Interhotel Company, LTD., Torrey Hotel Enterprises, Inc., Tax Matters Partner - Page 5

                                         -5-                                          
               In 1985, the Home Savings Co. (Home Savings) agreed to provide         
          $208 million to be used as permanent financing for the first hotel          
          tower and as construction financing for the second hotel tower.  As         
          a condition for its loans, Home Savings required Mr. Manchester and         
          his businesses to put up a letter of credit for $16 million.  THEI,         
          through IHCL,2 arranged for the $16 million letter of credit,               
          issued by Security Pacific National Bank. In exchange, IHCL                 
          received a 35.354-percent limited partnership interest in both PLH          
          and PGL.                                                                    
          Dondi                                                                       
               In November 1985, Dondi Properties (Dondi), which was                  
          controlled by Vernon Savings and Loan Association (Vernon),                 
          invested in IHCL.  Dondi received a 15-percent limited partnership          
          interest in IHCL in exchange for its agreement to provide $19.8             
          million to the capital of IHCL.  As a result of this transaction,           
          THEI's limited partnership share in IHCL was decreased from 99              
          percent to 84 percent.  Mr. Manchester withdrew from IHCL.                  
               The entry of Dondi was reflected in a "Restated and Amended            
          Agreement of Limited Partnership of IHCL", dated November 29, 1985          


               2    Pursuant to the IHCL Original Agreement, THEI was                 
          required to contribute certain letters of credit to the capital             
          of IHCL.  THEI did not, however, receive any credit to its                  
          capital account as a result of the issuance of any letter of                
          credit.                                                                     
                    Pursuant to the IHCL Original Agreement, Mr. Manchester           
          was required to contribute $150 to the capital of IHCL.  The                
          record does not indicate whether Mr. Manchester, in fact, made              
          such a contribution.                                                        




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