<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[x] Quarterly report pursuant to Section 13 or 15(d) of
the Securities and Exchange Act of 1934
For the quarterly period ended March 31, 1994
_______________________________
OR
[ ] Transitition report pursuant to Section 13 or 15(d)
of the Securities and Exchange Act of 1934
For the transition period from _________ to _________
<TABLE>
<S> <C>
Commission File Number: 1-6828 Commission File Number: 1-7959
HOTEL INVESTORS HOTEL INVESTORS
TRUST CORPORATION
(Exact name of registrant as specified in its charter) (Exact name of registrant as specified in its charter)
Maryland Maryland
(State or other jurisdiction (State or other jurisdiction
of incorporation or organization) of incorporation or organization)
52-0901263 52-1193298
(I.R.S. employer identification no.) (I.R.S. employer identification no.)
11845 W. Olympic Blvd., Suite 550 11845 W. Olympic Blvd., Suite 560
Los Angeles, California 90064 Los Angeles, California 90064
(Address of principal executive (Address of principal executive
offices, including zip code) offices, including zip code)
(310) 575-3900 (310) 575-3900
(Registrant's telephone number, (Registrant's telephone number,
including area code) including area code)
</TABLE>
Indicate by check mark whether the Registrants (1) have filed all
reports required to be filed by Section 13 or 15 (d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrants were required to file such reports), and (2) have been subject to
such filing requirements for the past 90 days. Yes X No .
----- -----
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
12,132,948 Shares of Beneficial Interest, $1.00 par value, of Hotel
Investors Trust paired with 12,132,948 Shares of Common Stock, par value $.10
per share, of Hotel Investors Corporation outstanding as of May 12, 1994.
<PAGE> 2
HOTEL INVESTORS TRUST AND HOTEL INVESTORS CORPORATION
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q which mandate adherence to
Rule 10-01 of Regulation S-X. Accordingly, these statements do not include all
of the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management of
the Trust and the Corporation, all adjustments necessary for a fair
presentation have been included. The financial statements presented herein
have been prepared in accordance with the accounting policies described in the
registrants' Joint Annual Report on Form 10-K for the year ended December 31,
1993, (the "1993 Form 10-K"), and should be read in conjunction therewith.
The accompanying financial statements have been prepared assuming
Hotel Investors Trust (the "Trust") and Hotel Investors Corporation (the
"Corporation") will continue as going concerns. The Trust was in default at
December 31, 1992 on its obligations to repay indebtedness under the Trust's
line of credit and certain note agreements. Effective January 28, 1993, the
Trust entered into a Credit Agreement with its lenders to restructure such
indebtedness. The Credit Agreement, among other things, requires the Trust to
comply with specific financial covenants and operating restrictions and to make
substantial interim principal and other payments. The Trust's ability to
comply with the requirements of the Credit Agreement, for which the inability
to comply therewith would result in a default under the Credit Agreement,
cannot presently be determined. Because of the substantial operating losses
and cash flow deficiencies experienced by the Corporation, which also has a
deficiency in net assets, the ultimate recovery of all amounts due to the Trust
from the Corporation is highly uncertain. These conditions raise substantial
doubt about the ability of the Trust and the Corporation to continue as going
concerns. The financial statements do not include any adjustments that might
result from the outcome of these uncertainties.
See Item 1, Part II, for information regarding legal proceedings and
preliminary settlement of shareholder litigation.
Hotel Investors Trust and Hotel Investors Corporation:
Combined Balance Sheets - As of March 31, 1994 and
December 31, 1993
Combined Statements of Operations - For the three months
ended March 31, 1994 and 1993
Combined Statements of Cash Flows - For the three months
ended March 31, 1994 and 1993
2
<PAGE> 3
Hotel Investors Trust:
Balance Sheets - As of March 31, 1994 and December 31, 1993
Statements of Operations - For the three months
ended March 31, 1994 and 1993
Statements of Cash Flows - For the three months
ended March 31, 1994 and 1993
Hotel Investors Corporation:
Balance Sheets - As of March 31, 1994 and December 31, 1993
Statements of Operations - For the three months
ended March 31, 1994 and 1993
Statements of Cash Flows - For the three months
ended March 31, 1994 and 1993
3
<PAGE> 4
HOTEL INVESTORS TRUST AND HOTEL INVESTORS CORPORATION
COMBINED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1994 1993
------------- -------------
<S> <C> <C>
ASSETS
Hotel assets, net .................................................. $ 165,781,000 $ 167,249,000
Mortgage notes receivable, net ..................................... 11,588,000 11,642,000
Investment in joint venture hotel properties ....................... 281,000 281,000
------------- -------------
Total real estate investments ................................ 177,650,000 179,172,000
Cash and cash equivalents .......................................... 6,801,000 5,652,000
Accounts receivable ................................................ 5,158,000 4,360,000
Notes receivable, net .............................................. 1,704,000 1,717,000
Inventories, prepaid expenses and other assets ..................... 3,773,000 4,451,000
------------- -------------
$ 195,086,000 $195,352,000
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Secured notes payable and revolving line of credit ................. $ 129,556,000 $ 128,802,000
Mortgage and other notes payable ................................... 41,847,000 42,084,000
Accounts payable and other liabilities ............................. 10,681,000 11,140,000
------------- -------------
182,084,000 182,026,000
------------- -------------
Commitments and contingencies
SHAREHOLDERS' EQUITY
Trust shares of beneficial interest,
$1.00 par value; authorized
30,000,000 shares; outstanding
12,132,948 shares ............................................... 12,133,000 12,133,000
Corporation common stock, $0.10 par
value; authorized 30,000,000 shares;
outstanding 12,132,948 shares ................................... 1,213,000 1,213,000
Additional paid-in capital ......................................... 210,497,000 210,497,000
Share purchase notes ............................................... (280,000) (291,000)
Accumulated deficit ................................................ (210,561,000) (210,226,000)
------------ ------------
13,002,000 13,326,000
------------ ------------
$ 195,086,000 $ 195,352,000
============= =============
</TABLE>
4
<PAGE> 5
HOTEL INVESTORS TRUST AND HOTEL INVESTORS CORPORATION
COMBINED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
-----------------------------
1994 1993
----------- -----------
<S> <C> <C>
REVENUE
Hotel .................................................................... $20,586,000 $20,479,000
Gaming ................................................................... 7,188,000 6,679,000
Interest from mortgage and other notes ................................... 355,000 337,000
Management fees and other ................................................ 59,000 149,000
Rents from leased hotel properties ....................................... 150,000 198,000
----------- -----------
28,338,000 27,842,000
----------- -----------
EXPENSES
Hotel operations ......................................................... 15,568,000 16,365,000
Gaming operations ........................................................ 5,993,000 5,735,000
Interest ................................................................. 4,125,000 3,644,000
Depreciation and amortization ............................................ 2,066,000 2,216,000
Administrative and operating ............................................. 921,000 1,237,000
Loss on sales of hotel assets ............................................ 11,000
----------- -----------
28,673,000 29,208,000
----------- -----------
NET LOSS $ (335,000) $(1,366,000)
=========== ===========
NET LOSS PER PAIRED SHARE $(0.03) $(0.11)
=========== ===========
Weighted average number of paired shares 12,132,948 12,132,948
=========== ===========
</TABLE>
5
<PAGE> 6
HOTEL INVESTORS TRUST AND HOTEL INVESTORS CORPORATION
COMBINED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
------------------------------
1994 1993
--------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss ................................................................ $(335,000) $(1,366,000)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization ......................................... 2,066,000 2,216,000
Capitalized loan costs and deferred interest .......................... 478,000 5,655,000
Loss on sales of hotel assets ......................................... 11,000
Changes in operating assets and liabilities:
Accounts receivable, inventories,
prepaid expenses and other assets ................................... (120,000) (528,000)
Accounts payable and other liabilities ................................ (459,000) (5,995,000)
---------- -----------
Net cash provided by operating activities ......................... 1,630,000 (7,000)
---------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to hotel assets ............................................... (598,000) (998,000)
Net proceeds from sales of assets ....................................... 1,517,000
Principal received on notes receivable .................................. 67,000 129,000
Acquisition of minority interest ........................................ (1,575,000)
---------- -----------
Net cash used in investing activities ............................. (531,000) (927,000)
---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on mortgage and other notes payable .................. (237,000) (309,000)
Principal payments on secured notes payable and
revolving line of credit .............................................. (324,000)
Borrowings under mortgage and other notes ............................... 335,000
Increase in secured notes payable and revolving line of credit .......... 600,000
Distributions to minority shareholders .................................. (21,000)
Principal received on share purchase notes .............................. 11,000
---------- -----------
Net cash provided by financing activities ......................... 50,000 5,000
---------- -----------
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS .................................................. 1,149,000 (929,000)
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD ................................................ 5,652,000 10,517,000
---------- -----------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD ...................................................... $6,801,000 $ 9,588,000
========== ===========
</TABLE>
6
<PAGE> 7
HOTEL INVESTORS TRUST
BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1994 1993
------------- -------------
<S> <C> <C>
ASSETS
Hotel assets, net .................................... $ 128,924,000 $ 129,918,000
Mortgage notes receivable, net ....................... 11,588,000 11,642,000
Investment in joint venture hotel properties ......... 276,000 276,000
------------- -------------
Total real estate investments .................. 140,788,000 141,836,000
Cash and cash equivalents ............................ 516,000 918,000
Accounts receivable .................................. 525,000 1,011,000
Notes receivable - Corporation ....................... 88,830,000 87,486,000
Notes receivable, net ................................ 1,025,000 1,025,000
Prepaid expenses and other assets .................... 505,000 569,000
------------- -------------
$ 232,189,000 $ 232,845,000
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Secured notes payable and revolving line of credit ... $ 129,556,000 $ 128,802,000
Mortgage and other notes payable ..................... 27,536,000 27,724,000
Accounts payable and other liabilities ............... 3,035,000 4,114,000
------------- -------------
$ 160,127,000 $ 160,640,000
------------- -------------
Commitments and contingencies
SHAREHOLDERS' EQUITY
Trust shares of beneficial interest,
$1.00 par value; authorized
30,000,000 shares; outstanding
12,132,948 shares ................................. 12,133,000 12,133,000
Additional paid-in capital ........................... 204,640,000 204,640,000
Share purchase notes ................................. (280,000) (291,000)
Accumulated deficit .................................. (144,431,000) (144,277,000)
------------- -------------
72,062,000 72,205,000
------------- -------------
$ 232,189,000 $ 232,845,000
============= =============
</TABLE>
7
<PAGE> 8
HOTEL INVESTORS TRUST
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1994 1993
---------- ----------
<S> <C> <C>
REVENUE
Rents from Corporation ......................... $4,313,000 $4,159,000
Interest from Corporation ...................... 415,000 345,000
Interest from mortgage and other notes ......... 339,000 293,000
Rents from other leased hotel properties ....... 150,000 198,000
Other........................................... 26,000 106,000
---------- ----------
5,243,000 5,101,000
---------- ----------
EXPENSES
Interest........................................ 3,779,000 3,355,000
Depreciation and amortization .................. 1,252,000 1,419,000
Administrative and operating ................... 366,000 516,000
Loss on sales of hotel assets .................. 19,000
---------- ----------
5,397,000 5,309,000
---------- ----------
NET LOSS $ (154,000) $ (208,000)
========== ==========
NET LOSS PER SHARE $(0.01) $(0.02)
========== ==========
</TABLE>
8
<PAGE> 9
HOTEL INVESTORS TRUST
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1994 1993
---------- ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss ...................................................... $ (154,000) $ (208,000)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization ............................... 1,252,000 1,419,000
Capitalized loan costs and deferred interest ................ 478,000 5,655,000
Loss on sales of hotel assets ............................... 19,000
Changes in operating assets and liabilities:
Accounts receivable, prepaid expenses
and other assets .......................................... 550,000 615,000
Accounts payable and other liabilities ...................... (1,079,000) (5,344,000)
---------- -----------
Net cash provided by operating activities ................. 1,047,000 2,156,000
---------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to hotel assets ..................................... (258,000) (69,000)
Net proceeds from sales of assets ............................. 1,395,000
Principal received on mortgage
and other notes receivable .................................. 54,000 114,000
Net changes in notes receivable - Corporation ................. (1,344,000) (2,344,000)
Acquisition of minority interest .............................. (1,575,000)
---------- -----------
Net cash used in investing activities ................... (1,548,000) (2,479,000)
---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on mortgage and
other notes payable ......................................... (188,000) (202,000)
Principal payments on secured notes payable and
revolving line of credit .................................... (324,000)
Payments to minority shareholders ............................. (18,000)
Increase in secured notes payable and
revolving line of credit .................................... 600,000
Principal received on share purchase notes .................... 11,000
---------- -----------
Net cash provided by (used in)
financing activities .................................. 99,000 (220,000)
---------- -----------
DECREASE IN CASH
AND CASH EQUIVALENTS ........................................ (402,000) (543,000)
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD ...................................... 918,000 2,615,000
---------- -----------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD ............................................ $ 516,000 $ 2,072,000
=========== ===========
</TABLE>
9
<PAGE> 10
HOTEL INVESTORS CORPORATION
BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1994 1993
------------ ------------
<S> <C> <C>
ASSETS
Hotel assets, net ..................................................... $ 36,856,000 $ 37,331,000
Investment in joint venture hotel properties .......................... 5,000 5,000
------------ ------------
Total real estate investments ................................... 36,861,000 37,336,000
Cash and cash equivalents ............................................. 6,286,000 4,734,000
Accounts receivable ................................................... 4,632,000 3,349,000
Notes receivable ...................................................... 679,000 692,000
Inventories, prepaid expenses and other assets ........................ 3,269,000 3,882,000
------------ ------------
$ 51,727,000 $ 49,993,000
============ ============
LIABILITIES AND SHAREHOLDERS' DEFICIT
LIABILITIES
Mortgage and other notes payable ...................................... $ 14,311,000 $ 14,360,000
Notes payable - Trust ................................................. 88,830,000 87,486,000
Accounts payable and other liabilities ................................ 7,646,000 7,026,000
------------ ------------
110,787,000 108,872,000
------------ ------------
Commitments and contingencies
SHAREHOLDERS' DEFICIT
Corporation common stock, $0.10 par
value; authorized 30,000,000 shares;
outstanding 12,132,948 shares ...................................... 1,213,000 1,213,000
Additional paid-in capital ............................................ 5,857,000 5,857,000
Accumulated deficit ................................................... (66,130,000) (65,949,000)
------------ ------------
(59,060,000) (58,879,000)
------------ ------------
$ 51,727,000 $ 49,993,000
============ ============
</TABLE>
10
<PAGE> 11
HOTEL INVESTORS CORPORATION
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
-----------------------------
1994 1993
----------- -----------
<S> <C> <C>
REVENUE
Hotel ............................................ $20,586,000 $20,479,000
Gaming ........................................... 7,188,000 6,679,000
Interest from notes receivable ................... 16,000 44,000
Management fees and other income ................. 33,000 43,000
Gain on sales of hotel assets .................... 8,000
----------- -----------
27,823,000 27,253,000
----------- -----------
EXPENSES
Hotel operations ................................. 15,568,000 16,365,000
Gaming operations ................................ 5,993,000 5,735,000
Rent - Trust ..................................... 4,313,000 4,159,000
Interest - Trust ................................. 415,000 345,000
Interest - other ................................. 346,000 289,000
Depreciation and amortization .................... 814,000 797,000
Administrative and operating ..................... 555,000 721,000
----------- -----------
28,004,000 28,411,000
----------- -----------
NET LOSS $ (181,000) $(1,158,000)
=========== ===========
NET LOSS PER SHARE $(0.01) $(0.10)
====== ======
</TABLE>
11
<PAGE> 12
HOTEL INVESTORS CORPORATION
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1994 1993
---------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss ....................................... $ (181,000) $(1,158,000)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization ................ 814,000 797,000
Gain on sales of hotel assets ................ (8,000)
Changes in operating assets and liabilities:
Accounts receivable, inventories,
prepaid expenses and other assets .......... (670,000) (1,143,000)
Accounts payable and other liabilities ....... 620,000 (651,000)
---------- -----------
Net cash provided by (used in)
operating activities ................... 583,000 (2,163,000)
---------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to hotel assets ...................... (339,000) (929,000)
Net proceeds from sales of hotel assets ........ 122,000
Principal received on notes receivable ......... 13,000 15,000
---------- -----------
Net cash used in
investing activities ................... (326,000) (792,000)
---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in notes payable - Trust ............ 1,344,000 2,344,000
Principal payments on mortgage and
other notes payable .......................... (49,000) (107,000)
Borrowings under mortgage and other notes ...... 335,000
Payments to minority shareholders .............. (3,000)
---------- -----------
Net cash provided by
financing activities ................... 1,295,000 2,569,000
---------- -----------
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS ......................... 1,552,000 (386,000)
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD ....................... 4,734,000 7,902,000
---------- -----------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD ............................. $6,286,000 $ 7,516,000
========== ===========
</TABLE>
12
<PAGE> 13
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
The following Management's Discussion and Analysis should be read in
conjunction with the Management's Discussion and Analysis included in the 1993
Form 10-K (the "1993 Form 10-K MD&A") for the year ended December 31, 1993.
The sections of the "Recent Developments" portion of Items 1 and 2 of Part I of
the 1993 Form 10-K captioned "Debt Restructuring", "Acquisition of Assets of
U.S. Equity", "Milwaukee Marriott Hotel", "Northview Corporation", "Certain
Property Sales and Related Transactions", "Mortgage Notes Payable Maturing in
1994" and the discussions of seasonality, competition, and certain
environmental matters included in those Items under the heading "Other
Information," are specifically incorporated by reference herein.
As discussed in Items 1 and 2 of the 1993 Form 10-K under the caption
"Recent Developments - Debt Restructuring", on January 28, 1993 the Trust
entered into the Credit Agreement which restructured its previously unsecured
notes payable to two banks and three insurance companies as a secured term loan
(the "Term Loan") and a secured revolving line of credit (the "Line of Credit")
(together the "Restructured Debt"). Although the Trust is not in default under
the Credit Agreement through the date of this Form 10-Q, the Trust's ability to
comply in the future with the requirements of the Credit Agreement cannot
presently be determined. Further, because of the substantial operating losses
and cash flow deficiencies experienced by the Corporation, which also has a
deficiency in net assets, the ultimate recovery of all amounts due to the Trust
from the Corporation is highly uncertain. These conditions raise substantial
doubts about the Companies' ability to continue as going concerns.
The Trust and Corporation must continue to sell properties to meet the
principal payment requirements of the Credit Agreement. Further, the Trust may
be required to further restructure the indebtedness of the Corporation to the
Trust on an annual or long-term basis if the Corporation is to continue to
operate.
Sales of hotel properties have impacted and will continue to impact
revenues and expenses of the Trust and the Corporation. Because the Credit
Agreement requires the net proceeds from hotel sales to be applied to the
repayment of debt, sales of hotels will result in decreased interest expense
for the Trust. In addition, the income of the Trust will be decreased as the
Trust will no longer receive rental income from the Corporation after a
property has been sold, which may be offset by interest income on any notes
receivable generated from a sale. Sales of hotel properties will also decrease
the depreciation and amortization expense of the Trust. The aggregate impact
on revenues and expenses will depend on the properties to be sold, the terms of
the sales and the timing of the sales.
13
<PAGE> 14
Results of Operations for the Three Months Ended March 31, 1994 and 1993
Trust:
Rents from Corporation totalled $4,313,000 and $4,159,000 for the
three months ended March 31, 1994 and 1993, respectively. The increase in
rental income of $154,000 is due to increased hotel revenues for the hotels
leased by the Corporation from the Trust (which resulted in higher percentage
rents) offset by a decrease in such rents of $136,000 resulting from the sale
of hotels in Tucker, Georgia (June 1993) and St. Louis, Missouri (December
1993).
Interest from Corporation increased to $415,000 for the three months
ended March 31, 1994 as compared to $345,000 for the corresponding period in
1993. The increase in interest income is a result of the higher amounts
outstanding under the Milwaukee notes, which increased from $13,667,000 at
December 31, 1992 to $15,185,000 at December 31, 1993 as a result of the making
of certain capital improvements. (For information pertaining to such notes,
see the 1993 Form 10-K under the caption "Milwaukee Marriott Hotel".)
Interest expense increased by $424,000 for the three months ended
March 31, 1994 as compared to the corresponding period of 1993. The increase
is primarily due to an increase in the interest rate payable on borrowings
outstanding under the Term Loan and the Line of Credit.
Depreciation and amortization expense decreased by $167,000 during the
three months ended March 31, 1994 as compared to the corresponding period of
1993, principally due to the above mentioned property sales and to provisions
for investment losses recorded in the third and fourth quarters of 1993, which
reduced depreciable book values.
Administrative and operating expenses decreased by $150,000 during the
three months ended March 31, 1994 as compared to the corresponding period in
1993. The decreases are a result of lower professional fees and travel and
insurance expense.
Corporation:
Hotel revenues increased by $107,000 for the three months ended March
31, 1994, as compared to the corresponding period of 1993. The hotel sales
discussed above resulted in decreased revenue of $750,000 for the three months
ended March 31, 1994, as compared to the corresponding period of 1993. The
decreases resulting from property sales were offset by increased revenues of
$857,000 for the three months ended March 31, 1994, as compared to the
corresponding period of 1993 resulting from increased average occupancy and
average room rates at properties which continue to be operated by the
Corporation. The following table summarizes average occupancy and average room
rates for properties which continue to be operated by the Corporation under
lease from the Trust:
14
<PAGE> 15
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------------
1994 1993
-------- --------
<S> <C> <C>
Occupancy Rate 64.2% 57.8%
Average Room Rate $56.45 $55.59
</TABLE>
Management of the Corporation believes that the increases in the average
occupancy rate and average room rate resulted primarily from more favorable
economic conditions which have created increased business and pleasure travel
throughout the United States.
Gaming revenues for the first three months of 1994 as compared to the
corresponding period of 1993 increased by $509,000 to $7,188,000. Management
believes that the higher revenues at the two gaming facilities during the first
three months of 1994 are a result of increased travel to the Las Vegas area,
and in particular, increased customer traffic due to the proximity of the King
8 Hotel and Casino to several large hotel/casinos completed during 1993.
Hotel expenses for the first quarter of 1994 were $15,568,000, or
75.6% of hotel revenues, as compared to $16,365,000, or 79.9% of hotel
revenues, for the first quarter of 1993. The decrease in hotel expenses as a
percentage of hotel revenues is principally attributable to the sale of the
hotel properties discussed above, which properties had expenses in excess of
revenues during the three months ended March 31, 1993.
Gaming expenses were $5,993,000, or 83.4% of gaming revenues, as
compared to $5,735,000, or 85.9% of gaming revenues, for the three months ended
March 31, 1994 and 1993, respectively. Management believes that increased
gaming revenues, coupled with improved casino win percentages, resulted in the
decrease in gaming expenses as a percentage of gaming revenues during the three
months of 1994.
Administrative and operating expenses decreased by $166,000 for the
three months ended March 31, 1994 as compared to the corresponding period of
1993. The decreases are primarily a result of a reduction in the level of
corporate staff.
Depreciation expense increased from $797,000 for the first quarter of
1993 to $814,000 for the same period of 1994. The increase is a result of the
$4,300,000 renovation of the Milwaukee Marriott Hotel completed in December
1993, which was partially offset by decreases resulting from the sale of the
hotels (see "Trust" immediately above).
For information with respect to rent and interest to the Trust during
the three months ended March 31, 1994 and 1993, see "Trust" immediately above.
15
<PAGE> 16
Liquidity and Capital Resources
The primary sources of liquidity for the Trust are cash
generated from operations (i.e., its rents) and net proceeds from the sale of
hotels. The primary demands on the Trust's capital resources are debt service
payments, the funding of capital improvements to the Trust's properties and the
making of additional loans and advances to the Corporation.
As of December 31, 1992, an aggregate of $87,490,000 was owed
by the Corporation to the Trust as accrued but unpaid rent and other
indebtedness. As of January 1, 1993, a total of $448,000 of then accrued and
unpaid rents and interest were added to the intercompany debt. During 1993 and
1994, no interest accrued or will accrue on the Corporation's debt to the
Trust; beginning January 1, 1995, the outstanding principal balance of the
Corporation's debt to the Trust will bear interest at an annual rate equal to
the prime rate of one of the Trust's banks from time to time plus 2%. However,
there can be no assurance that the Corporation will be able to meet its debt
obligations to the Trust in future years.
The 1993 restructuring of the leases between the Trust and the
Corporation, the two-year interest moratorium on the Corporation's debt to the
Trust, and the sales of the Trust's hotels which were made in 1993 and that are
anticipated to be made in 1994 are expected to lower the rents and interest
received by the Trust from the Corporation in 1994. The Trust will seek to
generate from its operations sufficient cash flow to pay the interest due on
the Term Loan, the Line of Credit and the Trust's other mortgage debt, as well
as to fund required capital improvements; however, debt principal payments are
expected to be made primarily from the proceeds of hotel sales and (in the case
of mortgage debt other than the Restructured Debt) from debt refinancings.
(For information with respect to such mortgage debt, see the 1993 Form 10-K
under the caption "Mortgage Notes Payable Maturing in 1994".) There can be no
assurance, however, that either the Trust's operations or the Trust's sale of
hotels will produce sufficient cash to make the required payments of principal
and interest. (See "Recent Developments - Debt Restructuring" included in
Items 1 and 2 of the 1993 Form 10-K.)
The primary source of liquidity for the Corporation is cash
generated from operations - i.e., from sales of rooms, food and beverages at
the hotels and hotel/casinos the Corporation leases from the Trust and gaming
revenues at the two Nevada properties, net of management fees with respect to
the nine hotels managed by independent management companies. The primary
demands on the Corporation's capital resources are the payment of rents and
interest due to the Trust and the Corporation's general and administrative
expenses. The two-year interest moratorium on the Corporation's debt to the
Trust and the reduction in future rentals due to the Trust are expected to
improve the Corporation's 1994 cash flows and income, although sales of the
Trust's hotels managed by the Corporation are expected to reduce the
Corporation's revenues. The Corporation may continue to incur cash flow
deficiencies and the Corporation expects to continue to request that the Trust
loan the Corporation the funds required to meet those deficiencies. The
Corporation currently has no other means of obtaining the funds to cover its
cash flow deficiencies or to repay the principal amount of the Corporation's
debt to the Trust.
16
<PAGE> 17
As described in Items 1 and 2 of the 1993 Form 10-K under the
caption "Recent Developments - Debt Restructuring", the Credit Agreement
requires that the Trust and the Corporation apply on a daily basis any cash in
excess of certain specified thresholds to borrowings outstanding under the
Revolving Line of Credit. Amounts so paid are available for future borrowings
to pay interest on the Restructured Debt, to make principal payments on the
Term Loan and to pay other expenses incurred in connection with Hotel
Investors' operations. As of March 31, 1994, $3,075,000 was available to the
Trust under the Revolving Line of Credit. However, should the Trust or the
Corporation fail to comply with its obligations under the Credit Agreement and
related documents, the Trust's lenders will have the power to substantially
restrict the Trust's and the Corporation's access to and ability to utilize
its cash.
The Trust intends to make during 1994, to the extent that the
Trust has the necessary funds available, improvements to the Trust's properties
that are necessary to maintain the properties in good condition or that are
required by franchisors or applicable health and safety and other laws. The
Trust expects that provided funds are available, the cost of such improvements
will be approximately $3,720,000 during 1994. As discussed in Items 1 and 2 of
the 1993 Form 10-K, Hotel Investors' capital improvements are subject to the
approval of the Trust's lenders.
For information with respect to potential hazardous waste
contamination and the presence of asbestos at certain of the Trust's hotels and
the possible impact thereof on the Trust's and the Corporation's financial
position, see "Other Information - Certain Environmental Matters" included in
Items 1 and 2 of the 1993 Form 10-K.
17
<PAGE> 18
PART II OTHER INFORMATION
Item 1. Legal Proceedings
On May 5, 1994, the U.S. District Court for the Southern District of
California entered an order preliminarily approving the settlement of the two
purported class actions pending before that court and entitled Naomi Horowitz
v. Hotel Investors Trust et al and Joyce Uttan I.R.A. et al v. Hotel Investors
Trust et al. For additional information with respect to these actions and the
related derivative action pending before the Superior Court of the State of
California for San Diego County captioned Richard Carno and Sonem Partners Ltd.
v. Ronald A. Young et al., see information included in Item 3 of the 1993 Form
10-K under the caption "Naomi Horowitz v. Hotel Investors Trust et al; Joyce
Uttan I.R.A. et al v. Hotel Investors Trust et al", which information is
incorporated herein by reference. The Uttan, Horowitz and Carno cases are
collectively referred to herein as the "Shareholder Actions".
Pursuant to the court order and a stipulation of settlement entered
into among the plaintiffs and defendants in the Shareholder Actions (the
"Stipulation"), and subject to conditional certification for settlement
purposes of the classes described in the Uttan and Horowitz complaints to
additional court approvals and to the satisfaction of certain other conditions,
the Carno case will be dismissed with prejudice, and all claims that were or
might have been made in the Shareholder Actions will be released, upon the
establishment of a $3,205,000 cash settlement fund to be distributed to members
of the certified plaintiff classes. Of the settlement fund amount, $2,500,000
will be paid by the insurance company that issued Hotel Investors directors and
officers policy applicable to the periods to which the Shareholder Actions
relate, $400,000 will be paid by Hotel Investors and $350,000 will be paid by
Messrs. John Rothman and Ronald Young. The defendants in the Shareholder
Actions also will establish a separate $45,000 fund to be used for purposes of
notifying the classes and otherwise administering the settlement. Legal fees
and other costs incurred by the defendants in the Shareholder Actions prior to
October 12, 1993 will be paid by Hotel Investors; subsequent defense costs will
be paid by the insurance company.
The Stipulation agreement also requires that the Trust's Board of
Trustees and the Corporation's Board of Directors establish a joint transaction
committee of independent Trustees and Directors to make recommendations to
those Boards with respect to any transaction proposed in the future by
management and having a fair market value of $20 million or more.
In connection with the settlement of the Shareholders Actions, Messrs.
Rothman and Young and Hotel Investors also have agreed as follows: Messrs.
Young, Rothman and certain of their affiliated partnerships will terminate the
management agreements currently existing between those partnerships and the
Corporation's subsidiary Western Host, Inc. (the "Management Contracts"), and
Western Host will forbear from disputing such action and will withdraw as a
general partner of two additional affiliated partnerships. In satisfaction of
any damages that Hotel Investors may incur as a result of the termination of
the Management Contracts, Messrs. Rothman and Young will provide to Hotel
Investors an irrevocable letter of credit in the amount of $800,000 and having
a one-year term.
18
<PAGE> 19
At such time as the settlement of the Shareholder Actions provided
for in the Stipulation receives final court approval, proceeds from the letter
of credit will be paid to Hotel Investors, and the parties to the Management
Contracts, Messrs. Rothman and Young and Hotel Investors will release all of
their respective claims related to the termination of the Management Contracts.
If, however, the Shareholder Actions are not so settled and the Stipulation is
terminated, the above-described releases will not take effect and the letter of
credit will be canceled.
For additional information with respect to these management
obligations, see the information included in Item 13 of the 1993 Form 10-K
under the caption "Management Obligations of Western Host".
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
19
<PAGE> 20
Item 6. Exhibits and Reports on Form 8-K
(a) The following Exhibits are filed as part of this Form 10-Q:
<TABLE>
<S> <C>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
----------- ----------------------
10.1 Stipulation of Settlement as of April 13, 1994, among Joyce Uttan
I.R.A., et al., Naomi Horowitz, et al., and Richard Carno et al, on
the one hand, and the Trust, the Corporation, Ronald A. Young, John
F. Rothman, Graeme W. Henderson, Sherwin L. Samuels, Bruce M. Ford,
Earle F. Jones and Howard B. Levenson, on the other hand, by their
respective counsel.
10.2 Settlement and Release Agreement dated as of April 13, 1994, among
Messrs. Rothman and Young, the Trust, the Corporation and Western
Host, Inc.
10.3 Agreement dated March 31, 1994, among Reliance Insurance Company, the
Trust, the Corporation and Messrs. Young, Rothman, Henderson,
Samuels, Jones and Levenson.
99.1 Pages 11 (beginning at "Recent Developments") through 20 (concluding
at "Regulation and Licensing") of the Trust's and the Corporation's
Joint Annual Report on Form 10-K for the year ended December 31, 1993
(the "1993 Form 10-K") (incorporated by reference to the 1993
Form 10-K (SEC File Nos. 1-6828/1-7959)).
</TABLE>
(b) Reports on Form 8-K
None.
20
<PAGE> 21
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
each registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HOTEL INVESTORS TRUST HOTEL INVESTORS CORPORATION
Registrant Registrant
/s/ MICHAEL W. MOONEY /s/ KEVIN E. MALLORY
- - --------------------------------------- ------------------------------------
Michael W. Mooney Kevin E. Mallory
Vice President and Chief Executive Vice President (Principal
Financial Officer Executive Officer)
Hotel Investors Trust Hotel Investors Corporation
Hotel Investors Corporation has no
chief financial officer or
principal accounting officer.
Date: May 13, 1994
21
<PAGE> 1
Exhibit 10.1
<PAGE> 2
This Stipulation of Settlement (the "Stipulation") is entered into
this __ day of _____________, 1993, between plaintiffs JOYCE UTTAN I.R.A, et
al., NAOMI HOROWITZ, et al., and RICHARD CARNO, et al., on the one hand, and
defendants HOTEL INVESTORS TRUST, INC., a Maryland Real Estate Investment
Trust, HOTEL INVESTORS CORPORATION, a Maryland corporation, RONALD A. YOUNG,
JOHN F. ROTHMAN, GRAEME W. HENDERSON, SHERWIN L. SAMUELS, BRUCE M. FORD, EARLE
F. JONES and HOWARD B. LEVENSON, on the other hand, by and through their
respective counsel of record in the Hotel Investors Litigation.
1. RECITALS
This Stipulation is entered into with reference to the following facts
and objectives:
1.1 Joyce Uttan I.R.A., et al. v. Hotel Investors Trust,
Inc., et al., United States District Court Case No. 92-277B(M) ("Uttan" or the
"Uttan action"), is a presently uncertified federal class action. Uttan
alleges a variety of causes of action including, but not limited to, violation
of federal and state securities laws, the Racketeer Influenced and Corrupt
Organizations Act ("RICO") and the Employee Retirement Income Security Act of
1974 ("ERISA"). To date, the class has not
Exhibit 10.1
<PAGE> 3
been certified, but certification is contemplated by and a condition precedent
to the effectiveness of this Stipulation.
1.2 The defendants in the Uttan action -- HOTEL
INVESTORS, YOUNG and ROTHMAN -- have appeared in the Uttan action.
1.3 Naomi Horowitz, et al. v. Hotel Investors Trust,
Inc., et al., United States District Court Case No. 91-1161K(BTM) ("Horowitz"
or the "Horowitz action"), is a presently uncertified federal class action.
The Horowitz action alleges causes of action including, but not limited to,
violations of the RICO Act. To date, the class has not been certified, but
certification is contemplated by and a condition precedent to the effectiveness
of this Stipulation.
1.4 All of the defendants in the Horowitz action -- HOTEL
INVESTORS, YOUNG, ROTHMAN, SAMUELS, SPEED, HENDERSON and FARRELL -- have
appeared in the Horowitz action. Thereafter, plaintiffs in the Horowitz action
agreed to dismiss without prejudice SAMUELS, SPEED, HENDERSON, and FARRELL and
filed an amended complaint in which SAMUELS, SPEED, HENDERSON and FARRELL were
not named as defendants.
1.5 Richard Carno, et al. v. Ronald A. Young, et al., San
Diego Superior Court Case No. 650235 ("Carno" or "Carno
2
<PAGE> 4
action"), is an action alleging derivative claims for breach of fiduciary duty,
gross negligence and corporate waste.
1.6 The defendants in the Carno action -- YOUNG, ROTHMAN,
HENDERSON, SAMUELS, FORD, JONES and LEVENSON -- have appeared in the Carno
action, have denied plaintiffs' substantive allegations and have asserted
various affirmative defenses. The parties expressly agree that State
Plaintiffs and their counsel brought this action in good faith. Since the
institution of the Carno action, State Plaintiffs and their counsel have had
limited formal merits discovery and have learned of no facts which leads them
to believe that, at trial, they would be able to establish that defendants
SAMUELS, FORD, HENDERSON, LEVENSON and/or JONES engaged in any acts or conduct
which would subject them to liability for misfeasance, malfeasance, nonfeasance
and/or any other wrongful or unethical conduct.
1.7 Plaintiffs and Settling Defendants desire to settle
the Uttan, Horowitz and Carno actions in the manner and upon the terms and
conditions set forth below. Settling Defendants and their counsel have
concluded that it is desirable that the Uttan, Horowitz and Carno actions be
settled as provided herein to avoid the substantial expense, inconvenience and
distraction of further legal proceedings and to put to rest Plaintiffs' claims.
Plaintiffs and their counsel recognize and acknowledge the substantial expense
and length of continued proceedings necessary
3
<PAGE> 5
to prosecute all the actions against the Settling Defendants through trial and
through any appeal. They are also mindful of the uncertain outcome and risks
of any litigation, especially in complex actions such as these. Plaintiffs and
their counsel have also taken into account the financial condition of Hotel
Investors, the availability of insurance, if any, for the Settling Defendants,
as well as the difficulties and delays inherent in litigation such as this, and
the potential problems of collection of any award. Based on the evaluation of
counsel, it has been determined that the settlement set forth in this
Stipulation is desirable and in the best interests of Plaintiffs, Settlement
Class Members and Settling Defendants to finally put these matters to rest.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements hereinafter set forth below, it is hereby stipulated and agreed by
and among the settling parties, through their respective undersigned attorneys
that, subject to the approval of the Court, the Hotel Investors Litigation, and
all claims that were or could have been asserted therein, shall be finally and
fully compromised and settled, and the Hotel Investors Litigation shall be
dismissed with prejudice, on and subject to the terms and conditions of this
Stipulation, as follows:
4
<PAGE> 6
2. DEFINITIONS
As used in this Stipulation, the following terms have the
meanings specified below. To the extent terms or phrases used in the
Stipulation are not specifically defined below, but are defined elsewhere in
the Stipulation, they are incorporated into this Definition section by
reference.
2.1 "AUTHORIZED CLAIMANT" shall mean any Class Plaintiff
whose claim for recovery has been allowed pursuant to the terms of this
Stipulation.
2.2 "CLAIMANT" shall mean any Class Plaintiff who files a
Proof of Claim in such form and manner, and within such time, as the District
Court shall prescribe.
2.3 "CLASS" shall mean all shareholders who held any
interest, beneficial, of record or otherwise, in shares of Hotel Investors at
any time from, and including, January 1, 1986 through, and including, the date
of execution by all parties to this Stipulation. Excluded from the Class are
Hotel Investors, their subsidiaries and affiliates, as well as the individual
defendants, their family members, heirs and assigns.
5
<PAGE> 7
2.4 "CLASS PERIOD" shall mean from January 1, 1986
through, and including, the date of execution of this Stipulation by all
parties to this litigation.
2.5 "CLASS PLAINTIFFS" are all members of the classes or
classes to be certified pursuant to this Stipulation in Uttan and Horowitz.
2.6 "CLASS PLAINTIFFS' COUNSEL" shall mean the following
counsel for the Class Plaintiffs in the Uttan and Horowitz actions:
(a) Lionel Z. Glancy, Esq., Law Offices of Lionel
Z. Glancy, 1299 Ocean Avenue #323, Santa Monica, California 90401,
(310) 319-3277; and
(b) Robert I. Harwood, Esq., Jeffrey M. Haber,
Esq., Wechsler Skirnick Harwood Halebian & Feffer, 555 Madison Avenue,
New York, New York 10022, (212) 935-7400.
2.7 "EFFECTIVE DATE" shall mean the first date on which
all of the following have occurred: (1) all orders referred to herein have been
entered; (2) the Judgment has become final; and (3) the Carno action has been
dismissed with prejudice.
6
<PAGE> 8
2.8 "HOTEL INVESTORS" shall mean Hotel Investors, Inc., a
Maryland corporation and Hotel Investors Trust, a Maryland Real Estate
Investment Trust.
2.9 "FINAL" means the latest of: (1) the date of final
affirmance on appeal, (2) the expiration of the time of a petition for a writ
of certiorari, and, if certiorari be granted, the date of final affirmance
following review pursuant to that grant, or (3) the date of final dismissal of
any appeal or proceeding on certiorari; or (4) if no appeal be filed, the
expiration of the time for filing any appeal. An appeal or petition for a writ
of certiorari pertaining solely to any plan of allocation for attorneys' fees,
costs, or expenses shall not in any way delay or preclude the judgment from
becoming final.
2.10 "HOTEL INVESTORS LITIGATION" shall mean those certain
cases now pending in the United States District Court for the Southern District
of California entitled Joyce Uttan I.R.A., Dr. Irwin Hoffman, John Powell and
William Bieman, on behalf of themselves and all others similarly situated v.
Hotel Investors Trust, Inc., a Maryland Real Estate Investment Trust, Hotel
Investors Corporation, a Maryland corporation, Ronald A. Young and John F.
Rothman, United States District Court for the Southern District of California
Case No. 92-277 B(M) ("Uttan"), and Naomi Horowitz, on behalf of herself and
all others similarly situated v. Hotel Investors Trust, Inc., a Maryland
Corporation, Hotel
7
<PAGE> 9
Investors Corporation, a Maryland Corporation, Ronald A. Young, John F.
Rothman, Sherwin L. Samuels, Leland R. Speed, Graeme W. Henderson, and Brian J.
Farrell, United States District Court for the Southern District of California,
Case No. 91-1161 K (BTM) ("Horowitz"), and that certain action now pending in
the Superior Court for the County of San Diego, California entitled Richard
Carno and Sonem Partners, Ltd., derivatively and on behalf of Hotel Investors
Trust and Hotel Investors Corporation v. Ronald A. Young, John F. Rothman,
Graeme W. Henderson, Sherwin L. Samuels, Bruce M. Ford, Earle F. Jones, and
Howard B. Levenson, defendants, and Hotel Investors Trust, a Maryland Real
Estate Investment Trust and Hotel Investors Corporation, a Maryland
corporation, nominal defendants, Superior Court of the State of California,
County of San Diego Case No. 650235 ("Carno").
2.11 "INDEPENDENT DIRECTOR" shall mean, for the purposes
of this Settlement, a person who is neither (i) employed by Hotel Investors or
any of its subsidiaries on a salaried basis as an officer or employee; nor (ii)
an officer, director or employee of a corporation which derives more than 5% of
its revenues from goods and/or services supplied to Hotel Investors; nor (iii)
a member of any professional firm which derives in excess of 5% of its revenues
from services provided to Hotel Investors.
8
<PAGE> 10
2.12 "JUDGMENT" shall mean the judgment to be rendered by
the District Court in the Uttan and Horowitz actions in the form attached as
Exhibit "B."
2.13 "NOTICE AND CLASS ADMINISTRATION FUND" shall mean
that fund created pursuant to Paragraph 5.4 of this Stipulation.
2.14 "PERSON" shall mean an individual, corporation,
partnership, limited partnership, association, joint stock company, estate,
legal representative, trust, unincorporated association, government or any
political subdivision or agency thereof, and any business or legal entity and
their spouses, heirs, predecessors, successors, representatives, or assignees.
2.15 "PLAINTIFFS" shall mean all persons or entities of
any kind which are described in Paragraphs 2.5 and 2.24.
2.16 "PLAN OF ALLOCATION" shall mean a plan or formula of
allocation of the Settlement Fund which shall separately be submitted by Class
Plaintiffs' Counsel to the District Court, whereby the Settlement Fund shall be
distributed to Authorized Claimants.
2.17 "RELEASED CLAIMS" shall mean any and all claims
released pursuant to Paragraphs 4.1 through 4.9, inclusive, of this Stipulation.
9
<PAGE> 11
2.18 "RELEASED PARTIES" shall mean Settling Defendants and
each of a Settling Defendant's past or present directors, officers, employees,
agents, trustees, underwriters, issuers, insurers, co-insurers, reinsurers,
controlling shareholders, attorneys, accountants, auditors, advisors,
representatives, partners, independent contractors, affiliates, subsidiaries,
divisions, predecessors, successors, assigns, spouses, heirs and associates and
members of their immediate families.
2.18(a) "REPRESENTATIVE PLAINTIFFS" shall mean named Class
Plaintiffs.
2.19 "SETTLEMENT CLASS" shall mean the class or classes in
Uttan and Horowitz, presently uncertified but to be certified pursuant to this
Agreement, except those persons who have timely and validly requested exclusion
from the classes.
2.20 "SETTLEMENT CLASS MEMBER" or "MEMBER OF THE
SETTLEMENT CLASS" shall mean a person who falls within the definition of the
Settlement Class as set forth in Paragraph 2.19.
2.21 "SETTLEMENT FUND" shall mean that fund created
pursuant to Paragraph 5.1 of this Stipulation.
10
<PAGE> 12
2.22 "SETTLING DEFENDANTS" shall mean HOTEL INVESTORS,
Sherwin L. Samuels ("SAMUELS"), Howard B. Levenson ("LEVENSON"), Graeme W.
Henderson ("HENDERSON"), Bruce M. Ford ("FORD"), Earle F. Jones ("JONES"),
Ronald A. Young ("YOUNG") and John F. Rothman ("ROTHMAN").
2.23 "SETTLING PARTIES" shall mean, collectively, each of
the Settling Defendants, State Plaintiffs and Class Plaintiffs.
2.24 "STATE PLAINTIFFS" shall mean all plaintiffs in
Richard A. Carno, et al. v. Ronald A. Young, et al., San Diego Superior Court
Case No. 650235.
2.25 "STATE PLAINTIFFS' COUNSEL" shall mean the following
counsel for the plaintiffs in the Carno litigation:
(a) Lionel Z. Glancy, Esq., Law Offices of Lionel
Z. Glancy, 1299 Ocean Avenue #323, Santa Monica, California 90401,
(310) 319-3277;
(b) Scott W. Fisher, Esq., Garwin Bronzaft
Gerstein & Fisher, 1501 Broadway, Suite 1416, New York, New York
10036, (212) 398-0055; and
11
<PAGE> 13
(c) Zachary A. Starr, Esq., Goodkind Labaton
Rudoff & Sucharow, 100 Park Avenue, New York, New York 10017, (212)
907-0700.
2.26 "RECOGNIZED LOSS" shall mean:
1. For Class Members who held Hotel Investors
common stock at the beginning of the Class Period, the Recognized Loss
shall be the difference between the lesser of the amount paid to
purchase the stock or the closing price of the stock on December 31,
1985 and the price at which the stock was sold (or if the stock was
held, the price on the last day of the Class Period).
2. For Class Members who purchased Hotel
Investors stock during the Class Period and retained stock until after
the end of the Class Period, the Recognized Loss shall be the
difference between the amount paid to purchase the stock and the price
at which the stock traded at close of business on the last day of the
Class Period.
3. For Class Members who purchased Hotel
Investors stock during the Class Period and sold that stock during the
Class Period, the Recognized Loss shall
12
<PAGE> 14
be the difference between the price paid for the stock and the price
at which the stock was sold.
4. For Class Members who made multiple purchases
and/or multiple sales during the Class Period, the earliest purchase
shall be matched with the earliest sale and chronologically thereafter
for purposes of the Recognized Loss calculations and all profits shall
be subtracted from all losses in determining the Recognized Loss of
each such Class Member.
3. TERMS OF AGREEMENT OF SETTLEMENT
It is hereby stipulated and agreed by and among all Plaintiffs
and all Settling Defendants, by and through their respective attorneys of
record, that, subject to the approvals of the appropriate Courts, the Hotel
Investors Litigation and all claims that have been or could have been asserted
therein, shall be finally and fully compromised and settled, and the litigation
shall be dismissed with prejudice, as to all Settling Defendants, upon and
subject to the terms and conditions of this Stipulation, as follows:
3.1 Each term set forth herein is a condition which must
be fulfilled or this Stipulation and the settlement provided for herein will be
null and void.
13
<PAGE> 15
3.2 Promptly upon execution of this Stipulation, Class
Plaintiffs' Counsel shall amend the complaint in both Horowitz and Uttan such
that all Settling Defendants are named as party defendants in both actions.
3.3 Promptly upon execution of this Stipulation, State
Plaintiffs' Counsel shall cooperate in the filing by the counsel for certain
Settling Defendants in Carno, Scott L. Metzger and Jill Osmars Wolcott of
Duckor & Spradling, to be joined by all Settling Defendants as more fully
described in Paragraph 7.1, of (a) a notice to all parties of the terms of this
Stipulation and (b) an application to the superior court for approval and an
order that the Settlement set forth in this Stipulation is in good faith as
that term is used in California Code of Civil Procedure section 877.6. It is
an express condition to this Stipulation that Settling Defendants obtain an
order finding that the settlement set forth in this Stipulation is in good
faith and that all claims for indemnification, partial indemnification,
equitable indemnification, total indemnification, or contribution of any kind
are forever barred with respect to the Settling Defendants.
3.4 The Settling Parties expressly agree that this
Stipulation is to be governed by and interpreted pursuant to the laws of the
State of California. Accordingly, the parties agree that they will jointly
move for an order in the Horowitz and Uttan actions that the settlement is (a)
fair, just, reasonable and
14
<PAGE> 16
adequate to the Class Plaintiffs; (b) is in "good faith" as that term is
defined in California Code of Civil Procedure section 877.6; and (c) that all
claims for contribution or indemnity of any kind against Settling Defendants
are forever barred ("bar order"). The procedure is fully set forth in
Paragraph 7.2. The motion will be made under the authority of Federal Savings
and Loan Assoc. v. Butler, 904 F.2d 505 (9th Cir. 1990). In the event the
district court will not grant such an order, the parties shall jointly apply
for a bar order to be issued in accordance with Franklin v. Kaypro Corporation,
884 F.2d 1222 (9th Cir. 1989); cert. denied, 498 U.S. 890, 112 L.Ed.2d 192,
111 S.Ct. 232 (1990). Entry of a bar order is a condition precedent to the
effectiveness of the settlement set forth in this Stipulation.
3.5 The Class Plaintiffs and the Settling Defendants
shall, promptly upon execution hereof, submit this Stipulation to the District
Court and shall each request: (a) that the Court conditionally certify the
Class for settlement purposes; (b) that the Court enter the Notice Order as
described in Paragraphs 6.1 and 6.2 of this Stipulation and attached hereto as
Exhibit "A;" and (c) that the District Court approve the settlement as set
forth in this Stipulation and enter the Judgment, substantially in the form of
Exhibit B hereto, as set forth in Paragraphs 7.1 and 7.2, inclusive, of this
Agreement.
15
<PAGE> 17
3.6 Class Plaintiffs' Counsel shall obtain an order from
the District Court setting forth the procedure for opting out of the Class to
be certified. In the event any class member(s) files with the Court a timely
request for exclusion, and, Recognized Loss of those persons who timely file a
request for exclusion exceeds the sum set forth in a separate supplemental
agreement (the "Supplemental Agreement") between the parties which shall be
lodged with the United States District Court under seal, the Settling
Defendants, and each of them, and their insurer(s) shall have, in their sole
and absolute discretion, the option to terminate this Stipulation, in which
case all parties will be restored to the Status Quo Ante and any monies
deposited shall be returned to the parties in the same proportion that each
deposited such funds, less any money expended in connection with the notice and
administration costs in accordance with the terms of this Stipulation.
3.7 Notice of this Stipulation shall be provided to the
Class in a format approved by the District Court. This procedure is more fully
explained in Paragraphs 6.1 and 6.2. The Notice Order shall also fix a period
within which requests for exclusions from the Class and objections to the
settlement must be filed. Thereafter, Class Plaintiffs' Counsel shall request
and obtain a hearing pursuant to Federal Rule of Civil Procedure 23(e). It is
a condition to this Stipulation that the district court find this
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settlement to be entered into at arm's-length and to be fair, proper, adequate
and reasonable to the Class.
3.8 Upon execution of this Stipulation, the Board(s) of
Hotel Investors shall authorize the formation of a Transaction Committee to
consider transactions which have a fair market value of at least $20 million.
The Transaction Committee shall have the authority to hire experts and to make
financial evaluations of transactions and its report shall be submitted to the
full Boards of Directors for their own independent evaluation of the proposal
based on the analysis and recommendation of the Transaction Committee. Any
disagreements between the view of the Boards and the Transaction Committee
shall be disclosed to the shareholders for their consideration. A majority of
the Transaction Committee shall consist of Independent Directors.
4. GENERAL UNLIMITED RELEASES
4.1 Except as to such rights or claims as may be created
by this Stipulation, the State Plaintiffs and Class Plaintiffs, on behalf of
themselves and the Class Members and their heirs, executors, successors and
assigns (the "Releasing Parties"), shall be deemed to and on the Effective Date
shall and hereby do release, remise and forever discharge the Released Parties
from any and all manner of losses, claims, demands and causes of action of any
kind or description whatsoever which were or could have been
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alleged in the Uttan, Horowitz and/or Carno actions, which now do or may exist
from the beginning of the World through the date of this Stipulation or which
may hereafter arise in the future, insofar as they relate, in any way, to the
allegations set forth in the Uttan, Horowitz and Carno actions, whether direct
or indirect, at law or in equity, in assumpsit or tort, and whether arising
under any federal or state statute or under the common law, which said
Releasing Parties, or any of them, are or may become entitled to allege either
personally, representatively on behalf of a class or derivatively (on behalf of
any other person), including but not limited to the following: (a) any claim
for negligence, breach of contract, breach of fiduciary duty, committing or
aiding and abetting the commission of a fraud or breaches of federal and/or
state securities laws which were or could have been alleged in the Uttan,
Horowitz and/or Carno actions; (b) any claim of breach of the covenant of good
faith and fair dealing that could have been filed in or concerning the Uttan,
Horowitz or Carno action; or (c) any right or claim which is now or might
hereafter be assignable to, brought in the name of or be attributable to or
belong to HOTEL INVESTORS or its successors. The release shall be set forth in
full in the Proof of Claim and Release form to be executed by all Class
Members.
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4.2 California Civil Code section 1542 provides that:
A general release does not extend to claims which the creditor does
not know or suspect to exist in his favor at the time of executing the
release, which if known by him must have materially affected his
settlement with the debtor.
4.3 The State Plaintiffs and the Class Plaintiffs (on
behalf of themselves and the Class) shall be deemed to have waived, and, on the
Effective Date, waive any and all rights and benefits they, or any of them, may
have under said section 1542. In connection with this waiver, the State
Plaintiffs and the Class Plaintiffs acknowledge that they have been advised by
counsel in this matter; they are aware of section 1542; and that they are aware
they may hereafter discover claims presently unknown or unsuspected or facts in
addition to or
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different from those they now know or believe to be true with respect to the
claims released pursuant to this Stipulation. Nevertheless, the State
Plaintiffs and the Class Plaintiffs intend to, and on the Effective Date do,
release fully, finally and forever all claims released pursuant to this
Stipulation. Each of the Class Plaintiffs and the State Plaintiffs and the
members of the Class may hereafter discover claims presently unknown or
unsuspected or facts in addition to or different from those they now know or
believe to be true with respect to the subject matter of Released Claims, but
hereby stipulate and agree to the releases given by this Stipulation. Each
State Plaintiff, Class Plaintiff, and Class member shall and does, on the
Effective Date, release fully, finally and forever all claims released pursuant
to this Stipulation.
4.4 The State Plaintiffs expressly acknowledge, and the
Class Plaintiffs will be informed through the Notice Order of the risk, that,
subsequent to their execution of the release referred to in paragraph ___,
above, said Plaintiffs may suffer further damages relating to the matters
herein released, or which are unknown or unanticipated at the time the
releases are signed. Said Plaintiffs further expressly recognize the risk
that the damage presently known may hereafter become more serious than said
Plaintiffs now expect or anticipate. Said Plaintiffs assume the above-
mentioned risks, and these releases shall otherwise apply to all unknown or
unanticipated results of the matters described above.
4.5 It is the intent of the Settling Parties that this
Stipulation shall provide the Released Parties with complete peace in respect
to any and all manner of claims, including as to any claims now in being but
presently unknown. Upon final court approval of this Stipulation and the
Settlement set forth herein the State Plaintiffs and the Class Plaintiffs shall
be forever
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hereafter barred and enjoined from commencing, instituting or prosecuting
(individually, as members of a class or derivatively on behalf of HOTEL
INVESTORS or any other person) any action, case or other proceeding in any
court of law or equity, arbitration tribunal, or administrative forum,
directly, representatively or derivatively which asserts against any of the
Released Parties any claims arising out of, relating to or constituting any of
the Released Claims.
4.6 Plaintiffs hereby represent through their respective
counsel that none of them has heretofore assigned to any other Person any cause
of action which any of them has or may have against any of the Released
Parties.
4.7 The State Plaintiffs, and each of them, shall cause
to be executed and delivered to counsel for the Settling Defendants dismissals
with prejudice as to Settling Defendants at such time as this Stipulation
receives all necessary court approvals described herein and shall be filed upon
the Effective Date. Said dismissals shall be substantially in the form
attached hereto as Exhibit "C."
4.8 The Plaintiffs shall apply to the federal court to
send and shall send a notice to the Class concerning settlements with Settling
Defendants in the form of Exhibit "A-1" to Exhibit "A," and of the Class
Plaintiffs' intent to obtain a Final Judgment
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containing a release and dismissal with prejudice substantially in the form
attached hereto as Exhibit "B."
4.9 Plaintiffs shall also dismiss with prejudice any
other proceeding brought by them, or any of them, in any other jurisdiction in
the world based in whole or in part on the claims released herein.
4.10 State Plaintiffs' Counsel agree that they will not
seek, directly or indirectly, to receive any fees for services or cost
reimbursement from Hotel Investors, and expressly waive the right to do so,
except as provided for herein. State Court Plaintiffs' Counsel further agree
that the sole source of any fee to be awarded to them shall be from the
Settlement Fund described in Paragraph 5.1 of this Stipulation.
5. THE SETTLEMENT FUNDS
5.1 Settlement Fund. Upon execution of this Stipulation,
or any other definitive agreement that finally resolves the Horowitz, Uttan,
and Carno actions, a settlement fund of $3,205,000, ("Settlement Fund,") shall
be deposited into a mutually agreed upon financial institution in an account
that shall require five signatures for any withdrawal. The signatories shall be
Gilbert Jensen, Esq., Michael Klowden, Esq., William Bowen, Esq., Robert
Harwood, Esq. and Scott Metzger, Esq. The funds in
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<PAGE> 24
the Settlement Fund shall not be disbursed except as provided by this
Stipulation, or by order of the court. Upon the Effective Date, the Settlement
Fund, except interest which has accrued thereon, shall be released to Class
Plaintiffs' counsel, Robert I. Harwood, for the benefit of the Authorized
Claimants in accordance with the Plan of Allocation. Accrued interest shall
thereafter be returned to Reliance Insurance Company.
5.2 Only those Settlement Class Members filing valid and
timely Proofs of Claim and Releases shall be entitled to receive any
distributions from the Settlement Fund. The Releases to be executed by the
Settlement Class Members shall release all Released Claims against the Released
Parties, and shall be in the form contained in Exhibit "A-2" to Exhibit "A"
hereto. Once executed by a Settlement Class Member, each Release shall be
delivered to Class Plaintiffs' Counsel or their designated agent(s). Class
Plaintiffs' Counsel or their agents shall preserve the executed Releases until
further order of the court or written agreement of counsel to the Settling
Parties, and shall make each or all of them available to Settling Defendants
upon written request.
5.3 Letter of Credit. Upon execution of this
Stipulation, or sooner, Settling Defendants ROTHMAN and YOUNG shall provide an
irrevocable letter of credit to HOTEL INVESTORS CORPORATION in the amount of
$800,000 pursuant to that certain
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<PAGE> 25
Settlement and Release Agreement dated _______________ between ROTHMAN, YOUNG,
HOTEL INVESTORS and Western Host, Inc., a California corporation, a copy of
which is attached as Exhibit "D," and that certain Termination of Management
Contracts Agreement, dated _______________, a copy of which is attached as
Exhibit "E." Upon the Effective Date, the proceeds of said letter of credit
shall be distributed to HOTEL INVESTORS CORPORATION and the provisions of the
agreements referenced in this paragraph and Exhibits "D" and "E" shall be
declared fully enforceable.
5.4 Notice and Class Administration Fund. Within five
business days after execution of this Stipulation, the Settling Parties shall
cause to be deposited into a mutually agreed upon financial institution, the
amount of $45,000 which shall constitute the Notice and Class Administration
Fund. Class Plaintiffs' Counsel shall have the authority to expend funds of
said account for the purpose of class notice and administration. Class
Plaintiffs' Counsel shall be responsible for all costs of class notice and
administration when the Notice and Class Administration Fund is exhausted. To
the extent monies remain in the Notice and Class Administration Fund on the
Effective Date, said monies shall be released to Class Plaintiffs' Counsel for
the benefit of Authorized Claimants. If this Stipulation is canceled for any
reason, to the extent monies remain in the Notice and Administrative Fund, said
funds shall be returned to Settling Defendants by delivering said funds to the
Duckor & Spradling
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Client Trust Account, then to be delivered to the parties who contributed to
the settlement in the ratio of their contributions.
6. NOTICE ORDER AND SETTLEMENT HEARING
6.1 Promptly after execution of this Stipulation and the
certification of the Class as required by this Stipulation, the Settling
Parties shall submit this Stipulation together with its Exhibits to the
District Court and shall jointly apply for entry of an order (the "Notice
Order"), substantially in the form of Exhibit "A" hereto, requesting approval
for the mailing to the Plaintiffs of a Settlement Notice which shall include
the general terms of the settlement set forth in this Stipulation, the
preliminary approval of the settlement set forth in this Stipulation,
certification of the Class for settlement purposes only, the proposed Plan of
Allocation, notice that Representative Plaintiff's Counsels intend to apply for
an award of attorneys' fees and reimbursement of expenses and the date of the
Settlement Hearing. Settling Defendants, and their counsel, agree to take no
position with respect to Plaintiffs' application for counsel fees and
reimbursement of expenses.
6.2 The Notice Order shall specifically include
provisions which, among other things:
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<PAGE> 27
(a) Preliminarily approve this Stipulation and
the settlement set forth herein as being fair, just, reasonable and adequate to
the Settlement Class;
(b) Approve the form of Notice of Settlement
Hearing (substantially in the form of Exhibit "A-1" to Exhibit "A" hereto), for
mailing to Settlement Class Members;
(c) Approve the form of Proof of Claim and
Release (substantially in the form of Exhibit "A-2" to Exhibit "A" hereto), for
mailing to Settlement Class Members;
(d) Direct Class Plaintiffs' Counsel to mail or
cause to be mailed the Settlement Notice and the Proof of Claim and Release
form to those Class Members who can be identified through reasonable effort, on
or before dates to be specified in the Notice Order;
(e) Provide that Settlement Class Members who
wish to participate in the Settlement Fund shall complete and file a Proof of
Claim and Release pursuant to the instructions contained therein;
(f) Provide a method for Class Members to request
to be excluded from the Class;
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(g) Find that the Notice given pursuant to the
subparagraphs (b)-(d) and (f) above constitutes the best notice practicable
under the circumstances, including individual notice to all Settlement Class
Members who can be identified upon reasonable effort, and constitutes valid,
due and sufficient notice to all persons in the Settlement Class, complying
fully with the requirements of Rule 23 of the Federal Rules of Civil Procedure,
the Constitution of the United States, and any other applicable law;
(h) Schedule a hearing or hearings (the
"Settlement Hearing") to be held by the Court to consider and determine whether
the proposed settlement of the litigation as contained in this Stipulation
should be approved as being fair, reasonable and adequate and the Judgment
approving the settlement should be entered;
(i) Provide that at or after the Settlement
Hearing, the court shall determine whether the proposed Plan of Allocation
should be approved;
(j) Provide that at or after the Settlement
Hearing, the court shall determine and enter an order regarding whether and in
what amount attorneys' fees and expenses should be awarded to Class Plaintiffs'
Counsel and State Plaintiffs' Counsel;
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(k) Provide that pending final determination of
whether the settlement contained in this Stipulation should be approved,
neither the Plaintiffs, nor any Settlement Class Member, either directly,
representatively, or in any other capacity shall commence or prosecute any
action or proceeding, in any court or tribunal asserting any of the Released
Claims against the Settling Defendants;
(l) Provide that any objections to (i) the
proposed settlement contained in this Stipulation; (ii) entry of the Judgment
approving the settlement; (iii) the proposed Plan of Allocation; or (iv) Class
and State Plaintiffs' Counsels' Fee and expense Application, shall be heard and
any papers submitted in support of said objections shall be received and
considered by the court at the Settlement Hearing only if, on or before a date
to be specified in the Notice Order, persons making objections shall file and
serve notice of their intention to appear (which shall set forth briefly each
objection and the basis therefor) and copies of any papers in support of their
position as set forth in the Notice Order;
(m) Provide that, upon the occurrence of the
Effective Date, all Settlement Class Members, whether or not they file a Proof
of Claim and Release within the time provided for, shall be barred from
asserting any Released Claims against any of the Released Parties, and any such
Settlement Class Member shall
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conclusively be deemed to have released any and all such Released Claims as
against the Released Parties; and
(n) Provide that the Settlement Hearing or
related hearing may, from time to time and without further notice to the
Settlement Class, be continued or adjourned by order of the court.
7. GOOD FAITH DETERMINATION AND CLASS APPROVAL
7.1 Promptly upon execution of this Stipulation,
Plaintiffs in the Carno action and counsel for defendants in the Carno action
shall jointly move the appropriate state court for an order and judgment (the
"Good Faith Order") providing that:
(a) the settlement embodied in this Stipulation
is entered into and made in good faith, within the meaning of sections 877 and
877.6 of the California Code of Civil Procedure and that the Carno action is
dismissed with prejudice as to the Carno defendants; and
(b) all claims for contribution or
indemnification, however denominated, against the Settling Defendants in the
action, arising under applicable law in favor of persons or entities who are
asserted to be or may be joint tortfeasors with said Settling Defendants and
based upon liability
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arising from, or based upon, the Carno action, are forever extinguished,
discharged, satisfied and/or otherwise unenforceable, as more fully described
in Paragraph 3.3.
7.2 Promptly upon execution of this Stipulation, Class
Plaintiffs and Settling Defendants shall jointly move the United States
District Court for the Southern District of California for an order, as
provided in Paragraph ___, as well as the following:
(a) determining that all claims for contribution
and indemnity, however, denominated, against any or all Settling Defendants are
forever barred.
(b) entering of a Judgment substantially in the
form of Exhibit B; and
(c) in the event the United States District Court
in the Uttan and Horowitz actions makes findings in connection with the
contemplated approvals described in this Agreement, Settling Defendants do not,
by entering into this Agreement, waive their right to object to the making or
content of any such findings.
8. REPRESENTATIONS AND WARRANTIES
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8.1 Each of the parties to this Stipulation represents
and warrants to, and agrees with each other party hereto, as follows:
8.2 All parties have received independent legal advice
from their attorneys with respect to the advisability of making this
settlement, with respect to the advisability of executing this Stipulation, and
with respect to the meaning of California Civil Code section 1542.
8.3 No party to this Stipulation (nor any officer, agent,
partner, employee, representative or attorney of or for any party), has made
any statement or representation to any other party to this Stipulation
regarding any fact relied upon in entering into this Stipulation, and each
party does not rely upon any statement, representation or promise of any other
party (or any officer, agent, partner, employee, representative or attorney of
or for any other party), in entering into this Stipulation, or in making the
settlement provided for herein, except as expressly stated in this Stipulation,
the exhibits hereto and the writings referred to herein.
8.4 Each party to this Stipulation has made such
investigation of the facts pertaining to this settlement and this Stipulation,
and of all the matters pertaining to him or it, as he or it deems necessary.
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8.5 Each undersigned attorney has read this Agreement and
understands its contents.
8.6 The Settling Parties and undersigned attorneys shall
execute all such further and additional documents as shall be reasonable,
convenient, necessary or desirable to carry out the provisions of this
Stipulation.
8.7 The State Plaintiffs' Counsel and the Class
Plaintiffs' Counsel warrant that they are all, and each of them, authorized by
their respective clients, and each of them, to enter into and execute this
Stipulation including the releases, and that they collectively represent the
Plaintiffs, and each of them.
8.8 Settling Defendants represent that the signatories on
its behalf are fully authorized to enter into and execute this Agreement.
9. TERMINATION
9.1 If any State Court after all applicable appeals
finally refuses to enter the Good Faith Order described in Paragraph 7.1 of this
Stipulation as to the Carno action, or the Federal Court after all applicable
appeals finally refuses to enter the order approving this Stipulation and the
Judgment in the form as substantially set forth in Exhibit B, or should Class
Plaintiffs' Counsel or State
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Plaintiffs' Counsel fail to make motions or applications required by this
Stipulation within 60 days of its execution, Settling Defendants, or any of
them, may, but need not, unilaterally terminate this Stipulation by written
notice and the Settlement Fund, including any interest earned thereon, shall
then immediately be returned to Settling Defendants and their insurers or their
respective designated representative(s), in the same proportion that each
contributed to the Settlement Fund.
9.2 Class Plaintiffs' Counsel shall within two (2)
business days following the expiration of the period to file Requests for
Exclusion from the Class personally serve on Duckor & Spradling, a writing
verified by one of the Class Plaintiffs' Counsel (herein called "Verified
Tabulation of Requests for Exclusion") listing the name, address,
identification of investment and dollar amount of investment of each class
member who elects to opt-out from the Class.
9.3 In the event that the aggregate Recognized Loss
listed on the Verified Tabulation of Requests for Exclusion exceeds the amount
specified in the Supplemental Agreement referred in Paragraph 3.6 of the
Stipulation, then any Settling Defendant or his/its insurer(s) may, but need
not, terminate this Stipulation and it shall be deemed null and void, provided
the Settling Defendant or its insurer(s) provides written notice of its
election to terminate the Stipulation by personal delivery to Robert I.
Harwood, Wechsler
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Skirnick Harwood Halebian & Feffer, and to Scott Metzger, Duckor & Spradling
within five (5) business days following delivery of the Verified Tabulation of
Requests for Exclusion. In the event a Settling Defendant or his/its insurer
elects to terminate as provided herein, the Settlement Fund including any
interest earned thereon shall be returned to Settling Defendants and their
insurer(s) or their designated representatives in the same proportion that each
contributed to the Settlement Fund.
10. MISCELLANEOUS PROVISIONS
10.1 This Stipulation and its exhibits constitute the entire
agreement and understanding between the parties hereto concerning the subject
matter hereof, and no representations, warranties, covenants or inducements
have been made to any party concerning this Stipulation and its exhibits. This
Stipulation supersedes and replaces all prior negotiations and proposed
agreements, written and oral, relating thereto.
10.2 Plaintiffs and Settling Defendants may only waive,
release or alter any provision of this Stipulation by another document in
writing signed by duly authorized representatives of Plaintiffs and Settling
Defendants.
10.3 No waiver of any term, provision or condition of this
Stipulation in any one or more instance shall be deemed to
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be or construed as a further or continuing waiver of any such term, provision
or condition of this Stipulation.
10.4 No terms of this Stipulation may be changed or
terminated orally.
10.5 This Stipulation shall be filed promptly with the
appropriate state court and the federal court and shall constitute a
stipulation in writing before said courts so as to be subject to all
enforcement proceedings set forth in California Code of Civil Procedure section
664.6 and United States District Court for the Southern District of California
Local Rule 7.4 and applicable federal law.
10.6 The state court shall continue to exercise jurisdiction
and supervision over the subject matter of this Stipulation, including its
administration, consummation and enforcement, to the extent that it applies to
the Carno action, until such time as the applicable statutes of limitations
have expired on all claims which may be filed against the Settling Defendants.
10.7 The federal court shall continue to exercise
jurisdiction and supervision over the subject matter of this Stipulation,
including its administration, consummation and enforcement, to the extent that
it applies to the Uttan and
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Horowitz actions, until such time as the applicable statutes of limitation have
expired on all claims which may be filed against Settling Defendants.
10.8 Each of the undersigned agrees to use his or her best
efforts to take, or cause to be taken, all actions as may be reasonably
required in order to effectuate the terms of this Stipulation.
10.9 Any notice, request, instruction or other document
deemed by any party to be necessary or desirable to be given to another party
shall be in writing and shall be hand delivered, hand delivered by courier, or
mailed by registered mail or certified mail, return receipt requested, postage
prepaid, addressed as follows:
Edward M. Medvene, Esq.
Patricia H. Benson, Esq.
MITCHELL, SILBERBERG & KNUPP
11377 West Olympia Boulevard
Los Angeles, CA 90064
(310) 312-2000
Michael J. Klowden, Esq.
MORGAN, LEWIS & BOCKIUS
801 South Grand Avenue
Suite 220
Los Angeles, CA 90017
Lionel Z. Glancy, Esq.
LAW OFFICES OF LIONEL Z. GLANCY
1299 Ocean Avenue, Suite 323
Santa Monica, CA 90401
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Robert I. Harwood
Wechsler Skirnick Harwood Helebian & Feffer
555 Madison Avenue, New York, New York 10022
(212) 935-7400
Gilbert D. Jensen, Esq.
BARTON, KLUGMAN & OETTING
333 South Grand Avenue
37th Floor
Los Angeles, CA 90071-1599
Scott W. Fisher, Esq.
GARWIN, BRONZAFT, GERSTEIN & FISHER
1501 Broadway, Suite 1416
New York, New York 10036
Zachary A. Starr, Esq.
GOODKIND, LABATON, RUDOFF & SUCHAROW
100 Park Avenue
New York, New York 10019
R. William Bowen, Esq.
LUCE, FORWARD, HAMILTON & SCRIPPS
600 West Broadway, Suite 2600
San Diego, CA 92101
Dennis Kinnard, Esq.
MUNGER, TOLLES & OLSON
355 South Grand Avenue, 35th Floor
Los Angeles, CA 90071
Scott L. Metzger, Esq.
Jill Osmars Wolcott, Esq.
Duckor & Spradling
401 West A Street, Suite 2400
San Diego, CA 92101-7909
If mailed as aforesaid, notice shall be deemed given three (3) days after
deposit in the United States mail. The person and addresses to which mailings
may be made may be changed from time to time by a notice mailed as aforesaid.
10.10 The parties hereto acknowledge to each other that no
one, nor any of their agents or attorneys, has made any
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promises, representation or warranty to induce them to enter into this
Stipulation other than as set forth in this Stipulation and the Exhibits hereto
and other writings referred to herein.
10.11 This Stipulation shall be binding upon, and shall inure
to the benefit of, the successors and assigns of the parties hereto.
10.12 This Stipulation, the settlement and any proceedings in
connection therewith shall not be construed as an admission of truth of any
allegation or the validity of any claim asserted or of any liability therein;
nor shall this Stipulation, nor the settlement, nor any papers related to them,
nor any of the terms hereof be offered or received in evidence or in any way
referred to in any civil, criminal or administrative action or proceeding other
than (1) such proceedings as may be necessary to consummate or enforce this
Stipulation or to comply with any law or regulation of any Federal, State or
other government entity or (2) any action or proceeding against Settling
Defendants or any Released Party to support a defense of res judicata,
collateral estoppel, release or other theory of claim preclusion or issue
preclusion or similar defense; nor shall they be construed by anyone for any
purpose whatsoever as an admission or presumption of any wrongdoing. Settling
Defendants deny all the material allegations contained in the Carno, Uttan and
Horowitz actions, maintain that their conduct and the conduct of the persons
and
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entities released herein has been at all times legal and proper, and deny any
fault or liability whatsoever.
10.13 If this Stipulation should terminate or become null and
void for any reason, then this Stipulation, all documents relating thereto,
including without limitation, briefs, affidavits and correspondence submitted
to the Court and all negotiations and proceedings relating thereto shall be
without prejudice to the rights of any and all parties hereto, who shall be
restored to the status quo ante existing on the execution date of this
Stipulation, except to the extent of costs expended from the Notice and
Administration Fund.
10.13(a) If this Stipulation should terminate or become null
and void for any reason, applicable statutes of limitation are deemed tolled as
of the date of this Stipulation, without prejudice to any statute of
limitations defense any Settling Defendant may have had as of the date of the
Stipulation.
10.14 With the exception of those matters already filed of
record in the Uttan, Horowitz or Carno actions prior to the execution of this
Stipulation, the aforesaid documents, negotiations and proceedings shall not be
offered in evidence or referred to by anyone in any action or proceeding in the
event that this Stipulation should terminate and become null and void.
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10.15 State Plaintiffs' Counsel and Class Plaintiffs'
Counsel, and the employees and attorneys in those firms, agree not to share any
information including, but not limited to, research or discovery with persons
or entities not subject to this settlement that might subsequently accept or
prosecute any cases arising out of the Uttan, Horowitz and/or Carno litigation
against the Released Parties, or any of them, absent a court order or subpoena.
If the State Plaintiffs' Counsel and Class Plaintiffs' Counsel receive notice
of a court order or a subpoena requiring the production of such information,
they shall provide notice to counsel for Settling Defendants in a sufficient
amount of time that would allow counsel for Settling Defendants to request
appropriate relief from said court order or subpoena. The State and Class
Plaintiffs' Counsel shall not have an obligation to bring any such motion for
relief, which obligation shall be that of counsel for Settling Defendants.
10.16 State and Class Plaintiffs' Counsel warrant that they
have not assisted anyone not covered by the releases contemplated by this
Stipulation to be given to the Released Parties in preparing any claim or
lawsuit which is not presently on file, regarding any of the matters in this
Stipulation against any of the Released Parties.
10.17 This Stipulation may be executed in counterparts, each
of which shall be deemed an original and
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together shall constitute one and the same instrument, and when each party has
signed at least one such counterpart, this Stipulation shall become binding and
effective as to all parties as of the day and year first above written.
10.18 Unless the context otherwise requires, in this
instrument the singular number includes the plural and the plural number
includes the singular, the masculine gender includes the feminine and/or
neuter, the neuter includes the masculine and/or feminine, and the feminine
includes the masculine and/or neuter.
10.19 All terms of this Stipulation and the Exhibits thereto
shall be governed and interpreted according to the substantive law of the State
of California.
IN WITNESS WHEREOF, the parties hereto have executed this Stipulation
as of the day and year first above written.
MITCHELL, SILBERBERG & KNUPP
Dated: December 17, 1993 By: /s/ PATRICIA H. BENSON, ESQ.
------------------------------
Patricia H. Benson, Esq.
Attorneys for Defendant
Sherwin L. Samuels
[SIGNATURES CONTINUED ON FOLLOWING PAGE]
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[SIGNATURES CONTINUED FROM PRECEDING PAGE]
MORGAN, LEWIS & BOCKIUS
Dated: April 11, 1994 By: /s/ MICHAEL J. KLOWDEN, ESQ.
-------------------------------
Michael J. Klowden, Esq.
Attorneys for HOTEL INVESTORS,
INC., and HOTEL INVESTORS TRUST
BARTON, KLUGMAN & OETTING
Dated: April 30, 1994 By: /s/ GILBERT D. JENSEN, ESQ.
-------------------------------
Gilbert D. Jensen, Esq.
Attorneys for Reliance Insurance
Company
LAW OFFICES OF LIONEL Z. GLANCY
Dated: December 20, 1993 By: /s/ LIONEL Z. GLANCY, ESQ.
-------------------------------
Lionel Z. Glancy, Esq.
Attorneys for Plaintiffs
WECHSLER SKIRNICK HARWOOD HELEBIAN &
FEFFER
Dated: December 17, 1993 By: /s/ ROBERT I. HARWOOD
-------------------------------
Robert I. Harwood
Attorneys for Plaintiffs
GARWIN, BRONZAFT, GERSTEIN & FISHER
Dated: December 11, 1993 By: /s/ SCOTT W. FISHER, ESQ.
-------------------------------
Scott W. Fisher, Esq.
Attorneys for Plaintiffs
[SIGNATURES CONTINUED ON FOLLOWING PAGE]
42
<PAGE> 44
[SIGNATURES CONTINUED FROM PRECEDING PAGE]
MUNGER, TOLLES & OLSON
Dated: April 5, 1994 By: /s/ DENNIS KINNARD, ESQ.
-------------------------------
Dennis Kinnard, Esq.
Attorneys for JOHN F. ROTHMAN
GOODKIND, LABATON, RUDOFF & SUCHAROW
Dated: December 11, 1993 By: /s/ LAWRENCE SUCHAROW
-------------------------------
Lawrence Sucharow
Attorneys for Plaintiffs
LUCE, FORWARD, HAMILTON & SCRIPPS
Dated: April 11, 1994 By: /s/ R. WILLIAM BOWEN, ESQ.
-------------------------------
R. William Bowen, Esq.
Attorneys for RONALD A. YOUNG
DUCKOR & SPRADLING
Dated: December 11, 1993 By: /s/ SCOTT L. METZGER, ESQ.
-------------------------------
Scott L. Metzger, Esq.
By: /s/ JILL OSMARS WOLCOTT, ESQ.
-------------------------------
Jill Osmars Wolcott, Esq.
Attorneys for GRAEME W. HENDERSON,
BRUCE M. FORD, EARLE F. JONES and
HOWARD B. LEVENSON
43
<PAGE> 1
Exhibit 10.2
<PAGE> 2
SETTLEMENT AND RELEASE AGREEMENT
THIS SETTLEMENT AND RELEASE AGREEMENT (the "Agreement") is entered
into as of this ______ day of ________, 1994, by and among JOHN F. ROTHMAN
("Rothman"); RONALD A. YOUNG ("Young"); HOTEL INVESTORS CORPORATION, a Maryland
corporation ("Corp."); HOTEL INVESTORS TRUST, a Maryland business trust
("Trust") (Corp. and Trust are collectively hereinafter referred to as "Hotel
Investors"); and WESTERN HOST, INC., a California corporation ("Western Host").
R E C I T A L S
A. Young is a former Director, President and Chief Executive
Officer of Corp. and a former Trustee of Trust; and Rothman is a former Chief
Executive Officer and Trustee of Trust and a former Director of Corp. Young
and Rothman were the sole shareholders of Western Host prior to their sale of
all of the outstanding shares of Western Host to Corp. The following lawsuits
have been filed against Young and Rothman, both individually and in their
respective capacities as officers, directors and trustees of Hotel Investors:
1. Naomi Horowitz, on behalf of herself and all others
similarly situated, Plaintiff, v. Hotel Investors Trust, Inc. [sic], a
Maryland corporation; Hotel Investors Corporation, a Maryland corporation;
Ronald A. Young; and John F. Rothman, Defendants, filed in the United States
District Court, Southern District of California, as Case No. 91-1161 K (BTM);
2. Joyce Uttan I.R.A.; Dr. Irwin Hoffman; John Powell;
and William Bieman, on behalf of themselves and all others similarly situated,
Plaintiffs, v. Hotel Investors Trust, Inc. [sic], a Maryland real estate
investment trust; Hotel Investors Corporation, a Maryland corporation; Ronald
A. Young; and John F. Rothman, Defendants, filed in the United States District
Court, Southern District of California, as Case No. 92-277B (M); and
3. Richard Carno and Sonem Partners, Ltd., derivatively
on behalf of Hotel Investors Trust; and Hotel Investors Corporation,
Plaintiffs, v. Ronald A. Young, John F. Rothman, Graeme W. Henderson, Sherwin
L. Samuels, Bruce M. Ford, Earl F. Jones and Howard B. Levenson, Defendants;
and Hotel Investors Trust, a Maryland real estate investment trust, and Hotel
Investors Corporation, a Maryland corporation, Nominal Defendants, filed in the
Superior Court of California, County of San Diego, as Civ. No. 650235 (the
three lawsuits are hereinafter collectively defined as the "Shareholder
Suits").
B. Young and Rothman are general partners of Western Host Fresno
Partners, Western Host Stockton Partners, Western Host Bakersfield Partners,
Western Host Properties, Western Host Monterey Partners, Western Host Pasadena
Partners and Western
Exhibit 10.2
<PAGE> 3
Host San Francisco Partners (collectively, the "Partnerships"). Each of the
Partnerships have an equity interest in certain hotels (the "Partnership
Hotels"), which are, in the case of Western Host Fresno Partners, Western Host
Stockton Partners, Western Host Bakersfield Partners, Western Host Properties
and Western Host Monterey Partners, managed by Western Host pursuant to various
management contracts (collectively the "Management Contracts), and in the case
of Western Host Pasadena Partners and Western Host San Francisco Partners,
managed by Western Host as a general partner, pursuant to their respective
Certificates of Limited Partnerships (collectively, the "Pasadena and San
Francisco Partnership Agreements"), whereby, in exchange for specified
management and incentive fees, Western Host has the right to supervise, manage
and direct all operations of the Partnership Hotels. In exchange for such
services Western Host receives management and incentive fees based on the gross
revenues, cash flows and/or operating profits of each of the Partnership
Hotels, or of the partnership that operates such Partnership Hotel.
C. Westland Hotel Corp., an affiliate of Young, and Western Host
have entered into agreements for each of the Partnership Hotels, whereby
Western Host has subcontracted its rights to provide management services for
each of the Partnership Hotels under the Management Contracts and the Pasadena
and San Francisco Partnership Agreements (the "Interim Management Contracts")
to Westland Hotel Corp. as Manager (as defined therein).
D. Young and Rothman, as general partners of the Partnerships,
contend that they have the absolute right (which right Hotel Investors
disputes) to (i) request that the limited partners remove Western Host as a
general partner of Western Host Pasadena Partners and Western Host San
Francisco Partners; and (ii) terminate the Management Contracts on behalf of
the Partnerships. Western Host, Trust and Corp. contend that Young, Rothman
and the Partnerships cannot take such action without incurring liability to
Western Host. Young, Rothman and the Partnerships will terminate the
Management Contracts and Western Host will forbear from disputing such action
and will withdraw as a general partner of Western Host Pasadena Partners and
Western Host San Francisco Partners pursuant to that certain Termination of
Management Contracts Agreement of even date herewith (the "Termination of
Management Contracts Agreement") by and among the Partnerships, Western Host,
Hotel Investors, Young and Rothman, attached hereto as Exhibit "A."
E. Hotel Investors contends that the filing and defense of the
Shareholder Suits and cancellation of the Management Contracts and other
actions taken by Young and Rothman have, respectively, caused Hotel Investors
to incur significant expense and will substantially reduce the value of Western
Host to Hotel Investors. Young and Rothman deny such contentions.
- 2 -
<PAGE> 4
F. In a desire to end all disputes among them, the parties hereto
have negotiated a resolution of all disputes existing between them with respect
to the Shareholder Suits and termination of the Management Contracts and
intend, by the terms of this Agreement, to memorialize the resolution of all
such disputes. In consideration of the settlement of the issues surrounding
the Shareholder Suits and termination of the Management Contracts and all other
disputes among the parties hereto by entering into this Agreement, among other
things, Young and Rothman shall return a portion of the purchase price paid to
them for the outstanding stock of Western Host in an amount equal to $1,150,000
by the delivery of an irrevocable letter of credit with a term of one year (the
"LC"), in the form attached hereto as Exhibit "B", to Hotel Investors in the
sum of Eight Hundred Thousand U.S. Dollars ($800,000) in addition to delivering
an additional Three Hundred Fifty Thousand U.S. Dollars ($350,000) into escrow
pursuant to a separate Stipulation of Settlement Agreement relating to the
Shareholder Suits and involving all parties thereto as well as an Agreement by
and among Reliance Insurance Company and the defendants in the Shareholder
Suits (the "Global Settlement Agreement" relating to the "Global Settlement")
(such amounts together constituting the "Return of Purchase Price").
Concurrently with the disbursement of the Return of Purchase Price to or for
the benefit of Hotel Investors, Hotel Investors, Western Host, Young and
Rothman, respectively, shall (subject to certain conditions) release one
another from all losses, liabilities, claims, demands and actions in connection
with the Shareholder Suits and termination of the Management Contracts, all as
set forth herein and in the Global Settlement Agreement.
A G R E E M E N T
NOW, THEREFORE, in consideration of the promises and mutual covenants
set forth below, the parties agree as follows:
1. Delivery of Return of Purchase Price by Young and Rothman. Upon
the execution of this Agreement and in satisfaction of any damages Hotel
Investors or Western Host may have incurred or may incur in the future from the
Shareholder Suits and termination of the Management Contracts, Young and
Rothman shall concurrently with the execution of the Agreement deliver the
Return of Purchase Price to Hotel Investors by delivery of the LC in the amount
of $800,000 to Hotel Investors and shall deliver $350,000 in accordance with
the Global Settlement Agreement.
1.1 Conclusion of Global Settlement/Disbursement of
Proceeds of LC. Upon conclusion of the Global Settlement (which shall mean the
entry by the Court(s) of final order(s) confirming the Global Settlement
Agreement in all respects), the proceeds of the LC shall be paid to Hotel
Investors and disbursal of the $350,000 deposited by Young and Rothman
- 3 -
<PAGE> 5
pursuant to the Global Settlement Agreement shall be governed by the terms
thereof. Any party hereto may terminate this Agreement if the Global
Settlement is not so concluded and such party elects to terminate the Global
Settlement pursuant to Section 9 of the Global Settlement Agreement. If the
transactions contemplated by this Agreement should be terminated by any party
hereto pursuant to the immediately preceding sentence, the Return of Purchase
Price shall be returned to Young and Rothman and at such time (a) the LC
evidencing a portion of Return of Purchase Price shall be canceled by Young and
Rothman; and (b) Hotel Investors and Western Host shall retain all rights
described in Section 2.1 hereof.
2. Release. Effective upon conclusion of the Global Settlement and
when the Return of Purchase Price has been released to or for the benefit of
Hotel Investors, Western Host and Hotel Investors shall hereby and without
further action release Young, Rothman and the Partnerships and their respective
officers, directors, partners, trustees and affiliates from all losses,
liabilities, claims, demands and actions which they ever had, now have, may
have or claim to have against the released parties arising, directly or
indirectly, out of or in any way connected with the Termination of Management
Contracts Agreement (other than the obligations undertaken thereby).
The parties declare that they have read and understand the
following statutory language of Section 1542 of the California Civil Code:
A general release does not extend to claims which the creditor
does not know or suspect to exist in his favor at the time of
executing the release, which if known by him must have
materially affected his settlement with the debtor.
Having been so apprised, Western Host and Hotel Investors nevertheless hereby
elect to and do assume all risk for claims, known or unknown, heretofore or
hereafter arising from the subject of the foregoing release; and
notwithstanding the provisions of Section 1542 of the California Civil Code,
hereby knowingly and voluntarily expressly release Young, Rothman and the
Partnerships from all liability for claims arising out of such matter.
2.1 Extent of Release; Continuing Nature of
Indemnification. Pursuant to the Global Settlement Agreement, Rothman and
Young are receiving releases from Hotel Investors with respect to all claims
related to the Shareholders' Suits, and Hotel Investors is also receiving
releases from Rothman and Young with respect to all claims related to the
Shareholders' Suits. Notwithstanding anything to the contrary in this
Agreement or the Global Settlement Agreement, the parties hereby acknowledge
that as between them:
- 4 -
<PAGE> 6
(a) The claims released by Hotel Investors as
against Rothman and Young pursuant to Paragraph 7 of the Global Settlement
Agreement are (1) those claims which would be barred by virtue of the
settlement of the Shareholder Suits if asserted by any member of any class
certified by the court in those Suits and (2) all rights to indemnity or
contribution as to any claim which was or could have been asserted in the
Shareholder Suits by the members of the class who did not opt out of the
settlement and therefore would be barred.
(b) The claims released by Rothman and Young as
against Hotel Investors pursuant to Paragraph 7 of the Global Settlement
Agreement are (1) those claims which would be barred by virtue of the
settlement of the Shareholder Suits if asserted by any member of any class
certified by the court in those Suits and (2) all rights to indemnity or
contribution as to any claim which was or could have been asserted in the
Shareholder Suits by the members of the class who did not opt out of the
settlement.
(c) The terms of all of (1) the existing
Indemnification Agreement dated as of February 3, 1992 between Corp. and Young;
(2) the existing Indemnification Agreement dated as of February 3, 1992 between
Trust and Young; and (3) that certain Memorandum of Understanding dated March
20, 1990 between Rothman and Trust shall continue in full force and effect,
except to the extent modified by paragraph 7 of the Global Settlement Agreement
as set forth above, and subject to Rothman and Young meeting their
indemnification obligation pursuant to Section 8 of the Termination of
Management Contracts Agreement. It is hereby expressly agreed that Rothman and
Young have not released their rights, if any, to indemnity or contribution as
to any claims asserted by any person who opts out of the settlement of the
Shareholder Suits, nor has Hotel Investors released its rights, if any, to
assert claims against Rothman and Young with respect to or as a result of any
claims so asserted.
2.2 No Settlement. If the Global Settlement is not
concluded and this Agreement is terminated pursuant to Paragraph 1.1, the
release effected by Section 2 hereof shall be of no force or effect and Hotel
Investors and Western Host shall have any and all rights to institute any claim
they would otherwise have had against Young, Rothman and the Partnerships prior
to the execution of this Agreement and the Termination of Management Contracts
Agreement and the transactions contemplated hereby and thereby. Young, Rothman
and the Partnerships would in such event retain the right to contest any such
assertion. In such event, any applicable statute of limitations shall be
tolled for the period from the date hereof to the date of termination of this
Agreement.
3. Covenants and Representations of Young and Rothman. As a
material inducement to Western Host to enter into and
- 5 -
<PAGE> 7
perform its obligations under this Agreement, Young and Rothman hereby covenant
and agree as follows:
3.1 Other Documents. Concurrently with the execution
hereof, Young and Rothman shall execute the Termination of Management Contracts
Agreement.
3.2 Authority; No Breach. Each of the Partnerships, Young
and Rothman has full power, capacity and authority to enter into and perform
their respective obligations under this Agreement; and no action is required by
law, by each Partnership's respective Certificate of Limited Partnership or
otherwise, to authorize or permit the partnerships to undertake any of the
Partnerships' Actions (as defined below) except for the approval by the general
or limited partners of the respective Partnerships, which approvals (to the
extent required by law) shall be obtained in connection with the execution and
performance of this Agreement. None of the Partnerships' Actions are
prohibited by, have violated or will violate any law in effect on the date of
this Agreement. None of the Partnerships' Actions will conflict with, result
in any breach of any of the provisions of, constitute a default under any
material agreement, instrument or obligation by which any of them are bound or
result in the creation of any lien, security interest, charge or encumbrance
upon the Return of Purchase Price being transferred hereunder. For purposes of
this Agreement the term "Partnerships' Actions" designates and includes (i) the
execution and delivery of this Agreement and all other agreements contemplated
by this Agreement by Young, Rothman and the Partnerships and (ii) the
performance by Young, Rothman and the Partnerships of all other transactions
contemplated by this Agreement. This Agreement and all of the other agreements
contemplated hereby constitute the valid and binding obligation of each of
Young, Rothman and the Partnerships.
4. Covenants and Representations of Western Host, Corp. and Trust.
As a material inducement to Young and Rothman to enter into and perform their
obligations under this Agreement, Western Host and Hotel Investors hereby
covenant and agree as follows:
4.1 Other Documents. Concurrently with the execution of
this Agreement, Western Host and Hotel Investors shall immediately execute the
Termination of Management Contracts Agreement.
4.2 Reporting Position. Western Host and Hotel Investors
shall reflect payment by Young and Rothman of the $1,150,000 Return of Purchase
Price as such in all relevant state and federal income tax returns.
4.3 Authority; No Breach. Each of Western Host, Corp. and
the Trust has full power, capacity and authority to
- 6 -
<PAGE> 8
enter into and perform their respective obligations under this Agreement; and
no action is required by law, by each such party's organizational documents or
otherwise, to authorize or permit those entities to undertake any of the
actions contemplated hereby. None of such actions are prohibited by, have
violated or will violate any law in effect on the date of this Agreement. None
of Corp.'s, Western Host's or the Trust's actions or obligations will conflict
with, result in any breach of any of the provisions of, constitute a default
under, any material agreement, instrument or obligation by which any of them
are bound, or result in the creation of any lien, security interest, charge or
encumbrance upon the Return of Purchase Price being transferred hereunder.
This Agreement, and all of the other agreements contemplated hereby, constitute
the valid and binding obligation of each of Corp., Trust and Western Host.
5. Miscellaneous. This document is also governed by the following:
5.1 Captions. The caption headings for the sections of
this Agreement are for convenience only and shall not be considered to
interpret, limit, expand or define the content of the sections.
5.2 Governing Law. The interpretation and enforcement of
provisions shall be governed by the laws of the State of California.
5.3 Counterparts. This document may be executed in
counterparts, each of which shall be deemed an original and all of which, when
taken together, shall constitute one and the same document.
5.4 Authorization. The signatories below are authorized to
execute this document.
5.5 Binding Provisions. The provisions shall be binding
upon the successors, assigns, heirs and executors of the respective parties and
shall inure to the benefit thereof.
5.6 No Waiver. Any party's failure to enforce any
provision shall not constitute a waiver of the right to enforce such provision.
The provisions may be waived only in a writing by the party intended to be
benefitted by the provisions, and a waiver by a party of a breach hereunder by
the other party shall not be construed as a waiver of any succeeding breach of
the same or other provisions.
5.7 Modification. The provisions may be modified only in
writing signed by the parties.
- 7 -
<PAGE> 9
5.8 Construction. No rule of strict construction shall be
applied against any party.
5.9 Attorneys' Fees. Young and Rothman shall be
responsible for their own attorneys' fees attributable to this Agreement and
the transactions contemplated by this Agreement and the Termination of
Management Contracts Agreement (but not the Global Settlement Agreement, which
shall govern the payment of costs and expenses incurred in connection
therewith). The prevailing party in any action respecting the provisions of
this Agreement shall be entitled to recover reasonable attorneys' fees and the
costs incurred in connection with such action, whether or not such action
proceeds to final judgment.
5.10 Time of Essence. Time is expressly made of the essence
with respect to the performance of each and every obligation hereunder.
5.11 Cooperation. The parties shall cooperate together and
take such additional actions as reasonably necessary to accomplish the
objectives set forth herein.
5.12 Exhibits. All Exhibits attached hereto are
incorporated herein by reference.
5.13 Knowledge. The parties have read this document and
have executed it voluntarily after having been apprised of all relevant
information and risks and having had the opportunity to obtain legal counsel of
their choice.
5.14 Recitals. The parties certify to each other that the
recitals set forth herein are true and correct to the best of their knowledge.
5.15 Supremacy. In the event of any conflict between the
terms of this document and those of any document referred to herein, this
document shall govern.
5.16 Joint and Several Obligations. In the event that any
party consists of more than one person or entity, all of the obligations
contained herein shall be joint and several obligations of each such person or
entity.
5.17 Consents. Any consent or approval required from any
party shall not be unreasonably withheld, conditioned or delayed.
5.18 Gender; Plurality. Whenever required, all references
to the male gender shall include the female and neuter genders, all references
to the singular shall include the plural and vice versa.
- 8 -
<PAGE> 10
5.19 No Relationship. Nothing in this document shall be
construed to create any partnership, joint venture or fiduciary relationship
between the parties which does not already exist.
5.20 Entire Agreement. This document, together with the
documents referred to herein, sets forth the only entire agreement between the
parties respecting the subject matter set
- 9 -
<PAGE> 11
forth herein; and all prior agreements, whether oral or written, shall be
deemed terminated and of no further force and effect.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective as of the date first above written.
"ROTHMAN"
/s/ JOHN F. ROTHMAN
------------------------------------
John F. Rothman
"YOUNG"
/s/ RONALD A. YOUNG
------------------------------------
Ronald A. Young
"CORP."
HOTEL INVESTORS CORPORATION, a
Maryland corporation
By: /s/ KEVIN E. MALLORY
-------------------------------
Its: Executive Vice-President
-------------------------------
"TRUST"
HOTEL INVESTORS TRUST, a Maryland
business trust
By: /s/ JEFFREY C. LAPIN
-------------------------------
Its: President
-------------------------------
"WESTERN HOST"
WESTERN HOST, INC., a California
corporation
By: /s/ KEVIN E. MALLORY
-------------------------------
Its: President
-------------------------------
- 10 -
<PAGE> 12
EXHIBIT "A"
TERMINATION OF MANAGEMENT CONTRACTS AGREEMENT
THIS TERMINATION OF MANAGEMENT CONTRACTS AGREEMENT (the "Agreement")
is entered into as of this ___ day of ___________, 1994, by and among WESTERN
HOST, INC., a California corporation ("Western Host"); JOHN F. ROTHMAN
("Rothman"); RONALD A. YOUNG ("Young"); WESTLAND HOTEL CORP., a California
corporation ("Westland"); WESTERN HOST FRESNO PARTNERS, a California limited
partnership ("Western Host Fresno"); WESTERN HOST STOCKTON PARTNERS, a
California limited partnership ("Western Host Stockton"); WESTERN HOST
BAKERSFIELD PARTNERS, a California limited partnership ("Western Host
Bakersfield"); WESTERN HOST PROPERTIES, a California limited partnership
("Western Host Modesto"); WESTERN HOST MONTEREY PARTNERS, a California limited
partnership ("Western Host Monterey") WESTERN HOST PASADENA PARTNERS, a
California limited partnership ("Western Host Pasadena"); WESTERN HOST SAN
FRANCISCO PARTNERS, a California limited partnership ("Western Host San
Francisco"); (the seven foregoing partnerships to be referred to collectively
as the "Partnerships"); HOTEL INVESTORS CORPORATION, a Maryland corporation
("Corp.") and HOTEL INVESTORS TRUST, a Maryland business trust ("Trust").
(Corp. and Trust are collectively hereinafter referred to as "Hotel
Investors.")
R E C I T A L S
A. 1. Western Host and Western Host Fresno are parties to
that certain management contract dated as of December 17, 1975 (the "Fresno
Management Contract"); whereby, in exchange for specified management and
incentive fees, Western Host has the sole and exclusive right to supervise,
manage and direct all operations of the Ramada Inn located at 324 Shaw Avenue,
Fresno, California.
2. Western Host and Western Host Stockton are parties to
that certain letter agreement dated July 24, 1985 (the "Stockton Management
Letter"); whereby, in exchange for specified management and incentive fees,
Western Host has the sole and exclusive right to supervise, manage and direct
all operations of the Best Western Stockton Inn located at 4219 Waterloo Road,
Stockton, California.
3. Western Host and Western Host Bakersfield are parties
to that certain management contract dated as of November 15, 1976 (the
"Bakersfield Management Contract"); whereby, in exchange for specified
management and incentive fees, Western Host has the sole and exclusive right to
supervise, manage and direct all operations of the Hilton Inn located at 3635
Rosedale Avenue, Bakersfield, California.
-1-
<PAGE> 13
4. Western Host and Western Host Modesto are parties to
that certain management contract dated as of September 19, 1977 (the "Modesto
Management Contract"); whereby, in exchange for specific management and
incentive fees, Western Host has the sole and exclusive right to supervise,
manage and direct all operations of the Western Host Motor Hotel (the "Western
Host Modesto Hotel"), formerly the Pine Cone Motor Lodge, located at 1312
McHenry Avenue, Modesto, California.
5. Western Host and Western Host Monterey are parties to
that certain management contract dated as of April 30, 1978 (the "Monterey
Management Contract"); whereby, in exchange for specified management and
incentive fees, Western Host has the sole and exclusive right to supervise,
manage and direct all operations of the Casas Munras Garden Hotel located at
700 Munras Avenue, Monterey, California.
6. The Certificate of Limited Partnership dated as of July
22, 1977 (the "Pasadena Partnership and Management Contract"), between Rothman,
Young and Western Host, as general partners of Western Host Pasadena, and the
limited partners thereof; provides that in exchange for specified management
and incentive fees, Western Host has the sole and exclusive right to supervise,
manage and direct all operations of the Saga Motor Hotel located at 1633 East
Colorado Boulevard, Pasadena California.
7. The Certificate of Limited Partnership dated as of May
5, 1975 (the "San Francisco Partnership and Management Contract"), between
Rothman, Young and Western Host, as general partners of Western Host San
Francisco, and the limited partners thereof; provides that in exchange for
specified management and incentive fees, Western Host has the sole and
exclusive right to supervise, manage and direct all operations of the Days Inn
located at 835 Geary Street, San Francisco, California.
B. Young, Rothman and the Partnerships desire to terminate the
management arrangements contained in the foregoing documents. More
particularly, Western Host Fresno, Western Host Bakersfield, Western Host
Monterey and Western Host Modesto desire to exercise their respective rights
(which rights are contested by Western Host), as owner of each such
partnership, to terminate the Fresno Management Contract, Bakersfield
Management Contract, Monterey Management Contract and Modesto Management
Contract (collectively the "Management Contracts") by providing sixty (60)
days' prior written notice of such termination to Western Host in accordance
with the Management Contracts. Western Host Stockton desires to exercise its
rights (which rights are contested by Western Host), as owner, to terminate the
services provided by Western Host under the Stockton Management Letter by
providing five (5) days' prior written notice of such termination to Western
Host in accordance with the Stockton Management Letter. Young, Rothman and the
Partnerships have sought removal of Western Host as a general
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<PAGE> 14
partner of Western Host Pasadena and Western Host San Francisco. Pursuant to
such request, Western Host will withdraw as the general partner of each such
entity effective as of the date hereof.
C. Young, Rothman, Westland and Western Host have entered into
certain agreements whereby Western Host has subcontracted its rights to provide
management services for the respective properties under the Management
Contracts, the Stockton Letter Agreement, the Pasadena Partnership and
Management Contract and the San Francisco Management and Partnership Contract
to Westland (the "Interim Management Contracts"). The Interim Management
Contracts will be canceled concurrently with the execution of this Agreement.
D. Young, Rothman, Corp., Trust and Western Host are parties to a
Settlement and Release Agreement of even date herewith (the "Settlement
Agreement") which contemplates the execution of this Agreement.
A G R E E M E N T
NOW THEREFORE, in consideration of the foregoing facts and for
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties agree as follows:
1. Termination of Management. Effective upon the execution
hereof, the management arrangements provided pursuant to the Management
Contracts, the Stockton Management Letter, the Western Host Pasadena and
Western Host San Francisco Partnership Agreements and the Interim Management
Contracts are terminated by Young, Rothman and Westland. Western Host hereby
withdraws as a general partner of Western Host Pasadena and Western Host San
Francisco.
1.1 Forbearance. Western Host and Hotel Investors shall
forbear from taking any action or asserting any claim against the Partnerships,
Young, Rothman and Westland (including claims for breach of applicable notice
provisions in the Interim Management Contracts, Management Contracts or the
Stockton Management Letter) only to the extent set forth in the Settlement
Agreement, and subject to the provisions of Section 2.2 thereof.
2. Termination of Management Arrangements. If the Global
Settlement is concluded, no management, incentive or supervisory fees arising
from the respective Management Contracts, the Stockton Management Letter, the
Pasadena Partnership and Management Contract and the San Francisco Partnership
and Management Contract (the "Management Fees") arising after the date hereof
shall any longer be due and payable to Western Host. Furthermore, if the
Global Settlement is concluded, Western Host hereby waives any right, title,
interest and claim to the extent any Management Fees are attributable to its
services provided after the date hereof. Westland shall, upon execution hereof
and satisfaction of the
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<PAGE> 15
conditions contained in Section 7 hereof, pay to Western Host $120,000 in full
satisfaction of any Management Fees (including, without limitation, "base
management fees," "incentive management fees" or any other management fees)
arising prior to the date hereof.
3. Representations and Warranties of Young, Rothman, Westland and
the Partnerships. As a material inducement to Hotel Investors and Western Host
to enter into and perform their obligations under this Agreement, Young,
Rothman and the Partnerships, jointly and severally, hereby represent and
warrant to Western Host and Hotel Investors as follows:
3.1 Organization and Corporate Power. Each of the
Partnerships is a California limited partnership duly organized, validly
existing and in good standing under the laws of the State of California and, by
its respective general partners, has all requisite power and authority
necessary to own and operate its properties and equipment and to carry on its
business.
3.2 Authorization. The execution, delivery and
performance of this Agreement and all other agreements contemplated hereby have
been duly authorized by all appropriate action of Young, Rothman, Westland and
the Partnerships. This Agreement constitutes the valid and binding obligation
of each of Young, Rothman, Westland and the Partnerships.
3.3 Litigation. Other than the Shareholder Suits, there
are no claims, actions, suits, investigations or proceedings pending or
threatened by, against, involving, relating to or materially affecting Young,
Rothman, Westland or the Partnerships or which would prevent or hinder the
consummation of the transactions contemplated hereby.
3.4 Governmental and Third-Party Consents. No permit,
consent, approval or authorization of, declaration to or filing with any
governmental or regulatory authority or of any third person is required in
connection with the execution, delivery and performance of this Agreement by
Young, Rothman, Westland and the Partnerships or Young's, Rothman's, Westland's
and the Partnership's consummation of any other transaction contemplated
hereby.
3.5 Disclosure. Neither this Agreement nor any of the
attachments hereto, each of which is incorporated herein by this reference,
contains any untrue statement of a material fact or omits a material fact
necessary to make the statements contained herein or therein not misleading.
Young, Rothman, Westland and the Partnerships know of no fact not disclosed to
Western Host in writing or which any of the officers or managerial employees of
the Partnership is aware and which affects adversely or could reasonably be
anticipated to affect adversely this Agreement.
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<PAGE> 16
3.6 Effective Date. All of the representations and
warranties contained in this Section 3 and elsewhere in this Agreement and all
information contained in any attachment hereto or in any writing delivered by
or on behalf of Young, Rothman, Westland and the Partnerships are true and
correct in all respects on the date of this Agreement.
3.7 Obligations to Western Host. Other than as specified
herein, Young, Rothman, Westland and the Partnership do not have knowledge of
any unpaid debts or obligations of the Partnerships owing to Western Host or
Hotel Investors.
4. Western Host's Representations and Warranties. As a material
inducement to Young, Rothman and the Partnerships to enter into and perform
their respective obligations under this Agreement, Western Host hereby
represents and warrants as follows:
4.1 Organization and Corporate Power. Each of Corp., the
Trust and Western Host is duly organized, validly existing and in good standing
under the laws of its state of organization.
4.2 Authorization. The execution, delivery and
performance of this Agreement and all other agreements contemplated hereby have
been duly authorized by appropriate action of Corp., Trust and Western Host.
This Agreement constitutes the valid and binding obligation of each of Western
Host, Corp. and Trust.
5. Covenants of the Partnerships and Young. As a material
inducement to Western Host to enter into and perform its obligations under this
Agreement, Young, Rothman and the Partnerships hereby covenant and agree as
follows:
5.1 Advances and Payables. Corp. has directly or
indirectly, through Western Host, advanced certain funds to the Partnerships
(the "Partnerships' Advances"). In addition, the Partnerships are responsible
for a portion of certain Western Host accounts payable (the "Partnerships'
Payables"). On the date hereof, Westland and the Partnerships will deliver a
check to Corp. in the amount of $67,029.16 in full satisfaction of the
Partnerships' Advances and Partnerships' Payables. The Partnerships shall
continue to bear the burden of or benefit from future retrospective adjustments
in Western Host's and Hotel Investors' workers' compensation expense to the
extent of 20.15%, 21.55% and 20.77%, for 1989, 1990 and 1991, respectively.
Any amount owing under the preceding sentence will be paid to the other party
within 30 days after notice of any such adjustment is received. On the date
hereof, Westland and the Partnership will deliver a check to Corp. in an amount
equal to $28,962.00 in full satisfaction of all retroactive workers'
compensation adjustment attributable to the Partnerships and Westland made to
date.
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<PAGE> 17
5.2 Release of Western Host From Certain Obligations.
Young, Rothman, Westland and the Partnerships covenant to use their best
efforts to obtain a release of any obligations Western Host has incurred in
connection with its status as general partner of Western Host Pasadena and/or
Western Host San Francisco with any third party, including, but not limited to,
any agreement with a ground lessor, franchisor or lender.
5.3 Consents. Young, Rothman, Westland and the
Partnerships covenant to obtain any consent required by the Partnerships'
respective limited or general partners, pursuant to their respective
Certificates of Limited Partnership, and governmental or regulatory authority
or any third person; provided, however, that should Young, Rothman, Westland
and the Partnerships fail to obtain any such consent, then, in accordance with
Section 8 hereof, Young, Rothman, Westland and the Partnerships shall indemnify
Hotel Investors and Western Host for any liability (including reasonable
attorneys' fees arising out of the failure to obtain any such consent.
6. Non-Exclusive License. Pursuant to a Non-Exclusive License
Agreement (the "License Agreement") dated the date hereof, in the form of
Exhibit "B" hereto, Western Host shall grant Young, Rothman, the Partnerships,
Westland and any other corporation owned by Young or the Partnerships which is
authorized to manage the hotels owned by the Partnerships, a non-exclusive
license to use the name "Western Host" in association with the names of the
Partnerships and the Western Host Modesto Hotel.
7. Conditions to Obligations. Each party's obligation to perform
hereunder is conditioned upon the performance or written waiver by such party
of each other party's obligations hereunder.
8. Indemnification by Young, Rothman and the Partnerships.
Effective upon the execution of this Agreement, Young, Rothman, Westland and
the Partnerships jointly and severally indemnify Western Host, Corp., Trust,
their affiliates and their respective directors, trustees, officers, employees,
agents, representatives and attorneys (collectively, the "Indemnified Parties")
and hold the Indemnified Parties harmless against any loss, liability, damage
or expenses, including reasonable legal expenses and costs which each of the
foregoing may suffer, sustain or become subject to as a result of (a) the
breach of any representation, warranty, covenant or agreement of Young,
Rothman, Westland, the Partnerships or any of them contained in this Agreement
or in any separate certificate, instrument or agreement furnished or to be
furnished pursuant to this Agreement or by reason or on account of the transfer
of the Return of Purchase Price by Young and Rothman pursuant to the Settlement
Agreement; (b) any claim of any third party, including, but not limited to, any
employee, vendor, mortgagee, ground lessor, lender, franchisor or any other
third party, from
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<PAGE> 18
any liability in connection with this Agreement and the transactions
contemplated hereby and the operation, management or ownership of the
Partnerships arising after January 1, 1993 or with respect to Western Host
Pasadena and Western Host San Francisco, in its capacity as general partner of
each such partnership, for any such claim arising prior to or after the date
hereof; (c) any and all claims by any of the limited partners in the respective
Partnerships relating to the performance of Western Host's duties, this
Agreement, the receipt of fees or otherwise relating to any of the hotels owned
by Hotel Investors, including, with respect to Western Host San Francisco and
Western Host Pasadena, the services and duties of Western Host as a general
partner of such partnerships; and (d) any claim from any employee of the
Partnerships, including, but not limited to, those employees of the
Partnerships that were previously classified as employees of Corp., with
respect to certain accrued employee benefits, including, but not limited to,
vacation, holiday, severance or termination pay; sick leave; retirement
benefits; Social Security benefits; Workers' Compensation benefits; disability,
unemployment, health or accident insurance benefits; bonus plans; deferred
compensation plans; incentive plans; retirement plans, if any of the foregoing
exist. Notwithstanding this Agreement, any indemnification of Western Host
contained in the Management Contracts, Stockton Management Letter, Pasadena
Partnership and Management Contract and San Francisco Partnership and
Management Contract shall continue in full force and effect, subject to the
terms of such agreements.
9. Miscellaneous. This document is also governed by the
following:
9.1 Captions. The caption headings for the sections of
this Agreement are for convenience only and shall not be considered to
interpret, limit, expand or define the content of the sections.
9.2 Governing Law. The interpretation and enforcement of
provisions shall be governed by the laws of the State of California.
9.3 Counterparts. This document may be executed in
counterparts, each of which shall be deemed an original and all of which, when
taken together, shall constitute one and the same document.
9.4 Authorization. The signatories below are authorized
to execute this document.
9.5 Binding Provisions. The provisions shall be binding
upon the successors, assigns, heirs and executors of the respective parties.
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<PAGE> 19
9.6 No Waiver. Any party's failure to enforce any
provision shall not constitute a waiver of the right to enforce such provision.
The provisions may be waived only in a writing by the party intended to be
benefitted by the provisions, and a waiver by a party of a breach hereunder by
the other party shall not be construed as a waiver of any succeeding breach of
the same or other provisions.
9.7 Modifications. The provisions may be modified only
in a writing signed by the parties.
9.8 Severability. If any portion of a provision is held
to be unenforceable, any enforceable portion thereof and the remaining
provisions shall continue in full force and effect.
9.9 Construction. No rule of strict construction shall
be applied against any party.
9.10 Attorneys' Fees. Each of the parties hereto shall be
responsible for their own attorneys' fees attributable to this Agreement and
the transactions contemplated hereby. The prevailing party in any action
respecting the provisions hereof shall be entitled to an award of reasonable
attorneys' fees and the costs incurred in connection with such action, whether
or not such action proceeds to final judgment.
9.11 Time of Essence. Time is expressly made of the
essence with respect to the performance of each and every obligation hereunder.
9.12 Cooperation. The parties shall cooperate together
and take such additional actions as reasonably necessary to accomplish the
objectives set forth herein.
9.13 Exhibits. All Exhibits attached hereto are
incorporated herein by reference.
9.14 Knowledge. The parties have read this document and
have executed it voluntarily after having been apprised of all relevant
information and risks and having had the opportunity to obtain legal counsel of
their choice.
9.15 Recitals. The parties certify to each other that the
recitals set forth herein are true and correct to the best of their knowledge.
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<PAGE> 20
9.17 Joint and Several Obligations. In the event that any
party consists of more than one person or entity, all of the obligations
contained herein shall be joint and several obligations of each such person or
entity.
9.18 Consents. Any consent or approval required from any
party shall not be unreasonably withheld, conditioned or delayed.
9.19 Gender; Plurality. Whenever required, all references
to the male gender shall include the female and neuter genders, all references
to the singular shall include the plural, and vice versa.
9.20 Representations and Warranties. All obligations,
representations and warranties herein shall survive the close of the
transactions contemplated hereby.
9.21 No Relationship. Nothing in this document shall be
construed to create any partnership, joint venture or fiduciary relationship
between the parties which does not already exist.
9.22 Confidentiality. The parties shall keep the terms of
this document and the transactions comtemplated thereby strictly confidential
and shall disclose the information only to those individuals and entities
necessary to accomplish the transactions comtemplated herein or as otherwise
required by law.
9.23 Indemnification. Any indemnification under this
document shall survive the termination of this document for any reason with
respect to any matters arising prior to the termination of this document.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
"Corp."
HOTEL INVESTORS CORPORATION,
a California corporation
By _________________________________
Its ________________________________
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<PAGE> 21
"Trust"
HOTEL INVESTORS TRUST,
a Maryland Business Trust
By _________________________________
Its ________________________________
"Western Host"
WESTERN HOST, INC.,
a California corporation
By _________________________________
Its ________________________________
"Rothman"
____________________________________
John F. Rothman
"Young"
____________________________________
Ronald A. Young
(Signatures continue onto next page)
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<PAGE> 22
"Westland"
WESTLAND HOTEL CORP.,
a California corporation
By _________________________________
Ronald A. Young,
President
"Western Host Fresno"
WESTERN HOST FRESNO PARTNERS,
a California limited partnership
By _________________________________
General Partner
By _________________________________
General Partner
"Western Host Stockton"
WESTERN HOST STOCKTON PARTNERS,
a California limited partnership
By _________________________________
General Partner
By _________________________________
General Partner
(Signatures continue onto next page)
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<PAGE> 23
"Western Host Bakersfield"
WESTERN HOST BAKERSFIELD PARTNERS,
a California limited partnership
By _________________________________
General Partner
By _________________________________
General Partner
"Western Host Modesto"
WESTERN HOST PROPERTIES,
a California limited partnership
By _________________________________
General Partner
By _________________________________
General Partner
"Western Host Monterey"
WESTERN HOST MONTEREY PARTNERS,
a California limited partnership
By _________________________________
General Partner
By _________________________________
General Partner
(Signatures continue onto next page)
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<PAGE> 24
"Western Host Pasadena"
WESTERN HOST PASADENA PARTNERS,
a California limited partnership
By _________________________________
General Partner
By _________________________________
General Partner
"Western Host San Francisco"
WESTERN HOST SAN FRANCISCO PARTNERS,
a California limited partnership
By _________________________________
General Partner
By _________________________________
General Partner
(Signatures continue onto next page)
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<PAGE> 25
EXHIBIT "B"
LICENSE AGREEMENT
THIS LICENSE AGREEMENT (the "Agreement") is entered into as of this
___ day of ___________, 1994, by and among WESTERN HOST, INC., a California
corporation ("Western Host"); JOHN F. ROTHMAN ("Rothman"); RONALD A. YOUNG
("Young"); WESTLAND HOTEL CORP., a California corporation ("Westland"); WESTERN
HOST FRESNO PARTNERS, a California limited partnership ("Western Host Fresno");
WESTERN HOST STOCKTON PARTNERS, a California limited partnership ("Western Host
Stockton"); WESTERN HOST BAKERSFIELD PARTNERS, a California limited partnership
("Western Host Bakersfield"); WESTERN HOST PROPERTIES, a California limited
partnership ("Western Host Modesto"); WESTERN HOST MONTEREY PARTNERS, a
California limited partnership ("Western Host Monterey") WESTERN HOST PASADENA
PARTNERS, a California limited partnership ("Western Host Pasadena"); and
WESTERN HOST SAN FRANCISCO PARTNERS, a California limited partnership ("Western
Host San Francisco"); (the seven foregoing partnerships to be referred to
collectively as the "Partnerships").
R E C I T A L S
A. Western Host, Rothman, Young, Westland and the Partnerships
are parties to that certain Termination of Management Contracts Agreement dated
as of even date herewith; whereby certain management arrangements between
Western Host and each of the Partnerships were terminated.
B. Western Host is the owner of all right, title and interest in
the name "Western Host" and certain service marks associated therewith (the
name and marks collectively, the "Marks").
A G R E E M E N T
NOW THEREFORE, in consideration of the foregoing facts and for
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties agree as follows:
1. Non-Exclusive License. Western Host hereby grants Young,
Rothman, the Partnerships, Westland and any other entity owned by Young or the
Partnerships which is authorized to manage hotels owned by the Partnerships a
non-exclusive, non-transferable perpetual license to use the Marks under the
common law and under the privileges provided by any registration covering the
Marks presently or subsequently filed with the United States Patent and
Trademark Office but only for use in the names of such Partnerships and the
name of the Western Host Modesto Hotel.
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<PAGE> 26
2. Governing Law. The interpretation and enforcement of
provisions shall be governed by the laws of the State of California and the
United States of America, without application of conflicts of laws principles.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
"Western Host"
WESTERN HOST, INC.,
a California corporation
By _________________________________
Its ________________________________
"Rothman"
____________________________________
John F. Rothman
"Young"
____________________________________
Ronald A. Young
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<PAGE> 27
"Westland"
WESTLAND HOTEL CORP.,
a California corporation
By _________________________________
Ronald A. Young,
President
"Western Host Fresno"
WESTERN HOST FRESNO PARTNERS,
a California limited partnership
By _________________________________
General Partner
By _________________________________
General Partner
"Western Host Stockton"
WESTERN HOST STOCKTON PARTNERS,
a California limited partnership
By _________________________________
General Partner
By _________________________________
General Partner
(Signatures continue onto next page)
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<PAGE> 28
"Western Host Bakersfield"
WESTERN HOST BAKERSFIELD PARTNERS,
a California limited partnership
By _________________________________
General Partner
By _________________________________
General Partner
"Western Host Modesto"
WESTERN HOST PROPERTIES,
a California limited partnership
By _________________________________
General Partner
By _________________________________
General Partner
"Western Host Monterey"
WESTERN HOST MONTEREY PARTNERS,
a California limited partnership
By _________________________________
General Partner
By _________________________________
General Partner
(Signatures continue onto next page)
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<PAGE> 29
"Western Host Pasadena"
WESTERN HOST PASADENA PARTNERS,
a California limited partnership
By _________________________________
General Partner
By _________________________________
General Partner
"Western Host San Francisco"
WESTERN HOST SAN FRANCISCO PARTNERS,
a California limited partnership
By _________________________________
General Partner
By _________________________________
General Partner
(Signatures continue onto next page)
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<PAGE> 1
Exhibit 10.3
<PAGE> 2
A G R E E M E N T
THIS AGREEMENT is made as of this ___ day of March, 1994 (the
"Agreement"), by and among RELIANCE INSURANCE COMPANY ("Reliance"), HOTEL
INVESTORS TRUST and HOTEL INVESTORS CORPORATION (collectively, "Hotel
Investors"), Ronald A. Young, John F. Rothman, Graeme W. Henderson, Sherwin L.
Samuels, Bruce M. Ford, Earle F. Jones and Howard Levenson ("Individual
Defendants" or "Insured Persons", with Hotel Investors collectively referred to
as "Defendants").
WHEREAS, Reliance has issued its Directors and Officers
Liability Policy No. NDA 1363600-01 to Hotel Investors effective from July 15,
1989 to July 29, 1994 (the "Policy"); and
WHEREAS, there are pending in the United States District Court
for the Southern District of California two Class Action Complaints entitled
Joyce Uttan I.R.A., et al v. Hotel Investors Trust, Inc., et al., (United
States District Court, Southern District of California, Case No. 92-277B(M))
and Naomi Horowitz, et al. v. Hotel Investors Trust, Inc., et al., (United
States District Court, Southern District of California, Case No. 91-1161 K
(BTM)) (the "Class Actions"); and
WHEREAS, there is pending in the Superior Court for State of
California for the County of San Diego a derivative lawsuit entitled Richard
Carno, et al. v. Ronald A. Young, et al., bearing Case No. 650235 (the
"Derivative Action"; the Class Actions and Derivative Action will hereafter be
collectively referred to as the "Actions")); and
WHEREAS, the parties to the Actions have reached an agreement
in principle to settle the Actions for the total sum of Three Million Two
Hundred and Fifty Thousand Dollars ($3,250,000), subject to a Stipulation of
Settlement and subject to approval of Court (the "Settlement");
WHEREAS, the Stipulation of Settlement defines the Effective
Date of the settlement and defines Settlement Fund and those definitions are
incorporated herein; and
WHEREAS, Reliance and Defendants have reached an agreement on
the respective responsibilities of the parties hereto with regard to the said
Settlement;
NOW, THEREFORE, in consideration of the mutual promises and
agreements as contained herein, it is hereby agreed as follows:
With regard to the Settlement of the Actions, the
following payments are to be made to the Settlement Fund:
Exhibit 10.3
<PAGE> 3
(a) Reliance agrees to pay toward the Settlement
on behalf of its Insured Persons under the Policy, Two Million Five Hundred
Thousand Dollars ($2,500,000).
(b) Hotel Investors agrees to pay toward the
Settlement Four Hundred Thousand Dollars ($400,000).
(c) Ronald A. Young and John F. Rothman agree to
pay toward the Settlement the sum of Three Hundred Fifty Thousand Dollars
($350,000).
(d) Such payments shall be made in accordance
with the Stipulation of Settlement.
2. With regard to defense costs, including legal fees,
disbursements, expenses and costs (collectively, "Defense Costs") incurred by
Defendants in defending the Actions through October 12, 1993, but not for any
Defense Costs incurred thereafter, Hotel Investors agrees to pay all such
Defense Costs incurred on behalf of Defendants. It is agreed that all such
Defense Costs are within the aggregate retention payable by Hotel Investors
under the Policy.
3. With regard to Defense Costs related to the Actions
incurred by Defendants other than Hotel Investors after October 12, 1993 and
prior to the "Effective Date," as that term is defined in the Stipulation of
Settlement, Reliance will pay such reasonable and necessary Defense Costs. To
the extent there is disagreement about whether such Defense Costs are
reasonable and necessary, such disagreement shall be determined by the
Honorable Lawrence Irving (Ret.). In the event the Settlement is terminated,
cancelled or fails to become effective for any reason, this provision for
funding of Defense Costs is inapplicable to Defense Costs incurred subsequent
to such termination, cancellation or other ineffectiveness.
4. Conditioned and effective upon (i) the occurrence of
the Effective Date and (ii) the making of the payments provided in paragraphs
1, 2 and 3 above, Individual Defendants and Hotel Investors, on its own behalf
and on behalf of its trustees, directors and officers, its present, former and
future parent companies, divisions, subsidiaries, affiliates, associates,
representatives, predecessors, successors, heir, owners, assigns, executors,
administrators and their present, former or future directors, agents, partners,
principals, officers, employees' trustees, insurers, reinsurers and
representatives or any of them, and their attorneys and all persons acting by,
through, under or in concert with them or any of them (collectively the "Hotel
Investors Releasors"), hereby release and discharge Reliance and its present,
former and future parent companies, divisions, subsidiaries, affiliates,
associates, representatives, predecessors, successors, heirs, owners, assigns,
executors, administrators and their present, former or future directors,
agents, partners, principal, officers, employees, trustees, insurers,
reinsurers and representatives or any of them, and their attorneys and all
persons acting by, through, under or in concert with them or any of them
(collectively the "Reliance Releasees"), (a) from any claim for any
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<PAGE> 4
additional or further payment on account of the Settlement of the Actions, as
set forth in paragraph 1 hereof, or those Defense Costs set forth in paragraph
2 hereof; provided, however, that nothing contained herein or in the
Stipulation of Settlement shall relieve Reliance, its reinsurers and/or any
excess insurance carrier from any obligation created by any policy of insurance
issued by Reliance, any reinsurer and/or any excess carrier of Hotel Investors
except as it pertains to any additional or further payment required to settle
the Actions or those Defense Costs set forth in paragraph 2 herein; and
provided further that the Hotel Investors Releasors do not release the Reliance
Releasees from any claim that Hotel Investors may have arising from (1) the
proceedings seeking approval of the Settlement and any appeals therefrom; or
(2) any motion, application, process or other effort to implement or to enforce
the terms and conditions of the Settlement or the orders and judgments entered
thereupon; or (3) any actions, suits or proceedings brought by any member of
the Class certified in the Actions who purported to exercise their rights to
exclude themselves from the said Class and for that reason are not bound by any
orders or judgment entered upon the approval of the Settlement; and (b) from
any claim, cause of action or demand, in law or in equity, of any nature
whatsoever, known or unknown, suspected or unsuspected, fixed or contingent,
against the Reliance Releasees, or any of them, involving the Actions, and
based upon, arising from, in any way connected with, relating to or concerning
claims for, or assertions of, breach of contract, representation, covenant or
warranty, "bad faith" or unfair claims handling practices, breach of implied
covenants of good faith and fair dealing, any violation of Section 790.03(h) of
the California Insurance Code or any provision of the law of any state or
territory of the United States or other jurisdiction, or any principle of
common law, which is similar, comparable or equivalent to such Section
790.03(h), with respect to the Policy.
5. Conditioned and effective upon (i) the occurrence of the
Effective Date and (ii) the making of the payments referred to in paragraphs 1
and 2 above, Reliance and its present, former and future parent companies,
divisions, subsidiaries, affiliates, associates, representatives, predecessors,
successors, heirs, owners, assigns, executors, administrators and their
present, former or future directors, agents, partners, principals, officers,
employees, trustees, insurers, re-insurers and representatives, or any of them,
and their attorneys and all persons acting by, through, under or in concert
with them, or any of them, (collectively, the "Reliance Releasors") hereby
release and discharge the Defendants and Hotel Investors' present, former and
future trustees, directors, officers, parent companies, divisions,
subsidiaries, and affiliates, and each of Defendants' respective associates,
representatives, predecessors, successors, heirs, assigns, executors,
administrators, and present, former and future agents, partners, principals,
officers, employees, trustees, representative and attorneys, or any of them,
and all persons acting by, through, under, or in concert with them, or any of
them, (collectively, the "Hotel Investors Releasees") (a) from any claim for
additional or further payment on account of the Settlement of the Actions or
for those Defense Costs set forth in paragraph 3 hereof; and (b) from any
claim, cause of action or demand, in law or in equity, of any nature
whatsoever, known or unknown, suspected or unsuspected, fixed or contingent
against the Hotel Investors Releasees, or any of them, involving the Actions,
and based upon, arising from, in
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<PAGE> 5
any way connected with, relating to or concerning claims for, or assertions of
breach of contract, representation, covenant or warranty, "bad faith", or
breach of implied covenants of good faith and fair dealing, with respect to the
Policy.
6. Conditioned and effective upon (i) the occurrence of the
Effective Date and (ii) the making of the payments provided in paragraphs 1 and
2 above, Reliance expressly waives any and all right to subrogation with
respect to (1) the amount contributed by it to the Settlement, referred to in
paragraph 1(a) above, and (2) any Defense Costs paid by it in connection with
the Actions, including, without limitation, any and all right to be subrogated
to any claim of any Defendant for contribution or indemnity of any kind.
7. Conditioned and effective upon (i) the occurrence of the
Effective Date and (ii) the making of the payments provided in paragraphs 1, 2
and 3 above, each Defendant (including Hotel Investors on behalf of its
present, former and future trustees, directors, officers, parent companies,
divisions, subsidiaries, and affiliates), for itself and on behalf of his or
its respective past, present and future associates, representatives,
predecessors, successors, heirs, assigns, executors, administrators and
attorneys, and any and all persons acting by, through, under or in concert with
them, or any of them, hereby releases and discharges each other Defendant
(including Hotel Investors' present, former and future trustees, directors,
officers, parent companies, divisions, subsidiaries and affiliates), and his or
its respective past, present and future representative, predecessors,
successors, heirs, assigns, executors, administrators, attorneys, and all
persons acting by, through, under, or in concert with them or any of them, from
any and all losses, claims, demands, debts, causes and causes of action of any
kind or description whatever ("claim") from the beginning of time to the date
of this Agreement, known or unknown, suspected or unsuspected, fixed or
contingent, based upon, arising from, in any way connected with, relating to,
or concerning the Actions, or any of them, or any allegation that was made or
that could have been made in any of the Actions including, without limitation,
any claim for contribution or indemnity.
8. With respect to the releases set forth herein,
Defendants and Reliance acknowledge that they have been informed of and are
familiar with the provisions of California Civil Code Section 1542, which
provides as follows:
"GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR
DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF
EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE
MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR."
Defendants and Reliance, being aware of Section 1542, hereby
expressly waive any rights they may have thereunder, as well as under any other
statutes or common law principles of similar effect.
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<PAGE> 6
9. In the event the Settlement is terminated, cancelled
or fails to become effective for any reason after Hotel Investors, Rothman and
Young, and Reliance have made their respective contributions to the Settlement,
and funds are to be returned to Defendants from the Settlement Fund, said funds
are to be repaid to the parties hereto in proportion to the amounts paid as set
forth in Paragraph 1.
10. The Defendants agree to secure Reliance's consent
prior to their exercise or waiver of any of their rights under the Settlement
of the Actions and Reliance agrees that its consent will not be unreasonably
withheld.
11. Defendants and Reliance agree and acknowledge that
this Agreement is entered into for the sole purpose of resolving contested
claims and disputes as well as avoiding the substantial costs, expenses and
uncertainties associated with such disputes, with the trial of the Actions and
with other potential litigation. It is also expressly agreed and acknowledged
that neither this Agreement, its execution, the performance of any of its terms
nor any of its contents shall constitute or be construed or offered as evidence
in any proceeding as an admission of any liability or of any insurance coverage
or of any fact or any indication that any of the claims, charges or conditions
made in the Actions by any of the parties thereto against each other have any
merit.
12. Defendants and Reliance represent and warrant that
there has been no, and agree that there will be no, assignment or other
transfer of any interest in any claim which they may have against their
respective releasees or any other person or entity which arises out of the
facts giving rise to the Actions or the Policy.
13. Defendants and Reliance agree and acknowledge that
the terms of this Agreement and the negotiations leading hereto are
confidential and may not be disclosed except as may be necessary and
appropriate to their employees, attorneys, accountants, reinsurers, excess
insurers and brokers, or as required by law; provided, however, that any party
served with a subpoena, discovery request or other similar legal instrument
which could lead to disclosure of the terms of this Agreement shall, within
seven days of the receipt thereof, notify the other parties hereto, unless such
notice would not permit sufficient time in which to allow the other parties
hereto to assert any interest in prohibiting such disclosure, in which case the
party being requested to make the disclosure will give notice to the other
parties hereto as soon as possible, but in any event before actual disclosure.
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<PAGE> 7
Notice shall be given to Reliance as follows:
Reliance National (Hotel Investors)
C/O Gilbert D. Jensen
Barton, Klugman & Oetting
333 South Grand Avenue, 37th Floor
Los Angeles, California 90071
Notice shall be given to Defendants as follows:
To Hotel Investors Trust and Hotel Investors Corporation
Michael J. Klowden, Esq.
Morgan, Lewis & Bockius
801 South Grand Avenue, Suite 220
Los Angeles, California 90071
To Ronald A. Young
R. William Bowen, Esq.
Luce, Forward, Hamilton & Scripps
600 West Broadway, Suite 2600
San Diego, California 92101
To John F. Rothman
Dennis Kinnaird, Esq.
Munger, Tolles & Olson
355 South Grand Avenue, 35th Floor
Los Angeles, California 90071
To Sherwin L. Samuels
Edward M. Medvene, Esq.
Patricia H. Benson, Esq.
Mitchell, Silberberg & Knupp
11377 West Olympic Boulevard
Los Angeles, California 90064
To Graeme W. Henderson, Bruce M. Ford, Earle F. Jones and
Howard Levenson
Scott L. Metzger, Esq.
Duckor & Spradling
401 West A Street
San Diego, California 92101
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<PAGE> 8
14. Defendants and Reliance agree and acknowledge that
this Agreement carries no precedential value and should not be relied upon by
any person as evidence of any obligation of any insurer under identical or
similar policies.
15. Hotel Investors hereby declares, warrants and
represents that it has paid, and will continue to pay, for all costs and
expenses, including legal fees and disbursements, incurred in or associated
with the defense of the Actions on behalf of the Individual Defendants named in
the Actions, and that it will indemnify the Individual Defendants named in the
Actions for all such Defense Costs incurred through October 12, 1993. In the
event that any Individual Defendant named in the Actions presents or asserts
any claim, cause of action or demand for costs and expenses, including legal
fees and disbursements, incurred in or associated with the defense of the
Actions, or claim, cause of action or demand for payment against Reliance
arising from, relating to or in any way connected to the Actions or the
Settlement, to the extent such Defense Costs were incurred on or before October
12, 1993, Hotel Investors hereby agrees that it will defend and indemnify
Reliance and hold it harmless from and against any such claims, causes of
action or demands.
RELIANCE INSURANCE COMPANY
By _________________________________
HOTEL INVESTORS TRUST
By _________________________________
HOTEL INVESTORS CORPORATION
By _________________________________
____________________________________
Ronald A. Young
____________________________________
John F. Rothman
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<PAGE> 9
____________________________________
Graeme W. Henderson
____________________________________
Sherwin L. Samuels
____________________________________
Bruce M. Ford
____________________________________
Earle F. Jones
____________________________________
Howard Levenson
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