuga on behalf the Cayuga Group; (9) the receipt by the Company of written notice from the holder of the Institutional Debt advising the Company of the occurrence of any event of default which permits such holder to accelerate the payment of all indebtedness thereunder; provided, however, that such default shall result in a Buy/Sell Right exercisable by either Cayuga on behalf of the Cayuga Group or Fleetwood on behalf of the Icahn Group (A) unless such default relates to an act or omission of any member of the Cayuga Group, acting in any capacity, in which case the Buy/Sell Right may not be exercised by the Cayuga Group or (B) unless such default relates to an act or omission of any member of the Icahn Group, acting in any capacity, in which case the Buy/Sell Right may not be exercised by the Icahn Group; (10) the termination of all license agreements between the Partnerships and Hampton Inns, Inc.; provided, however, that such event shall result in a Buy/Sell Right exercisable only by Fleetwood on behalf of the Icahn Group. (ii) Buy/Sell Elections. (1) Within 15 days after any Buy/Sell Trigger that results in a Buy/Sell Right exercisable by Fleetwood, Fleetwood may exercise its Buy/Sell Right by delivering a Fleetwood Buy/Sell Notice to Cayuga; provided, however, that if the Company has purchased Units pursuant to a Responsive Offer or a Negotiated Purchase, or a Member or Members have purchased Units pursuant to a Qualified Purchase or a Qualifying Offer, in either case within the six-month period immediately preceding the date of any Buy/Sell Trigger and the number of Units purchased by the Company pursuant to the Responsive Offer or Negotiated Purchase exceeds 10% of the number of Units owned by the Company immediately prior to the expiration of the Responsive Offer or the closing of the Negotiated Purchase, or the number of Units purchased by the Member or Members pursuant to a Qualified Purchase or a Qualifying Offer exceeds 10% of the number of Units owned by such Member or Members immediately prior to the closing of the Qualified Purchase or the Qualifying Offer, then for purposes of this paragraph the date of such Buy/Sell Trigger will deemed to be the date that is 186 days following the date on which Units are paid for by the Company pursuant to the Responsive Offer or the Negotiated Purchase or paid for by the Member or Members pursuant to the Qualified Purchase or the Qualifying Offer. (2) Within 15 days after any Buy/Sell Trigger that results in a Buy/Sell Right exercisable by Cayuga, Cayuga may exercise its Buy/Sell 24 25 Right by delivering a Cayuga Buy/Sell Notice to Fleetwood; provided, however, that if the Company has purchased Units pursuant to a Responsive Offer or a Negotiated Purchase, or a Member or Members have purchased Units pursuant to a Qualified Purchase or a Qualifying Offer, in either case, within the six-month period immediately preceding the date of any Buy/Sell Trigger and the number of Units purchased by the Company pursuant to the Responsive Offer or Negotiated Purchase exceeds 10% of the number of Units owned by the Company immediately prior to the expiration of the Responsive Offer or the closing of the Negotiated Purchase, or the number of Units purchased by the Member or Members pursuant to a Qualified Purchase or a Qualifying Offer exceeds 10% of the number of Units owned by such Member or Members immediately prior to the closing of the Qualified Purchase or the Qualifying Offer, then for purposes of this paragraph the date of such Buy/Sell Trigger will deemed to be the date that is 186 days following the date on which Units are paid for by the Company pursuant to the Responsive Offer or the Negotiated Purchase or paid for by the Member or Members pursuant to the Qualified Purchase or the Qualifying Offer. (3) Notwithstanding the foregoing, Cayuga shall not be entitled to give a Cayuga Buy/Sell Notice if Cayuga has already received a Fleetwood Buy/Sell Notice, and Fleetwood shall not be entitled to give a Fleetwood Buy/Sell Notice if Fleetwood has already received an Cayuga Buy/Sell Notice. (4) If a Buy/Sell Notice is not received within the applicable 15-day period specified above following a particular Buy/Sell Trigger, then no Buy/Sell Right shall be exercisable in respect of such Buy/Sell Trigger. (iii) Buy/Sell Process. (1) Not later than the 15th day after the Buy/Sell Notice Date (the "Response Date"), the Noticed Member shall irrevocably notify the Offering Member in writing whether the Noticed Member (A) has elected to buy the Interest, Member Units and Member Loans Beneficially Owned by each member of the Offering Group pursuant to the Buy/Sell Notice, or (B) has elected, on behalf of each member of the Noticed Group, to sell the Interests, Members Units and Member Loans Beneficially Owned by each member of the Noticed Group pursuant to the Buy/Sell Notice; provided, however, that the Icahn Group may not elect to buy Interests, Member Units or Member Loans unless, in the case it is the Noticed Member, the notice given by it pursuant to this Section (1) is accompanied by evidence, reasonably satisfactory to the Cayuga Group, that (i) Fleetwood has, and will continue to maintain, the Required Net Worth or (ii) Fleetwood's obligations under Section 7.05(b) are guaranteed by an entity which has, and will continue to maintain, the Required Net Worth. 25 26 (2) If the Noticed Member fails to give that notice by the Response Date, the Noticed Member will be deemed to have elected, on behalf of each member of the Noticed Group, to sell the Interests, Member Units and Member Loans Beneficially Owned by each member of the Noticed Group. (3) If the Noticed Member gives (or is deemed to have given) notice to the Offering Member that the Noticed Group has elected to sell the Interests, Member Units and Member Loans pursuant to (1) or (2) above, then the Offering Member shall be obligated to purchase from each member of the Noticed Group (and each member of the Noticed Group shall be obligated to sell to the Offering Member) (a) all Interests Beneficially Owned by each member of the Noticed Group at a price for each percentage point of Interests equal to the Buy/Sell Price and all Member Units with respect to which the Company is the nominee for each such member of the Noticed Group at a price per Member Unit equal to the Imputed Unit Price and (b) all Member Loans held by each Member of the Noticed Group at a price equal to the principal amount of such Member Loans together with accrued interest on such Member Loans through the Buy/Sell Closing. (4) If the Noticed Member gives notice to the Offering Member that the Noticed Group has elected to buy Interests, Member Units and Member Loans pursuant to (1) above, then each member of the Offering Group shall be obligated to sell to the Noticed Member (and the Noticed Member shall be obligated to purchase from each member of the Offering Group), (a) all Interests Beneficially Owned by each such member of the Offering Group at a price for each percentage point of Interests equal to the Buy/Sell Price and all Member Units with respect to which the Company is the nominee for each such member of the Noticed Group at a price per Member Unit equal to the Imputed Unit Price and (b) all Member Loans held by each Member of the Offering Group at a price equal to the principal amount of such Loans together with accrued interest on such Member Loans through the Buy/Sell Closing. (iv) Buy/Sell Closings. The closing (a "Buy/Sell Closing") of any sale or sales of Interests and Member Units required by the exercise of a Member's Buy/Sell Right shall take place at the principal offices of the Company at 10:00 a.m., local time, on the first Business Day which is 45 days after the Buy/Sell Notice Date (or such earlier Business Day as the buyer of Interests, Member Units and Member Loans specifies on not less than two Business Days prior written notice to the seller(s) or such later Business Day as the buyer and the seller(s) shall mutually agree to). At the Buy/Sell Closing, the seller(s) will execute and deliver such documents as may be required by the buyer to evidence the sale and transfer of the seller's(s') entire Interests in the Company, Member Units and Member Loans, to be sold free and clear of all liens and encumbrances whatsoever (other than the Institutional Debt), the buyer will pay the Buy/Sell 26 27 Purchase Price in immediately available funds and the buyer will provide for the release to the seller of collateral (other than Member Units) with respect to which the seller has granted a security interest to PWRES pursuant to Section 9.03(c). In addition, each Person selling or purchasing Interests and/or Member Units and/or Member Loans at the Buy/Sell Closing shall execute and deliver an instrument acknowledging, representing and warranting to the other parties that such Person (a) made its purchase or sale decision on a fully informed basis, (b) had full access to the books and records of the Company and the Partnership prior to making its decision, (c) had ample opportunity to ask questions of the management of the Company and the Partnership prior to making its decision and received satisfactory answers to those questions, and (d) did not rely on any representation of any other Person in making its decision. (v) GP Transfer Provisions. (1) Once a Buy/Sell Notice has been received by either Cayuga or Fleetwood, Cayuga and NPI will not, and will not cause or permit any Member of the Cayuga Group to, take any action, or fail to take any reasonable action, intended to alter adversely the rights, authority or obligations of the General Partner in any way. After a Buy/Sell Closing in which the members of the Cayuga Group are sellers, upon written request from Fleetwood, NPI shall cause the GP Interest to continue to be held by the General Partner so that, if Fleetwood so elects, NPI may transfer or cause to be transferred to Fleetwood or its designee the GP Stock at the GP Transfer Closing. (2) If Cayuga notifies (or is deemed to have notified) Fleetwood that the Cayuga Group has elected to sell Interests, Member Units and Member Loans pursuant to Section 7.05(b)(iii)(1) or (2) or if any member of the Cayuga Group is a seller at the Buy/Sell Closing, then from and after the date of such notice (or deemed notice) or Buy/Sell Closing Fleetwood may exercise the GP Transfer Option by delivering a GP Exercise Notice to Cayuga and NPI. (3) The closing of the GP Transfer (the "GP Transfer Closing") shall take place at the principal offices of NPI at 10:00 a.m., local time, on the first Business Day which is 45 days after the receipt by Cayuga and NPI of the GP Exercise Notice, in the event that the Debt Requirement (as defined below) is not applicable, otherwise the GP Transfer Closing will take place as soon as practicable after the Debt Requirement is satisfied, waived by Fleetwood or otherwise eliminated; provided, however, that if Fleetwood delivers the GP Exercise Notice to Cayuga and NPI at least 20 days prior to the Buy/Sell Closing pursuant to Section 7.05(b)(iv) and if the Debt Requirement is not applicable, then the GP Transfer Closing shall take place simultaneously with the Buy/Sell Closing. At the GP Transfer Closing, NPI or its Affiliate will execute and deliver such documents as may be required by Fleetwood to evidence the sale and 27 28 transfer of NPI's or its Affiliate's entire interest in the GP Stock to Fleetwood or its designee, to be sold free and clear of all liens and encumbrances whatsoever (other than the Institutional Debt), and Fleetwood will pay the GP Purchase Price to NPI or its designee in immediately available funds. In addition, each Person who is a party to the GP Transfer transaction shall execute and deliver an instrument acknowledging, representing and warranting to the other parties that such Person (a) made its purchase or sale decision on a fully informed basis, (b) had full access to the books and records of the Company and the Partnership prior to making its decision, (c) had ample opportunity to ask questions of the management of the Partnership prior to making its decision and received satisfactory answers to those questions, and (d) did not rely on any representation of any other Person in making its decision. Also at the GP Transfer Closing, NPI and Fleetwood shall enter into an agreement by which: (i) Fleetwood agrees to indemnify Cayuga and NPI and their respective controlling persons, partners, Affiliates, officers, directors and employees from and against any and all loss, liability or damage any of them may incur by reason of (x) findings that in light of the conduct of the General Partner following the GP Transfer Closing, the GP Transfer breached the fiduciary duties of NPI or any of its Affiliates or otherwise was unlawful or (y) the activities of the General Partner or the Partnership after the GP Transfer Closing; and (ii) subject to Section 10.07(b), NPI agrees to indemnify Fleetwood and its controlling persons, Affiliates, officers, directors and employees from and against any and all loss, liability or damage any of them may incur by reason of the activities of the General Partner or the Partnership before the GP Transfer Closing other than those maters for which NPI and its Affiliates are indemnified pursuant to Section 8.06. (4) If the GP Transfer would result in an acceleration of a material amount of a Partnership's mortgage or other debt obligations and/or the incurrence of prepayment premiums (a "Debt Requirement"), then: (A) NPI will, and will cause its Affiliates to, use commercially reasonable efforts to facilitate the elimination or waiver of the Debt Requirement and, without limiting the generality of the foregoing, will (subject to its fiduciary obligations) vote all of the GP Units in a manner reasonably required to facilitate the GP Transfer. (B) Until the GP Transfer Closing and except as otherwise provided above, the General Partner and its Affiliates will continue to perform the same functions and receive the same compensation for and from a Partnership as before the Closing and will take no action to diminish the rights and privileges of the General Partner. 28 29 (C) Until the GP Transfer Closing occurs, no member of the Icahn Group may, singly or as part of a Group, directly or indirectly, through one or more intermediaries or otherwise: (i) make, or in any way participate in, directly or indirectly, any "solicitation" of "proxies" (as such terms are defined or used in Regulation 14A under the Exchange Act) or become a "participant" in any "election contest" (as such terms are defined or used in Rule 14a-11 of the Exchange Act) with respect to a Partnership; (ii) initiate, propose or otherwise solicit, directly or indirectly, Limited Partners for the approval of one or more proposals with respect to a Partnership; or (iii) instigate or encourage, directly or indirectly, any Limited Partner or other Third Party to do any of the foregoing; if in any such case the purpose or effect of such conduct is or is likely to be (1) to remove the General Partner without payment of the GP Purchase Price, (2) to in any way adversely alter the rights, authority or obligations of a general partner of a Partnership, (3) to reduce the rights, authority or obligations of a general partner of a Partnership, or (4) to reduce any compensation payable to, or increase the obligations of, any general partner of the Partnership or any Affiliate of the General Partner. (5) From and after the date of the GP Transfer Closing and so long as any member of the Icahn Group controls the General Partner, the General Partner shall not elect to defer any amount payable to the General Partner pursuant to Sections 9.4.2, 9.5.1, 11.2.3 or 11.3 of a Partnership Agreement, unless in the opinion of counsel to the General Partner the fiduciary duties of the General Partner require otherwise. Fleetwood agrees, subject to the terms of the immediately following paragraph, that without the written consent of NPI, Fleetwood will not, and it will not cause or permit any member of the Icahn Group to, amend Sections 9.4.2, 9.5.1, 11.2.3 or 11.3 of a Partnership Agreement in a manner adverse to the General Partner. Fleetwood also expressly acknowledges and agrees, subject to the terms of the immediately following paragraph, that in the event Sections 9.4.2, 9.5.1, 11.2.3 or 11.3 of a Partnership Agreement is amended at any time after the GP Transfer Closing in a manner adverse to the General Partner, Fleetwood will nonetheless pay or cause to be paid 29 30 to the General Partner an amount equal to 100% of any amount that would have been payable to the General Partner pursuant to Section 9.4.2, 9.5.1, 11.2.3 or 11.3 of a Partnership Agreement but for such amendment or amendments, such payments to be paid in immediately available funds within three Business Days following the mailing to the Limited Partners of any distributions pursuant to the Partnership Agreement. (6) If after the GP Transfer Closing the General Partner is removed by a vote (whether such vote is taken at a meeting or by written consent) of the Limited Partners in accordance with the terms of the Partnership Agreement, and provided that the General Partner actively opposes its removal in connection with any such vote, then from and after the effective date of such removal, the provisions of the immediately preceding paragraph shall cease to apply (unless and until any member of the Icahn Group shall again become, or otherwise gain control of, the general partner of a Partnership, in which case the provisions of the immediately preceding paragraph shall automatically be revived and apply to periods following the date of such occurrence), unless NPI can prove that the Limited Partners had Cause (as such term is defined in Section 6.04, except that for purposes of this paragraph the definition shall also be deemed to include the taking of (or failure to take) any action which constitutes a breach of the General Partner's fiduciary duties to the Partnership or the Limited Partners) to remove the General Partner. For purposes of determining the foregoing, unless the parties can mutually agree the parties shall submit the issue to binding arbitration for determination, which determination shall be final and binding on all parties for all purposes of this Agreement, with the losing party to pay all reasonable costs incurred by all relevant parties in connection with such arbitration proceeding. (7) During the term of this Agreement, except for a transfer to Fleetwood or its designee as contemplated herein, and except as may be required by the terms of the Institutional Debt, NPI will not, and will not cause or permit any of its Affiliates to, directly or indirectly, sell, convey, transfer, assign, pledge or hypothecate the GP Stock or the GP Interest to any Person, other than transfers of the GP Stock to an Affiliate who agrees in writing for the benefit of Fleetwood to remain an Affiliate of NPI; provided, however, that (i) no direct or indirect transfer of the GP Stock or the GP Interest by NPI or any of its Affiliates shall be deemed to occur by reason of any direct or indirect transfer of the capital stock or other security of NPI, including without limitation any transfer of the capital stock or other security of NPI pursuant to a merger, consolidation or other extraordinary corporate transaction to which NPI or any of its subsidiaries is a party, and (ii) it is expressly understood and agreed by the Members that the foregoing shall not prohibit the GP Stock or the GP Interest from being pledged by NPI or its Affiliates to collateralize or otherwise support general corporate obligations of NPI or its Affiliates 30 31 existing on the Effective Date or incurred during the term of this Agreement, in either case in the ordinary course of business. (c) Transfers by Operation of Law. In the event that a Member (i) declares its intention to file a voluntary petition under bankruptcy or insolvency law or files a voluntary petition under any bankruptcy or insolvency law or a petition for the appointment of a receiver or makes an assignment for the benefit of creditors, or (ii) is subjected involuntarily to such a petition or assignment or to an attachment or other legal or equitable interest with respect to the Member's Interests, and such involuntary petition or assignment or attachment is not discharged within 30 days after the date thereof, or (iii) is subject to a transfer of its Interests by operation of law, then if such Member is a Fleetwood Member, Cayuga may elect to require the Company to Effect a Redemption with respect to the Icahn Group, and if such Member is an Cayuga Member, then Fleetwood may elect to require the Company to Effect a Redemption with respect to the Cayuga Group. (d) Transfers in Violation of this Agreement. If any transfer of Interests or Member Units is made or attempted by any member of the Fleetwood Group contrary to the provisions of this Section 7.05, then Cayuga may elect to require the Company to Effect a Redemption with respect to the Icahn Group at any time before or after the transfer; and if any transfer of Interests or Member Units is made or attempted by any member of the Cayuga Group contrary to the provisions of this Section 7.05, then Fleetwood may elect to require the Company to Effect a Redemption with respect to the Cayuga Group at any time before or after the transfer. In addition to any other legal or equitable remedies which it may have, the Company may enforce its rights by specific performance or injunctive relief, without proof of irreparable harm and without any need to post a bond. Section 7.06 Capital Calls; Minimum Working Capital Reserve; Redemption of Interests of Defaulting Member. (a) The Company may from time to time require Members to make additional contributions to the capital of the Company in amounts and at times the Company reasonably deems necessary, for the purposes of (i) funding the cost of purchasing Units accepted for purchase by the Company pursuant to the Offer, a Follow-up Offer, any Responsive Offer or any Negotiated Purchase (an "Offer Call"), and (ii) funding any other costs, expenses or liabilities (including litigation and settlement costs and indemnity obligations under this Agreement) of the Company (an "Operating Call") (x) which have been incurred and were permitted to be incurred under this Agreement, including but not limited to payments of principal and interest and other amounts required to be made pursuant to the terms of the Institutional Debt, or (y) which will be incurred within the six months following the date of the Capital Call Notice relating thereto and are permitted to be incurred under this Agreement, in the case of both (x) and (y) in connection with any redemption of Interests by the Company or any of the administrative activities contemplated by Section 10.02. Except as provided in the preceding sentence, the Company may not make a capital call for any other purpose without the consent of all Members. The amounts of such required additional contributions shall be specified in written notices (each a "Capital Call Notice") given to the Members. Each Capital Call Notice shall specify (i) the aggregate amount of capital required to be contributed by all Members; and (ii) each Member's pro rata share of that amount, which shall be the aggregate 31 32 amount of additional capital so required multiplied by the percentage which represents the total amount of Interests owned of record by a Member; and (iii) a date (not less than two Business Days after the date of a Capital Call Notice relating to an Offer Call, or five Business Days in the case of a Capital Call Notice which relates solely to an Operating Call) by which each Member is to pay the required amount to the Company in immediately available funds. A Capital Call Notice in respect of the Offer Call shall not be sent more than five Business Days before the date the funds are anticipated to be disbursed by the Company. The Members hereby agree, upon receipt of an Offer Call, to make additional contributions to the capital of the Company up to a maximum of an additional $9,000,000 to fund costs incurred in connection with the Offer. (b) The Members agree that the Company shall at all times maintain a working capital reserve (the "Reserve") of not less than $50,000 in cash. If at any time the amount of the Reserve shall fall below $50,000, then the Company shall (i) make an Operating Call in an amount necessary to restore the Reserve to $75,000 and (ii) send a Capital Call Notice to each Member in respect of such Operating Call. The Members shall be required to fund the Operating Call as set forth in Section 7.06(a). (c) Subject to the provisions of Sections 4.02(c), 4.02(d), 4.03(a)(i), 4.03(a)(ii) and 4.06(b) (under which the Icahn Group is entitled to receive 100% of the Redemption Amount in the event Fleetwood elects to have the Company Effect a Redemption), (i) if a Fleetwood Member fails to make a capital contribution pursuant to a Capital Call Notice as and when required, then Cayuga may elect to require the Company to Effect a Redemption with respect to the Icahn Group, and (ii) if a Cayuga Member fails to make a capital contribution pursuant to a Capital Call Notice as and when required, then Fleetwood may elect to require the Company to Effect a Redemption with respect to the Cayuga Group. Section 7.07 Qualification of Voters. The Manager may fix a time, not more than 60 nor less then five days prior to the date of any meeting of Members, or prior to the last day on which the consent or dissent of Members may be effectively expressed with respect to any action proposed to be taken without a meeting, as the time as of which Members entitled to notice of, and to vote at such a meeting, or whose consent or dissent is required or may be expressed with respect to any such action, as the case may be, shall be determined, and all persons who were holders of record of Interests at such time, and no others, shall be entitled to notice of, and to vote at such meeting, or to express their consent or dissent, as the case may be. Section 7.08 Determination of Members of Record for Other Purposes. The Manager may fix a time, not less than ten days or more than sixty days preceding the date fixed for the payment of any dividend or for the making of any distribution or for the delivery of evidences of rights or evidences of interests arising out of any change, conversion, or exchange of Interests, as a record date for the determination of the Members entitled to receive any such dividend, distribution, rights or interests, and in such case only Members on record at the time so fixed shall be entitled to receive such dividend, distribution, rights or interest. Section 7.09 Membership Interest Ledger. The Company shall maintain a membership interest ledger which contains the name and address of each Member of the 32 33 Company and the amount of Interests which the Member holds. The membership interest ledger may be in written form or in any other form capable of producing copies for visual inspection. The original or duplicate of the membership interest ledger shall be kept at the offices of the Manager, within or without the State of New York, or, if none, at the principal executive office of the Company. Section 7.10 [Intentionally Omitted] Section 7.11 Distributions; Surplus. To the extent permitted by law and by the terms of the Institutional Debt, the Manager shall declare and make distributions out of the income, if any, of the Company at such time and in such amounts as, in its reasonable discretion, the Manager shall deem to be available after establishment or replenishment of reasonable working capital reserves; provided, however, that after (i) the Offer has expired, (ii) all litigation relating to the Offer has been resolved and (iii) all other costs and expenses of the Offer have been paid or duly provided for, the Manager shall declare and make distributions promptly after the receipt by the Company of any cash distributions made by the Partnership in respect of Company Units in the aggregate amount of such distributions received by the Company. ARTICLE VIII. INDEMNIFICATION Section 8.01 Indemnification of Managers, Officers and Members. (a) Each person who was or is made a party or is threatened to be made a party to or is otherwise involved in any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (a "Proceeding"), by reason of the fact that he is or was a Manager or officer of the Company (an "Indemnitee") shall be indemnified and held harmless by the Company to the fullest extent authorized by the laws of the State of New York, as the same exist or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Company to provide broader indemnification rights than such law permitted the Company to provide prior to such amendment), against all expense, liability and loss (including attorneys' fees, judgments, fines, excise taxes or penalties and amounts paid in settlement) reasonably incurred or suffered by such Indemnitee in connection therewith; provided, however, that no Indemnitee shall be entitled to indemnity under this paragraph for any expense, liability or loss resulting from conduct that is determined, by final judicial decision from which there is no further right to appeal, to constitute gross negligence or willful misconduct on the part of such Indemnitee. Notwithstanding the foregoing, indemnification under this Section 8.01(a) shall not be available to any Indemnitee in respect of any claim for which the Indemnitee or any of its Affiliates is required to furnish indemnification to the Company under any other provision of this Article VIII. (b) The right to indemnification conferred in Section 8.01 shall include the right to be paid by the Company the expenses (including attorneys' fees) incurred in defending any such Proceeding in advance of its final disposition (an "Advancement of Expenses"); provided, however, that an Advancement of Expenses incurred by an Indemnitee shall be made 33 34 only upon delivery to the Company of an undertaking, by or on behalf of such Indemnitee, to repay all amounts so advanced (i) if it shall ultimately be determined by final judicial decision from which there is no further right to appeal that such Indemnitee is not entitled to be indemnified for such expenses under the provisions of the laws of the State of New York or (ii) by reason of a final judicial determination contained in a nonappealable order, that such beneficiary is not entitled to be indemnified under this Section 8.01, whether by reason of the last sentence of Section 8.01(a) or otherwise. (c) It is expressly understood and agreed by the Members that notwithstanding anything contained in this Agreement to the contrary, to the extent necessary to satisfy its indemnification obligations under this Section 8.01, the Company may, upon ten days prior written notice to Fleetwood, sell or otherwise liquidate Company Units; provided, unless such sale or other liquidation of the Company Units is made at a price equal to or greater than the Net Asset Value, the Company may not sell or otherwise liquidate Company Units unless it has first made an Operating Call to fund such indemnification obligations. Section 8.02 Indemnification by Cayuga. Cayuga shall indemnify and hold harmless the Company and its Members against any loss, claim, damage or liability (or any action in respect thereof), joint or several, to which the Company or any Member may become subject, insofar as such loss, claim, damage or liability (or action in respect thereof) arises out of or is based upon (i) any untrue statement of a material fact contained in any of the Offer Documents, or the omission to state in the Offer Documents a material fact required to be stated therein or necessary to make the statements therein not misleading, but only to the extent that any such loss, claim, damage, liability or action is finally judicially determined in a nonappealable order to have arisen out of or to be based upon an untrue statement or alleged untrue statement or omission or alleged omission made in reliance upon and in conformity with information furnished by members of the Cayuga Group or their respective officers, employees or representatives for inclusion in the Offer Documents; or (ii) any breach or alleged breach by the General Partner of the Partnership, at any time it was controlled by Affiliates of members of the Cayuga Group, of its fiduciary duties to the Partnership or its partners; provided, however, that if such breach or alleged breach relates to the Offer, Cayuga shall have an indemnification obligation hereunder only to the extent of a final nonappealable determination by a court of competent jurisdiction to the effect that the General Partner, at the time it was controlled by an Affiliate of members of the Cayuga Group, did in fact breach a fiduciary duty to the Partnership or its partners or (iii) any capital account deficit restoration obligation of any direct or indirect general partner of a Partnership. Section 8.03 Indemnification by Fleetwood. Subject to Section 4.04, Fleetwood shall indemnify and hold harmless the Company and its Members against any loss, claim, damage or liability (or any action in respect thereof), joint or several, to which the Company or any Member may become subject, insofar as such loss, claim, damage or liability (or action in respect thereof) arises out of or is based upon any untrue statement of a material fact contained in any of the Offer Documents, or the omission to state in the Offer Documents a material fact required to be stated therein or necessary to make the statements therein not misleading, but only to the extent that any such loss, claim, damage, liability or action is finally judicially determined in a nonappealable order to have arisen out of or to be based upon an untrue statement or alleged untrue statement or omission or alleged omission made in reliance 34 35 upon and in conformity with information furnished by Fleetwood, its Affiliates or their respective officers, employees or representatives for inclusion in the Offer Documents. Section 8.04 Non-Exclusivity of Rights. The rights to indemnification and to the Advancement of Expenses conferred in this Article VIII shall not be exclusive of any other right which any Person may have or hereafter acquire under this Agreement or otherwise. Section 8.05 Indemnification of Employees and Agents of the Company. The Company may, to the extent authorized from time to time by the Manager, grant rights to indemnification and to the Advancement of Expenses to any employee or agent of the Company to the fullest extent of the provisions of this Article VIII with respect to the indemnification and Advancement of Expenses of Managers and officers of the Company; provided, however, the Company may not hire any employees (other than the Manager) without the consent of all Members. Section 8.06 Indemnification of NPI. In consideration of the pledge (the "Pledge") of the shares of the GP Stock and/or the general partnership interest in the General Partner held by NPI Realty Management Corp. to secure a loan from PWRES (or another institutional lender) to the Company and for other consideration, the Company agrees to indemnify and hold harmless NPI, its Affiliates and their respective controlling Persons, directors, officers, employees, servants, attorneys and agents (each, an "NPI Indemnitee") from and against damages, losses, penalties, fines, settlement payments, obligations (contractual or otherwise), liabilities, claims, actions and causes of action (actual or threatened, matured or unmatured, known or unknown, contingent or otherwise) and costs and expenses suffered, sustained, incurred or required to be paid by any NPI Indemnitee (other than a loss of, or diminution in value attributable to, the investment of RJN Corporation in Cayuga and Cayuga Capital Corporation), including without limitation any costs of investigation and attorneys' or experts' fees and disbursements, based upon or arising from or relating to any and all claims, demands, actions, suits or proceedings, civil, criminal, administrative or investigative, made, commenced or initiated by the Named Persons (as defined below) (other than by any of the Named Persons solely in his capacity as a limited partner of Cayuga) which are based upon, arise out of or related to (i) the designation of NPI Realty Management Corp. as the managing general partner of the General Partner and any other amendment to the partnership agreement of the General Partner effected by the Second Amended and Restated General Partnership Agreement of the General Partner, dated as of November 15, 1995, and the Third Amended and Restated General Partnership Agreement of the General Partner, dated as of February 13, 1996; (ii) the transactions contemplated by this Agreement, as it may be amended from time to time (including any termination of the license agreements between the Partnership and Hampton Inns, Inc. and any acceleration of mortgages encumbering Partnership properties resulting from the Offers) and the Pledge; and (iii) any action of the NPI Indemnitees, the General Partner, Fox Realty Investors or NPI Equity Investments II, Inc. taken or omitted in good faith in order to facilitate the transactions contemplated by this Agreement. For purposes of this Section, the term "Named Persons" are any of Portfolio Realty Associates, L.P., Emmet J. Cashin, Jr., Jarold A. Evans, Janet E. Larson, Trustee, Phillip A. Larson Family Revocable Trust Dated April 17, 1974; As Amended, W. Patrick McDowell and Lisle W. Payne, whether acting individually or in a derivative capacity on behalf of the General Partner, GHI Associates or Fox Realty Investors, and the respective heirs, beneficiaries, successor and assigns of each of the 35 36 foregoing. Subject to the next two succeeding sentences, the rights of NPI and any NPI Indemnitee to indemnification under this Section 8.06 for any settlement with any Named Person shall be subject to (i) such settlement having been made by NPI or the NPI Indemnitee acting reasonably and in good faith and (ii) the prior written consent of Fleetwood. If Fleetwood shall object or fail to consent to the terms of any such settlement within five Business Days after written notice specifying the terms thereof (which notice must also be given to Cayuga), Cayuga shall pay to Fleetwood its pro rata share of any such settlement, and Fleetwood shall assume all of the indemnification obligations of the Company to NPI and any NPI Indemnitee hereunder. In such event, Fleetwood shall assume the control of any litigation initiated by any Named Person, shall provide NPI with such assurances as shall be reasonably requested by NPI as to Fleetwood's having, and continuing to maintain, the Required Net Worth, which shall be deemed necessary to permit it to assume such control and satisfy any resultant judgment. NPI shall be required in connection with any such assumption of control to cooperate with Fleetwood in the defense of such litigation. NPI and any NPI Indemnitee shall give prompt written notice to Cayuga and Fleetwood of any claim based on the indemnity agreement contained in this Section 8.06. No failure to give such notice shall affect the indemnification obligations of any indemnifying party hereunder, except to the extent such failure materially prejudiced such indemnifying party's ability to successfully defend the matter giving rise to the indemnification claim. NPI and any NPI Indemnitee shall have the right to settle any claim initiated by any Named Person without obtaining any consent hereunder in the event that indemnification is not sought pursuant to this Section 8.06. ARTICLE IX. FINANCE Section 9.01 Checks, Drafts, etc. All checks, drafts and orders for the payment of money, notes and other evidences of indebtedness, issued in the name of the Company shall be signed by the Manager or such other person or persons as the Manager may from time to time designate. Section 9.02 Fiscal Year. The fiscal year of the Company shall be the calendar year. Section 9.03 Incurrence of Debt. (a) If a Fleetwood Member fails to make a capital contribution pursuant to a Capital Call Notice given pursuant to Section 7.06 as and when required and Cayuga does not elect to require the Company to Effect a Redemption with respect the Icahn Group as a result of such failure, then one or more Cayuga Members may, at any time prior to the date the Fleetwood Member makes the required capital contribution, elect to fund the entire amount of the capital contribution required to be made by the Fleetwood Members by a loan to the Company, in which case (i) any capital contribution made by any Fleetwood Member pursuant to such Capital Call Notice shall be returned to such Fleetwood Member and (ii) the capital contribution so made by the Cayuga Members shall be reclassified and treated for all purposes as loans to the Company. If a Cayuga Member fails to make a capital contribution pursuant to a Capital Call Notice given pursuant to Section 7.06 as and when required and Fleetwood does 36 37 not elect to require the Company to Effect a Redemption with respect to the Cayuga Group as a result of such failure, then one or more Fleetwood Members may, at any time prior to the date the Cayuga Members make the required capital contribution, elect to fund the entire amount of the capital contribution required to be made by the Cayuga Members by a loan to the Company, in which case (x) any capital contribution made by any Cayuga Member pursuant to such Capital Notice shall be returned to such Cayuga Member and (ii) the capital contribution so made by the Fleetwood Members shall be reclassified and treated for all purposes as loans to the Company. Any such loans referred to in the preceding sentences ("Member Loans") shall bear interest at the rate of 18% per annum, compounded daily, and the Company may pledge Company Units to secure such loans. Such Member Loans shall, by their terms, be payable only out of funds which otherwise would be available for distributions to Members and shall be paid in full prior to any further distributions to Members being made by the Company. (b) The Manager shall be authorized on behalf of the Company to enter into a loan agreement with PWRES on substantially the terms and conditions set forth in a commitment letter, dated February 13, 1996, from PWRES. The Manager shall be further authorized from time to time to enter into such amendments of such loan agreement as it may in its sole discretion determine to be in the best interests of the Company, provided, however, that, without the consent of all of the Members, the Manager shall not be authorized to make a material modification to the loan agreement that is inconsistent with the commitment letter, including increasing the amount to be borrowed thereunder, increasing the interest rate or fees to be paid thereunder, taking any action which would permit the holder of the Institutional Debt to look solely to the collateral security posted by the Icahn Group and not to the collateral security posted by or on behalf of the Cayuga Group or otherwise imposing personal liability on any Member or its Affiliates for the repayment of such indebtedness. The Manager shall give a Capital Call Notice to the Members if required to generate amounts necessary to pay when due any principal or interest or fees required to be paid pursuant to the terms of the Institutional Debt. (c) Cayuga shall cause to be granted to PWRES a security interest in each of the Member Units identified in Section 1.02(a) as Beneficially Owned by partners in the Cayuga Group. Fleetwood shall cause to be granted to PWRES a security interest in (i) the Member Units identified in Section 1.03(b) as Beneficially Owned by the Icahn Group and (ii) not less than $1,948,275 of negotiable instruments satisfactory to PWRES. In consideration of the grant of such security interests, Fleetwood and Cayuga will be entitled to receive from the Company during the period of time that their respective collateral is being held as security by PWRES and provided they remain a Member of the Company, quarterly payments in arrears of $25,000 in the case of Fleetwood and quarterly payments in arrears of $50,000 in the case of Cayuga. (d) After the Institutional Debt has been paid in full (other than any residual fees payable thereunder), and prior to any further general distributions to Members being made by the Company, there shall be paid to Fleetwood and Cayuga, respectively, the amount of any payments made pursuant to the Institutional Debt from the proceeds of any collateral security thereunder provided by Fleetwood or partners in Cayuga, as the case may be. (e) Except as otherwise provided in this Section 9.03, the Company may not incur indebtedness for borrowed money. 37 38 Section 9.04 Subordination. (a) The Company, for itself and its successors and assigns, covenants and agrees and each Member likewise covenants and agrees that the payment of all obligations of the Company to the Members (the "Subordinated Obligations") are hereby expressly subordinated, to the extent and in the manner hereinafter set forth, to the prior payment in full in cash of Senior Indebtedness (as defined in Section 9.04(i) hereof). These provisions shall constitute a continuing offer to all persons who, in reliance upon such provisions, become holders of, or continue to hold, Senior Indebtedness, and such provisions are made for the benefit of the holders of Senior Indebtedness, and such holders are hereby made obligees hereunder to the same extent as if their names were written herein as such, and they and/or each of them may proceed to enforce such provisions. (b) All Senior Indebtedness (including interest thereon or fees or any other amounts owing in respect thereof), all principal thereof and premium, if any, and interest thereon (including, without limitation, any interest accruing subsequent to the filing of a petition in bankruptcy at the rate provided for in the documentation with respect thereto, whether or not such interest is an allowed claim under applicable law) or fees or any other amounts owing in respect thereof, shall first be paid in full in cash before any payment (other than payments permitted to be made by the Credit Agreements) of any kind or character (whether in cash, property or securities) is made on account of the principal of (including installments thereof), or interest on, or any amount otherwise owing in respect of the Subordinated Obligations (the date on which all such amounts in respect of Senior Indebtedness shall be paid in full is hereinafter referred to as the "Satisfaction Date"). Each holder of the Subordinated Obligations hereby agrees that it will not sue for, or otherwise take, accept or receive, any amounts owing in respect of the Subordinated Obligations prior to the Satisfaction Date; provided, however, that holders of Subordinated Obligations may file proofs of claim in connection with any bankruptcy proceeding involving the Company. (c) In the event that notwithstanding the provisions of Section 9.04(b), the Company shall make any payment on account of the principal of, or interest on, or amounts otherwise owing in respect of, the Subordinated Obligations, at a time when payment is not permitted by Section 9.04(b), such payment shall be held by the holder of the Subordinated Obligations, in trust for the benefit of, and shall be paid forthwith over and delivered to, the holders of Senior Indebtedness or their representative or representatives under the agreements pursuant to which the Senior Indebtedness may have been issued, as their respective interests may appear, for application pro rata to the payment of all Senior Indebtedness remaining unpaid to the extent necessary to pay all Senior Indebtedness in full in cash in accordance with the terms of such Senior Indebtedness, after giving effect to any concurrent payment or distribution to or for the holders of Senior Indebtedness. (d) Upon any distribution of assets of the Company upon any dissolution, winding up, liquidation or reorganization of the Company (whether in bankruptcy, insolvency or receivership proceedings or upon an assignment for the benefit of creditors or otherwise): (i) the holders of all Senior Indebtedness shall first be entitled to receive payment in full in cash of such of the principal of, premium, if any, and interest (including, 38 39 without limitation, any interest accruing subsequent to the filing of a petition in bankruptcy at the rate provided in the documentation with respect thereto, whether or not such interest is an allowed claim under applicable law) and all other amounts due on such Senior Indebtedness before any holder of the Subordinated Obligations is entitled to receive any payment of any kind or character (whether in cash, property or securities) on account of the principal of or interest on or any other amount owing in respect of the Subordination Obligations; (ii) any payment or distribution of assets of the Company of any kind or character, whether in cash, property or securities to which any holder of the Subordinated Obligations would be entitled except for these provisions, shall be paid by the liquidating trustee or agent or other person making such payment or distribution, whether a trustee or agent, directly to the holders of Senior Indebtedness or their representative or representatives under the agreements pursuant to which the Senior Indebtedness may have been issued, to the extent necessary to make payment in full in cash of all Senior Indebtedness remaining unpaid, after giving effect to any concurrent payment or distribution to the holders of such Senior Indebtedness; and (iii) in the event that, notwithstanding the foregoing provisions of this Section 9.04(d), any payment or distribution of assets of the Company of any kind or character, whether in cash, property or securities, shall be received by any holder of the Subordinated Obligations on account of principal of, or interest or other amounts due on, the Subordinated Obligations before all Senior Indebtedness is paid in full in cash, such payment or distribution shall be received and held in trust for and shall be paid over to the holders of the Senior Indebtedness remaining unpaid or unprovided for or their representative or representatives under the agreements pursuant to which the Senior Indebtedness may have been issued, for application to the payment of such Senior Indebtedness until all such Senior Indebtedness shall have been paid in full in cash, after giving effect to any concurrent payment or distribution to the holders of such Senior Indebtedness. Without in any way modifying these provisions or affecting the subordination effected hereby if such notice is not given, the Company shall give prompt written notice to the holder of the Subordinated Obligations of any dissolution, winding up, liquidation or reorganization of the Company (whether in bankruptcy, insolvency or receivership proceedings or upon an assignment for the benefit of creditors or otherwise). (e) Subject to the prior payment in full of all Senior Indebtedness in cash, the holders of the Subordinated Obligations shall be subrogated to the rights of the holders of Senior Indebtedness to receive payments or distributions of assets of the Company applicable to the Senior Indebtedness until all amounts owing on the Subordinated Obligations shall be paid in full, and for the purpose of such subrogation no payments of distributions to the holders of the Senior Indebtedness by or on behalf of the Company or by or on behalf of the holder of the Subordinated Obligations by virtue of these provisions which otherwise would have been made to the holder of the Subordinated Obligations, shall be deemed to be payment by the Company to or on account of the Senior Indebtedness, it being understood that these provisions are and are intended solely for the purpose of defining the relative rights of the holder of the 39 40 Subordinated Obligations, on the one hand, and the holders of the Senior Indebtedness, on the other hand. (f) Nothing contained in these provisions or in the Subordinated Obligations is intended to or shall impair, as between the Company and the holder of the Subordinated Obligations, the obligation of the Company (but not the Manager or the Members), which is absolute and unconditional, to pay to the holder of the Subordinated Obligations the principal of and interest on the Subordinated Obligations as and when the same shall become due and payable in accordance with their terms, or is intended to or shall affect the relative rights of the holder of the Subordinated Obligations and creditors of the Company other than the holders of the Senior Indebtedness, nor shall anything herein or therein prevent the holder of the Subordinated Obligations from exercising all remedies otherwise permitted by applicable law, subject to (x) the rights, if any, under these provisions of the holders of Senior Indebtedness in respect of cash, property, or securities of the Company received upon the exercise of any such remedy and (y) the requirement set forth in Section 9.04(b) that no such exercise shall be permitted prior to the Satisfaction Date. Upon any distribution of assets of the Company referred to in these provisions, the holder of the Subordinated Obligations shall be entitled to rely upon any order or decree made by any court of competent jurisdiction in which such dissolution, winding up, liquidation or reorganization proceedings are pending, or a certificate of the liquidating trustee or agent or other person making any distribution to the holder of the Subordinated Obligations, for the purpose of ascertaining the persons entitled to participate in such distribution, the holders of the Senior Indebtedness and other indebtedness of the Company, the amount thereof or payable thereon, the amount of amounts paid or distributed thereon and all other facts pertinent thereto or to these provisions. (g) No right of any present or future holders of any Senior Indebtedness to enforce subordination as herein provided shall at any time in any way be prejudiced or impaired by an act or failure to act on the part of the Company or by any act or failure to act in good faith by any such holder, or by any noncompliance by the Company with the terms and provisions of the Subordinated Obligations, regardless of any knowledge thereof which any such holder may have or be otherwise charged with. The holders of the Senior Indebtedness may, without in any way affecting the obligations of the holder of the Subordinated Obligations with respect thereof, at any time or from time to time and in their absolute discretion, change the manner, place or terms of payment of, change or extend the time of payment of, or renew or alter, any Senior Indebtedness, or amend, modify or supplement any agreement or instrument governing or evidencing such Senior Indebtedness or any other document referred to therein, or exercise or refrain from exercising any other of their rights under the Senior Indebtedness including, without limitation, the waiver of a default thereunder, the release of any collateral securing such Senior Indebtedness and an increase in the amount of the Senior Indebtedness, all without notice to or assent from the holder of the Subordinated Obligations. (h) Each Member agrees that it shall not assign, transfer, pledge or otherwise dispose of or encumber the Subordinated Obligations except pursuant to the Credit Documents (as hereinafter defined). (i) The term "Senior Indebtedness" shall mean all Obligations (as defined below) of the Company under the Credit Agreements (as defined below) and any other Credit Document 40 41 (as defined in the Credit Agreements) and any renewal, extension, restatement, refinancing or refunding thereof. (j) As used herein, (i) the term "Credit Agreements" shall mean any agreement between the Company and PWRES or any of its Affiliates for the provision of financing, (ii) the term "Credit Parties" shall have the meaning provided in the Credit Agreements and (iii) the term "Obligations" shall mean any principal, interest (other than residual fees or interest), premium, penalties, fees, indemnities and other liabilities and obligations payable under the documentation governing any Senior Indebtedness (including, without limitation, all interest accruing subsequent to the filing of a petition in bankruptcy at the rate provided in the governing documentation, whether or not such interest is an allowed claim under applicable law). Section 9.05 Tax Status. The Members intend and agree that the Company shall constitute a partnership for federal, state and local tax purposes. The Members agree that they shall not take any action (including, without limitation, reporting items of income, gain, loss and deduction from the Company) that is inconsistent with the Company's status as a partnership for federal, state and local tax purposes. Section 9.06 Reports. The Company will deliver to each Member annual reports containing financial statements prepared in accordance with U.S. generally accepted accounting principles (such reports to be delivered within 90 days of the close of the fiscal year to which they relate). Section 9.07 Expenses. All reasonable fees and expenses incurred by the Company associated with the Offer, as well as all reasonable legal fees and expenses incurred through the Effective Date by Cayuga and Fleetwood in connection with the negotiation and documentation of this Agreement, will be paid directly or reimbursed by the Company. ARTICLE X. MISCELLANEOUS PROVISIONS Section 10.01 Books and Records. The Company shall keep correct and complete books and records of its accounts and transactions and minutes of the proceedings of its Members and the Manager. Members and their representatives, and any other persons or entities as may be admitted as Members, will have complete access to all such books and records and to all other information relating to the Company at all reasonable times. So long as NPI or any of its Affiliates Beneficially Owns any Interests, NPI will cause the Partnership to furnish each Member with access to any and all information reasonably requested by the Members, including without limitation for purposes of exercising the Members' rights under this Agreement. Section 10.02 Administration. So long as Cayuga or any of its Affiliates is the Manager, Cayuga will provide all administrative services for the Company, including bookkeeping and accounting, maintenance of bank accounts, monitoring of performance of assets, reporting to the Members, monitoring the preparation and filing of tax returns by a third party, preparation and filing of other reports (including audited financial statements of the 41 42 Company prepared by independent accountants), and maintaining corporate books and records. All third-party professionals retained for the purposes of providing such services will be retained by and their reasonable fees and expenses paid by the Company (subject to a $5,000 per year maximum for fees and expenses relating to the preparation of audited financial statements). The Company shall pay to Cayuga an annual administration fee for providing the services described in the first sentence of this equal to 1.0% per annum of total capital contributions not to exceed $60,000 per annum. Such administration fee shall be paid quarterly in advance. Section 10.03 Distributions. All distributions from the Company (after payment of expenses and reasonable reserves, in each case to the extent expressly permitted hereunder) will be made to the Members in proportion to their Interests in the Company. Units may not be sold (other than as expressly permitted by Section 7.01(c) or distributed by the Company without the written consent of all Members. All items of Company income, gain, loss, deduction and credit shall be allocated to the Members in proportion to their Interests in the Company. Section 10.04 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same agreement. Section 10.05 Entire Agreement. This Agreement supersedes any and all prior or contemporaneous communications or agreements between the parties hereto concerning the subject matter hereof, whether written or oral. Section 10.06 Governing Law. The validity, interpretation, enforceability and performance of this Agreement shall be governed by and construed in accordance with the law of the State of New York, without reference to its conflicts of law rules. To the fullest extent permitted by law, each of the parties hereto hereby waive any right to trial by jury in any action with respect to the matters set forth herein. The provisions of this Agreement cannot be waived or modified unless such waiver or modification is in writing and signed by the parties hereto. If any provision of this Agreement shall be held invalid or unenforceable in whole or in part, that invalidity or unenforceability shall not affect the validity or enforceability of the balance of this Agreement. Without limiting the generality of the foregoing, if a provision is held by a court of competent jurisdiction to be invalid or unenforceable by reason of the length of time during which it is to remain in effect, such provision nonetheless shall be enforceable to the maximum extent and for the maximum period of time determined by such court to be permissible. Section 10.07 Parties Contractually Bound; Remedies; Enforcement and Late Payments. (a) [Intentionally omitted]. (b) For purposes of Section 7.05(b)(v), the aggregate liability of NPI shall not exceed $10 million. 42 43 (c) It is understood and agreed that monetary damages would be an inadequate remedy for violation of this Agreement, and that in the case of an actual or threatened breach by either party or any of its representatives, the other party shall be entitled to relief by way of injunction, specific performance or other equitable remedy, without proof of irrevocable harm and without the need for posting of a bond. (d) Except for the obligations contained in Section 7.05(b)(v)(3), Cayuga shall be jointly and severally liable for the obligations of Cayuga and of its Affiliates (other than the Company) hereunder (and, in this regard, any action or inaction required hereunder to be taken or not taken (or which Cayuga is required to cause or prevent or not permit) by any such Affiliate shall be deemed to be an obligation of both such Affiliate and Cayuga hereunder), and the Company and/or the Members shall have the right to enforce this Agreement with respect to all such matters directly against Cayuga, without first being required to file suit or seek recourse of any kind against any other Person. In addition, if Cayuga is required to buy Interests and Member Units pursuant to Section 7.05(b) and if Cayuga fails to perform its obligations thereunder, then Cayuga shall pay directly to Fleetwood 100% of the Buy/Sell Purchase Price, plus interest thereon accrued from the date of such nonperformance at a rate per annum equal to the prime rate established by Citibank N.A. in effect on the date of such nonperformance, plus eight percent (but in no event greater than the maximum rate permitted by law). (e) Fleetwood shall be jointly and severally liable for the obligations of Fleetwood and of its Affiliates (other than the Company) hereunder (and, in this regard, any action or inaction required hereunder to be taken or not taken (or which Fleetwood is required to cause or prevent or not permit) by any such Affiliate shall be deemed to be an obligation of both such Affiliate and Fleetwood hereunder), and the Company and/or the Members shall have the right to enforce this Agreement with respect to all such matters directly against Fleetwood, without first being required to file suit or seek recourse of any kind against any other Person. In addition, if Fleetwood is required to buy Interests and Member Units pursuant to Section 7.05(b) and if Fleetwood or its Affiliate fails to perform its obligations thereunder, then Fleetwood shall pay directly to Cayuga 100% of the Buy/Sell Purchase Price, plus interest thereon accrued from the date of such nonperformance at a rate per annum equal to the prime rate established by Citibank N.A. in effect on the date of such nonperformance, plus eight percent (but in no event greater than the maximum rate permitted by law). Section 10.08 Survival. Except as otherwise expressly provided in this Agreement, or as the context otherwise clearly requires, the provisions of this Agreement shall survive any termination of this Agreement or of the interest of a Member in the Company. Without limiting the generality of the foregoing, the parties expressly acknowledge and agree that the provisions of Sections 4.01 and 4.06, Section 7.05(b)(v), Section 8.06 and Sections 10.06, 10.07, 10.08 and 10.10 shall survive any termination of this Agreement or of the interest of a Member in the Company. Section 10.09 Notices. Any and all notices, offers, acceptances or any other communications provided for in this Agreement shall be in writing and, except as otherwise expressly provided in this Agreement, shall be deemed given when delivered by hand. Notice may also be given by telegram or by electronic facsimile transmission, but in such case will be 43 44 deemed given only when the telegram or transmission has been received by the addressee. A duplicate of all such notices, offers, acceptances or other communications between or among Members shall be mailed to the Company at its principal offices. Notices shall be directed to the Members at their respective addresses set forth below (or such other address as the party to be notified may have requested in writing): If to Cayuga: Cayuga Associates L.P. Attn: Michael L. Ashner 100 Jericho Quadrangle Jericho, New York 11753 Tel. No.: (516) 822-0022 Fax No.: (516) 433-2777 with copies to: Joseph L. Getraer, Esq. Mark I. Fisher, Esq. Rosenman & Colin LLP 575 Madison Avenue New York, New York 10022 Tel. No.: (212) 940-8800 Fax No.: (212) 940-8776 and Steven L. Lichtenfeld, Esq. Battle Fowler LLP 75 East 55th Street New York, New York 10023 Tel. No.: (212) 856-6996 Fax No.: (212) 339-9151 If to Fleetwood: Fleetwood Corp. Attn: Robert J. Mitchell 100 South Bedford Road Mount Kisco, New York 10549 Tel. No.: (914) 241-9000 Fax No.: (914) 242-9282 44 45 with a copy to: G. David Brinton, Esq. Craig S. Medwick, Esq. Rogers & Wells 200 Park Avenue New York, New York 10166 Tel. No.: (212) 878-8000 Fax No.: (212) 878-8375 If to NPI: Insignia Financial Group, Inc. Attn: General Counsel One Insignia Financial Plaza Greenville, South Carolina 20602 Tel. No.: (864) 239-1000 Fax No.: (864) 239-1096 45 46 with a copy to: Arnold S. Jacobs, Esq. Proskauer Rose Goetz & Mendelsohn, LLP 1585 Broadway New York, New York 10036 Tel. No.: (212) 969-3000 Fax No.: (212) 969-2900 Section 10.10 Interpretation. The parties hereto acknowledge that this Agreement is the product of arm's-length negotiations between the parties, each of whom was represented by counsel, and agree that in any dispute concerning the interpretation of any provision of this Agreement, there will be no presumption that any provision is to be construed against or in favor of any particular party. Section 10.11 Access to Partnership Information and Properties. From and after the Commencement of the Offer, Cayuga will, or will cause its Affiliates to, provide to the Members and any of their Affiliates, and their respective officers, employees, agents or appointees, reasonable access at all times, during normal business hours, to all properties, books and records, financial information, agreements, deeds of trust, mortgages and other debt instruments and any and all other documents, information and data (whether written or computer-based) pertaining to the operations and assets of the Partnership in the possession or control of Cayuga or any of its Affiliates, including, without limitation, the General Partner. Section 10.12 Written Consents. Notwithstanding any provision of this Agreement to the contrary, any action required under this Agreement to be taken or prohibited from being taken by the Company or any Member may not be taken or may be taken, as the case may be, without the need to amend this Agreement if all Members deliver written consents to such action or inaction to the Manager, which consents shall be filed in the minute book of the Company. Section 10.13 Notice of Filing of the Partnership's Report on Form 10-K or 10-KSB. Cayuga covenants and agrees that Cayuga will, or will cause an Affiliate to, provide notice to each Member (other than Cayuga and its Affiliates), within two Business Days after the date on which the Partnership files its Report on Form 10-K or 10-KSB (including any amendment thereto) with the Commission, that the Partnership has filed such Report (or amendment). Section 10.14 Redemptions. As used in this Agreement, the requirement of or election by the Company to "Effect a Redemption" with respect to a Member Group means that the Company shall be required or may elect, as the case may be, to redeem all Interests held by each Member who is a member of the Member Group being redeemed and purchase from each member of such Member Group all Member Units of such member (and each such member shall be required to sell such Member Units to the Company), for an aggregate consideration equal to the Redemption Amount; provided, however, that in the case of a Redemption pursuant to Section 5.08 or Section 7.05(c), 46 47 7.05(d) or 7.06(c), the aggregate consideration to be paid by the Company will equal 75% of the Redemption Amount. In the event the Company Effects a Redemption with respect to a Member Group in accordance with the provisions of this Agreement, then (i) as of the date of such election or the date of the event that gives rise to such requirement, the interest in the Company of each Member being redeemed shall automatically terminate and be converted into the right solely to receive such Member's pro rata share of the Redemption Amount (or 75% of the Redemption Amount, as the case may be), and (ii) the applicable amount shall be paid to Fleetwood or Cayuga, as the case may be, in cash within 10 days after the effective date of the Redemption; provided, however, that in the case of a Redemption pursuant to Section 5.08 or Section 7.05(c), 7.05(d) or 7.06(c), the applicable percentage of the Redemption Amount shall be payable as and when dividends or distributions in respect of Interests are paid to the remaining Members, pro rata based on the redeemed Members' aggregate percentage interest in the Company at the time of the Redemption. In the event the Company elects or is required to Effect a Redemption with respect to a Member Group, the members of the Member Group not being redeemed who are Members shall be obligated to cause such Redemption to be completed and to fund the applicable Redemption Amount to the extent necessary. IN WITNESS WHEREOF, Cayuga Associates L.P. and Fleetwood Corp., being all of the Members of Devon Associates, a New York general partnership, evidence their adoption and ratification of the foregoing Partnership Agreement of the Company. EXECUTED by each Member on the date indicated below: CAYUGA ASSOCIATES L.P. By: Cayuga Capital Corporation, its general partner By: /s/ Michael L. Ashner ----------------------------------- Michael L. Ashner President FLEETWOOD CORP. By: /s/ Edward E. Mattner ----------------------------------- Edward E. Mattner President Dated: February 13, 1996 47 48 The undersigned hereby accepts and agrees to be bound by the provisions of this Agreement to the extent specified in Sections 7.05(b)(v). NATIONAL PROPERTY INVESTORS, INC. By: /s/ ----------------------------------- Dated: February 13, 1996 48 49 SCHEDULE I
Percentage Member Contribution Interest ------ ------------ -------- Cayuga Associates L.P. $670,000 67% Fleetwood Corp. $330,000 33%
I-1 EX-99.G1 7 FORM 8-K 1 EXHIBIT 99.(g)(1) SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of report (Date of earliest event reported) January 19, 1996 Growth Hotel Investors - -------------------------------------------------------------------------------- (Exact Name of Registrant as Specified in Its Charter) California - -------------------------------------------------------------------------------- (State or Other Jurisdiction of Incorporation) 0-15347 94-2964750 - ------------------------ ------------------------------------ (Commission File Number) (I.R.S. Employer Identification No.) c/o Insignia Financial Group, Inc., One Insignia Financial Plaza, P.O. Box 1089 Greenville, South Carolina 29602 - -------------------------------------------------------------------------------- (Address of Principal Executive Offices) (Zip Code) (803) 239-1000 - -------------------------------------------------------------------------------- (Registrant's Telephone Number, Including Area Code) 5665 Northside Drive, N.W., Atlanta, Georgia 29602 - -------------------------------------------------------------------------------- (Former Name or Former Address, if Changed Since Last Report) 2 Item 1. Change in Control On August 17, 1995, Michael L. Ashner, Martin Lifton, Arthur N. Queler and certain of their respective family members, and AP-NPI II L.P., a Delaware limited partnership, entered into an agreement to sell to IFGP Corporation, a Delaware corporation, an affiliate of Insignia Financial Group, Inc., a Delaware corporation ("Insignia"), all of the issued and outstanding common stock of National Property Investors, Inc., a Delaware corporation ("NPI"), for an aggregate purchase price of $1,000,000. NPI is the sole shareholder of NPI Equity Investments II, Inc., a Florida corporation ("NPI Equity"), the managing general partner of Fox Realty Investors, a California general partnership ("FRI"). FRI is the general partner of Montgomery Realty Company-85, the managing general partner of the Registrant. All of the funds used in making the purchase were drawn under a revolving credit facility established by a syndicate of lenders for the benefit of Insignia, with First Union National Bank of South Carolina as Administrative Agent and Lehman Commercial Paper, Inc. as Syndication Agent. The closing of the transactions contemplated by the above mentioned agreement (the "Closing") occurred on January 19, 1996. Upon the Closing, the officers and directors of NPI and NPI Equity resigned and Insignia caused new officers and directors of each of those entities to be elected. Insignia does not now own, directly or indirectly, any units of limited partnership of the Registrant. 3 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. GROWTH HOTEL INVESTORS By: Montgomery Realty Company-85, its general partner By: Fox Realty Investors, its general partner By: NPI Equity Investments II, Inc. its managing partner Date: February 5, 1996 By: /s/ John K. Lines ---------------------------------- Name: John K. Lines Title: Vice President/ Secretary -----END PRIVACY-ENHANCED MESSAGE-----